Thank you, Chairman. I thank the committee for the opportunity to make this opening statement. I will start by making a few points on Revenue's interaction with the Ombudsman in general.
It has always been our policy to fully co-operate and support the Ombudsman in his investigation of complaints against Revenue. Indeed a commitment to this effect has been built into our statement of strategy for some time. That commitment relates to taking action on Ombudsman findings and also to ensuring that not only the issues arising, but also the underlying administrative systems and procedures, are addressed and enhanced where this is needed. We have followed through on that commitment over the years, most notably in 2001 when we accepted the Ombudsman's recommendations in full on the scheme of vehicle registration tax relief for passengers with disabilities.
Commenting on the outcome of that case, the Ombudsman stated:
I have been critical of public bodies which apply rules in so rigid a manner that they exclude those for whom the benefit was originally intended. In this context I believe that it is equally important to highlight instances where an enlightened and flexible approach has been taken by a public body, which had led to a satisfactory outcome of a complaint. The following case involving the Office of the Revenue Commissioners is one such case.
To put matters in context, I am pleased to say that the number of complaints to the Ombudsman relating to Revenue have been falling in recent years. It has fallen from a high of 335 cases in 1986 to just 73 cases in 2002. During the ten years from 1993 to 2002 the Ombudsman received 1,250 complaints about Revenue, an average of 125 per year. This represents around 10% of complaints relating to the Civil Service as a whole which is significantly less than might be expected given Revenue's size and role. For example, Revenue staff account for over 20% of the Civil Service. We have far more interaction with the citizens of this country than any other public body and of course the nature of our interactions with the public can be potentially contentious, whether on the tax side or on the Customs and Excise side.
Of the 1,250 complaints relating to Revenue over the past ten years, the Ombudsman accepted Revenue's explanation in the vast majority of cases. Only in 14 of those cases did the Ombudsman call for reviewed procedures or recommend remedial action. Revenue has acted in 13 of those 14 cases to the satisfaction of the Ombudsman.
The first aspect of the issues in the case in question are the tax refunds arising from the O'Carroll judgment. The first aspect of the Ombudsman's report concerns the period during which tax rebates were made following the O'Carroll High Court judgment in 1988 which decided that the children's portion of a Garda widow's pension was the income of the child and not taxable in the hands of the widow. Revenue made tax rebates going back five years in cases affected by that judgment. This was in accordance with Senior Counsel's advice at the time that five years was the maximum time limit allowed under the tax code for the cases concerned. As part of his investigation of complaints by two widows, the Ombudsman received separate legal advice, which was not made available to Revenue, that the correct time limit should be ten rather than five years.
The issue between Revenue and the Ombudsman boiled down to a conflict of legal advice but notwithstanding this impasse in legal opinions, Revenue agreed to implement the Ombudsman's recommendations that additional tax rebates covering a further five year period be made to all cases affected by the O'Carroll judgment.
Revenue are presently making contact with the individuals concerned to ensure as far as possible that they benefit from the Ombudsman's recommendation. Repayments have already been made to the two widows mentioned by the Ombudsman and to three other widows who had made similar representations to him. We are making intensive efforts to identify individuals similarly affected by the O'Carroll judgment through contact with the Paymaster General, local authorities and the National Association of Widows. I am determined that this will be dealt with as early as possible. It is receiving priority attention in Revenue.
We tentatively estimate that there were around 1,500 widows/widowers affected by the O'Carroll judgment and that perhaps two thirds of these, 1,000 individuals, may be in a position to benefit from implementing the Ombudsman's recommendation. On the basis of those dealt with to date, additional repayments in these qualifying cases are estimated to be in the region of €3.8 million. However, I stress that these figures are tentative pending the outcome of our further efforts to trace those involved and the circumstances in each case. This response by Revenue implements recommendations 1 and 2 of the Ombudsman's report.
The Ombudsman recommended that Revenue should pay interest to 12 individuals who received tax rebates without any compensation for loss of purchasing power. These individuals, including the two widows already mentioned and six individuals mentioned in the report, had complained to the Ombudsman that they should have received interest on rebates of tax. The circumstances of the cases involved varied widely, for example, two cases involved a rebate of professional services withholding tax arising from the judgment in the 1995 High Court case of Michael Daly v. the Revenue Commissioners. Another involved artist’s exemption in respect of a school textbook; yet another involved interest paid on a rental property.
Revenue could not implement the recommendations relating to these individuals, that is, recommendations 3 and 4 of the Ombudsman's report, because the Tax Acts are, in our view, very specific in regard to the particular circumstances in which interest is payable on tax rebates. These circumstances are quite limited and do not cover any of the cases referred to in the Ombudsman's report. Second, the Revenue Commissioners are very clear that they cannot make non-statutory interest payments under their general "care and management" authority. The circumstances of the cases are so disparate that it would be impossible, and we believe unfair, to ring fence them in the context of the finding that failure to provide for the same treatment in similar cases is improperly discriminatory. Any such exercise of care and management would have to be extended widely: in effect the entire population of income taxpayers is potentially "on all fours" with the eight cases and it would be impossible to stop at income tax. Our legal advice strongly supports this view.
The Ombudsman further recommended that Revenue should provide without delay for a general scheme for payment of compensation for loss of purchasing power in respect of tax refunds made to taxpayers of income tax levied and paid. It would cover cases where a taxpayer had been adversely affected by a misinterpretation, error, oversight etc. on Revenue's part. Revenue acknowledged that the whole area of paying interest on tax rebates was in need of review. However, we were also convinced that this was not something that should or could be done administratively. It is our very strong view that it would be neither legally possible or appropriate, having regard to the public finance and public policy implications involved, for Revenue to put in place a general non-statutory interest repayment scheme. It must be borne in mind that Revenue repays in the region of €5.5 billion across all taxes each year.
The Ombudsman's comparisons with other public service compensation schemes, which involve relatively minor sums of money, were not entirely appropriate in Revenue's view. Our clear view, and a policy which we supported, was and remains that there is merit in a general scheme for paying interest on repayments of tax but that because of the public finance and public policy implications of such a scheme it should and must have a clear legislative basis.
Members of the joint committee will be aware that the Finance Bill 2003, which has just been published, contains provision for a general scheme for the payment of interest on repayments of tax. It encompasses repayments which do not currently qualify for interest. The Bill provides for interest on repayments of direct and indirect taxes, other than customs, regardless of whether there was an error on the part of the taxpayer. The rate of interest will be 0.011% per day, equivalent to 4% per annum. If passed into law, this will ensure that recommendation 5 in the Ombudsman's report is implemented on a clear and unambiguous legislative basis and which gives certainty to all taxpayers for the future. I am aware of course that the Finance Bill will come before the committee for debate in the near future.
Finally, apart from interest payments, I would like to inform the committee that Revenue is actively considering an administrative scheme of redress compensation in Revenue. This would apply in cases where through a Revenue error or mistake a taxpayer has to incur costs or loss directly associated with getting the matter corrected. I set up a working group some time ago to look at the issues. The terms of reference of the group were to consider the recommendations of the Joint Oireachtas Committee on the Strategic Management Initiative and the views of the Ombudsman. Furthermore, the implementation group of Secretaries General has been asked by the Taoiseach to review the legislative, policy and practical issues which arise, when considering how to further develop and refine the forms of redress available to citizen when dealing with the Civil Service. The findings of the Revenue working group will be developed in that context.
I have given a summary of Revenue's position. Full details of Revenue's response are given at Appendix 1 and 2 of the Ombudsman's report. We have already fully implemented recommendation 1. We are well advanced in implementing recommendation 2. The Finance Bill proposals, which Revenue helped to develop and actively supported, will in effect implement recommendation 5. However, for the reasons outlined, while I emphasise Revenue is extremely sympathetic to the individuals involved, it simply finds itself in the position where we believe a statutory basis on which to implement Recommendations 3 and 4 is needed. We do not have this and it is not open to us, and to me in particular as accounting officer, to disburse public moneys in those circumstances.