Dáil Éireann debate -
Tuesday, 16 Dec 2003

Vol. 577 No. 3

Offshore Accounts.

Ms Burton:

I ask the Minister for Finance to make a statement on the reported €6 billion now held in offshore tax havens in the Isle of Man. This follows the recent report by accountants, KPMG, on the matter.

Compliant taxpayers are entitled to ask about the scale of operations of Irish banks in the Isle of Man. It is incumbent on me to ask whether these operations by Irish banks in the Isle of Man have facilitated tax evasion by their customers in Ireland. I am aware that some of the money – I am not sure how much – in the Isle of Man is presumably there legitimately. It is difficult, however, to understand why in the current financial climate and under the rules of the European Union so many Irish banks and deposit holders should choose to channel such large amounts of Irish deposits into holdings in the Isle of Man.

I raised the issue with the Minister for Finance during Question Time in the Dáil last Wednesday. The Minister has been less than forthcoming by simply confirming that high level meetings have taken place between the Revenue Commissioners and a number of financial institutions. Five such institutions appear to have met the Revenue Commissioners and further meetings are to take place, the bulk of them to conclude before the end of the year. It is imperative that the Minister for Finance should state the amount of tax, penalties and interest likely to be involved in the current examinations by the Revenue Commissioners. Is he confident that all the tax due will be recovered, that the banks have supplied all the information the Revenue Commissioners require and that we can assure compliant taxpayers that the negotiations with the Revenue Commissioners will not result in some kind of trade-off between the banks and the Revenue Commissioners?

Recent statements by the chief executive of Anglo Irish Bank called on the banking sector to hold meetings with the Revenue Commissioners. In view of the Revenue Commissioners pursuit, and rightly so, of individual account holders, it is important that the directors and management of the banks should accept their share of the responsibility for guiding Irish deposit holders to the Isle of Man.

The official reason for the Minister for Finance's reticence on the issue is the traditional veil of secrecy in regard to the affairs of individual taxpayers and the Revenue Commissioners. On this basis, as with the investment made by Irish investors in the Onassis yacht, Christina, where up to €25 million of capital allowances will be granted, matters of important public interest are precluded from detailed discussion and examination by the Dáil. While confidentiality between the Revenue Commissioners and individual taxpayers is appropriate, it should not be at the expense of giving compliant taxpayers the information necessary to maintain their confidence in the equity and fairness of the taxation system.

The Minister for Finance confirmed that to date the money collected from the activities of the subsidiary operations of three of the financial institutions is in excess of €125 million. As many Irish banks are involved in offshore business in the Isle of Man, it is important that the Minister should give an indication to the Dáil of the total amount of money likely to be involved. At a time when many taxpayers on modest incomes fall into the 42% income tax bracket, and there have been cutbacks of €55 million in social welfare entitlements, it is incumbent on wealthy individuals and banks to pay their fair share of tax.

Minister of State at the Department of Justice, Equality and Law Reform (Mr. B. Lenihan):

I am replying on behalf of the Minister for Finance, Deputy McCreevy. It is important to point out that these assets reflect loans made by these subsidiaries and may not totally reflect the deposit base of these institutions. If the deposit base is €6 billion, it will reflect intergroup deposits, deposits made by other financial institutions as well as deposits made by residents of other jurisdictions. The assumption that Irish banks deal exclusively in the external assets of Irish taxpayers is erroneous. The primary concern of the Revenue Commissioners is to establish the extent to which the deposit base reflects previously undisclosed income or gains of Irish residents and to recover unpaid taxes together with interest and penalties.

As is the case in all jurisdictions, the use of offshore facilities by taxpayers to hide funds is a particularly difficult challenge for Revenue administration. In this country the issue of offshore accounts has been a matter of considerable concern to the Revenue Commissioners for some time. The Commissioners established a specialist unit, the Offshore Assets Group, in late 2001 to examine and tackle it. Despite the difficulties, the group has had considerable success. To date in 2003, it has through its activities recovered €126 million for the Exchequer.

Recently the chairman of the Revenue Commissioners initiated a series of high level meetings with those financial institutions with offshore subsidiaries. The purpose of these meetings is to discuss issues concerning possible tax evasion by Irish resident taxpayers involving the use of offshore accounts in these subsidiaries and the level of co-operation which can be expected from the institutions in the course of Revenue's further inquiries. The meetings held to date have been useful in this regard.

As the Deputy knows, no Minister for Finance since the foundation of the State has introduced as much legislation to tackle the problem as the current Minister, Deputy McCreevy. He introduced far stiffer powers and penalties to deal with those who engage in tax evasion, whatever form it takes. In recent appearances before the Committee of Public Accounts, the chairman of the Revenue Commissioners pointed out that almost all the developments in this area could be attributed to the 1999 powers introduced by the Minister for Finance, which allow the Revenue Commissioners to examine financial institutions in a way that was not possible previously.

The Finance Act 1999 provided substantial additional powers for Revenue which included the facilitating of greater access to material held by or in financial institutions, allowing access to the account of a named individual by way of an order issued by one of the three Revenue Commissioners where previously High Court approval was required; broadening the existing powers of access to financial accounts of named individuals and in particular providing for access in the case of a group or class of unidentified persons, empowering Revenue to apply to the courts for search warrants to gain evidence of accounts for the purpose of criminal investigations; permitting Revenue to conduct on-site audits of a bank's affairs, not just a PAYE or VAT audit as had been the case up to then; and enabling Revenue to obtain a greater range of information from third parties. The Finance Act 1999 also provided for the closure of certain tax loopholes in regard to offshore trusts and companies and the transfer of assets abroad. Subsequent finance Acts also provided additional powers.

All these provisions have been used to good effect and in recent times brought in substantial revenues in tax, interest and penalties. Apart from the recent investigation into offshore deposits already referred to, they have facilitated successful investigations into so called Ansbacher account holders, the Clerical Medical-National Irish Bank scheme, as well as the look-back audit of the financial institutions and the identification of bogus non-resident account holders. In addition, the Government has provided significant additional resources for Revenue, an additional 400 posts in recent years. It has facilitated a restructuring of the organisation to provide for an even sharper focus on evasion.

The Revenue Commissioners' Statement of Strategy 2003-05 contains a strong emphasis on maximising compliance. Among the key developments aimed at improving tax compliance and tackling tax evasion, apart from the Offshore Assets Group, are the establishment of an investigations and prosecutions division to deal with the prosecution of persons involved in serious tax evasion and a large cases division with a specific focus on large companies and wealthy individuals.

While the ongoing investigations are yielding significant sums of money, a bigger strategic issue for the Revenue Commissioners is the creation of a culture of tax compliance. Citizens and all persons resident here have to realise that tax pays for services. The message is very clear. Anyone who hides taxable income or evades tax will be pursued by the Revenue Commissioners. Unlike others who had the opportunity, but failed to do so, the Government has backed the efforts to tackle evasion with important and effective legislative initiatives and has provided extra resources for those doing this job.