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Wednesday, 12 Feb 2003

Vol. 1 No. 2

Redress for Taxpayers Report: Presentation.

This meeting has been convened to allow the Ombudsman brief members on the redress for taxpayers. It will be followed by a further briefing by the Chairman of the Revenue Commissioners, Mr. Frank Daly, on his response to the issue. I welcome the Ombudsman, Mr. Kevin Murphy, and his officials, Mr. Pat Whelan, Director General, and Mr. David Waddell, senior investigator.

I remind visitors that while the comments of members are protected by parliamentary privilege, those of visitors are not so protected. Members are also reminded of the long-standing parliamentary practice to the effect that members should not comment on, criticise or make charges against a person outside the House or an official by name in such a way as to make the official identifiable. I invite Mr. Murphy to make his presentation to the committee.

I am pleased to have this opportunity to speak to the committee about the implementation of the recommendations in my investigation report, Redress for Taxpayers.

As members are aware, Revenue rejected three of the five recommendations I made in that report. The first and second recommendations rejected related to a number of individual cases and to public service widows where lengthy delays had occurred in making refunds of tax wrongly levied and where Revenue had refused any compensation for the loss in the value of those refunds. The third rejected recommendation related to the introduction of a compensation scheme to deal with this matter generally on the lines of those accepted by all public bodies other than Revenue.

I am pleased to acknowledge the initiative of the Minister for Finance, in the context of the Finance Bill, which fully meets the third of the three outstanding recommendations. Despite last minute efforts, however, I regret to say that Revenue still refuses to implement my other recommendations on two grounds - possible cost repercussions and the claimed absence of specific statutory authority to make the payments. I intend to concentrate on these two issues.

I would first like to make some brief comments. The credibility of any ombudsman depends on his or her ability to deliver adequate and appropriate redress or remedies to people who have been treated unfairly. My primary duty is to the individuals who have complained to me and I am duty bound to continue to press their case.

When a person loses out as a result of an improper or unfair action by a public body, the Ombudsman Act 1980 gives me the authority to recommend "that measures or specified measures be taken to remedy, mitigate or alter the adverse effect of the action". These are wide-ranging powers and they carry the authority of statute. It is frankly unbelievable that any public body which implements a formal recommendation of mine, made under statute, could face a challenge unless there was an actual statutory bar preventing it doing so. I emphasise that once unfair treatment has been accepted, a formal recommendation for redress, in accordance with the provisions of the Ombudsman Act 1980, carries its own statutory authority.

The Ombudsman Act recognises that neither public bodies nor ombudsmen are infallible and that there may be very infrequent and exceptional cases where the merits of an ombudsman's recommendations may be disputed by the public body. In those circumstances, the Act provides that the Ombudsman can refer the matter to the Houses of the Oireachtas which would have the task of judging who is right or wrong in the context of good administration and fairness to the citizen. It appears to me that a committee of Dáil Deputies and Senators, which specialises in finance and public service matters, is an excellent jury to make judgments of this kind. The case the committee is considering this morning is not one where the merits of my recommendations are being disputed. The Revenue has never denied that my complainants were unfairly treated. In its public response to my report, the Revenue stressed that it had no fundamental difficulty with the basic principle of the payments recommended. It was rejecting my recommendations simply because of the "widespread implications of making compensation payments" and the absence of any statutory authority to pay compensation. In his letter to me of 22 October 2002, the Chairman of the Revenue stated: "To the extent that there is any unfairness in our failure to compensate the eight complainants for loss of value that unfairness arises from the statutory position; it should not be laid at Revenue's door". In my view, where injustice has occurred, failure to rectify it is itself further maladministration.

That brings me back to the question of cost and the alleged need for specific statutory authority for any compensation. At no stage has the Revenue produced any costing of my recommendations. My recommendations cover two distinct groups. First, public service widows who were widowed prior to 1988 and wrongly taxed on their children's pensions and, second, a group of ten other complainants, including four not specifically mentioned in my report, who have one thing in common - they all had income tax refunds wrongly withheld from them for varying lengths of time stretching to 15 years in one particular case.

It is necessary to distinguish between these two groups because in the case of the widows, I recommended refunds of tax as well as compensation payments and, therefore, my recommendations had to extend to all widows in that category. We now have the ridiculous position that Revenue is refunding those widows tax wrongly paid in the 1980s, and they are now getting those repayments, but only in 1980s money values. That is not adequate redress since it does not put these widows back in the position they would have been in if they had been correctly taxed in the first place. I would have expected that by now Revenue could tell me what the cost would be. All I have heard is that the number of pre-1988 qualifying widows is much less than had been estimated.

As regards the other ten complainants, I emphasise that my recommendations apply only to them and do not extend any further. The cost would clearly be insignificant so what is the problem? Revenue has argued that because the ten cases are so disparate there is bound to be widespread implications, but I would have thought the opposite would be true. If members take note of the individual cases set out in pages 32 to 35 of my report, they will see that, with two exceptions, the circumstances of each case are so sui generis that they can hardly be repeated. I am not sure there are not too many cases of, say, a resident in Cyprus who is in receipt of income from land bonds. All cases are different and special with the exception of those two. The two exceptions are the professional services withholding tax cases.

I suspect these are seen as a problem, although Revenue never raised that issue with us during the two or three years I was undertaking this investigation. Are we then to deny justice to public service widows and the other complainants because Revenue now see a problem with two particular cases? How real is that problem? Revenue knows that, under the Ombudsman Act, I am precluded from investigating complaints unless they are made within 12 months of the alleged improper or unfair action. I have discretion to waive this time bar, but only if I am satisfied that special circumstances make it proper to do so. That in itself provides a safeguard. It would be helpful to the committee's assessment if the Revenue indicated the cost of implementing my recommendations for compensation for loss of value in the case of the complainants specifically covered in my report. If Revenue is fearful of repercussions, how does it envisage them arising and what would be the cost in those cases?

I wish to turn to the issue of lack of statutory authority. I have already expressed the view that, if the merits of my recommendations are accepted, as they have been in these cases, then the statutory authority on which my recommendations are based provide a legitimate basis for implementation. This was established in the earliest days of the Office of the Ombudsman when county managers were particularly conscious of the ultra vires doctrine, which required their actions to have specific authority. A public body has the obligation to make restitution when its improper or unfair action has adversely affected someone.

Apart from that argument, there are two other arguments. The Revenue has available to it the care and management provisions of the taxes legislation as well as the well established and long existing practice of ex gratia payments to meet cases where inequity arises. In relation to the care and management provisions, Revenue said to the Commission on Taxation, as stated on page 10 of my report, “Under the care provision we mitigate the application of the law if it’s literal interpretation would not be in accord with the intention of the Oireachtas or if it would result in hardship.”

In relation to ex gratia payments, the most recently published example of such payments resulted from my Special Report on Local Authority Housing Loans. The Department of the Environment and Local Government confirmed to my office that it fully accepted the principle that compensation for loss of value was fully justified on grounds of equity. Ex gratia payments to mitigate unfair treatment are a frequent feature of ombudsman-type cases.

The unsatisfactory nature of the Revenue's response is best illustrated by a series of questions to which I have so far failed to get answers. On what authority did the Revenue pay interest in the case of the former bank officials who were refunded income tax following a High Court decision? If it did not refund it on the basis of the care and management provisions, what other authority did it have to refund it, given that it is now saying it has no statutory authority? How does Revenue justify the different and less favourable treatment of public service widows compared to bank officials, given that the High Court found in their favour also? Did the Revenue at any stage seek sanction from the Department of Finance to make ex gratia payments given that other Departments, including the Department of Finance, were operating compensation schemes?

In that regard, the Department of Finance in a letter dated 18 December 1986 to the Office of the Ombudsman undertook to treat cases in areas other than social welfare on the same basis as social welfare cases. I circulated a copy of this letter for the information of members and I draw their attention to the last paragraph of that letter in which it gives that undertaking.

The continued refusal of Revenue to compensate the individual complainants covered in my report is not only unjustified but is perpetuating and exacerbating an injustice which Revenue acknowledges exists. I have every confidence that this committee when it has had an opportunity to digest all the arguments, will support my view that this continuing injustice must be remedied and that the power to provide such a remedy is clearly and unambiguously available.

I thank the Ombudsman for his presentation. I will now take questions.

I thank the Ombudsman for his presentation. What is unique about this report is the trenchant language in which the case is stated. I note in the original statement the Ombudsman accuses the Revenue of serious misrepresentation and that the Revenue's representation is a direct and unprecedented challenge to the authority vested in his office by the Oireachtas. It is important this committee takes this matter seriously because the Ombudsman believes his position is being undermined.

I note from going through the report that the Revenue effectively is being accused of inequity of treatment and unjust enrichment. If these accusations were made in respect of anyone else, they would be regarded as almost criminal offences because they are so serious. My understanding of the issue of inequity of treatment is that if I overpaid tax, I would get a refund of 0.6% per month, therefore, the principle of repaying in certain cases exists. How has Revenue dealt with the argument that a similar provision, which it recognises elsewhere in its law, would not apply in a case in which it was in error in withdrawing tax from people? Why does the Revenue regard this matter as an issue of principle when it has clearly conceded on it not only in the O'Rourke case in the High Court, to which the Ombudsman referred, where the High Court recommended it, but it is practice in respect of other aspects of its tax law? I would like the Ombudsman to comment on that.

The other profound point the Ombudsman made is that one does not need legal authority to make restitution for the unjust taking of someone else's property and that one has an obligation, regardless of statutory provision, to make good damage that one has done. What arguments are being advanced by Revenue to defend a position that it is not obliged to make good damage that it has done? It has done damage if it has withdrawn tax and has made good only the 1980 value of the amount involved, which at this stage is probably only two thirds - if not less - of the real value. I would like the Ombudsman to comment on the exchanges he has had with Revenue and the twists and turns in the case to enable us to get a better feel for the arguments advanced on the Revenue side and the Ombudsman's demolition of them.

I will take a few more questions before calling the Ombudsman to reply. I call Deputy Burton.

I thank the Ombudsman for his presentation. Usually papers such as these are extremely staid but this document reads a little like a Mexican stand-off between two senior and respected bodies in Irish public administration, the Ombudsman and the Revenue Commissioners. The democratic assembly of this country established the office of Ombudsman and, despite the dryness of the matter involved, it is an important issue that cuts to the heart of the Ombudsman's responsibilities.

In the background material provided to the committee there is some discussion about the strategic management and quality customer service initiatives. These are welcome initiatives in Government Departments and a lot of money has been spent on them. Running through those initiatives is the principle that if a public authority does a wrong to an individual, who is relatively powerless compared to the resources of a State Department or authority, redress should be made for the wrong. Redress should basically restore the person to the position they were in before the maladministration occurred. I propose that this important principle should be accepted and acknowledged by this committee as being at the heart of proper public administration. I strongly feel, therefore, that the Ombudsman's case stands.

I have some experience with the Department of Social and Family Affairs, having served in that Department as a Minister of State. The principle of redress, while it might have been accepted with some difficulty, was and is accepted by that Department. The Department of Social and Family Affairs, like the Revenue Commissioners, deals with a large volume of transactions with millions of citizens and with large amounts of public money. If the Department of Social and Family Affairs can successfully operate its redress scheme for 14 years before legislation was introduced, I cannot see why the Revenue Commissioners cannot operate the same scheme. Was any undue loss caused to the Department of Social and Family Affairs by its operation of an informal scheme?

The Revenue Commissioners, in their responses to the Ombudsman, referred to the Inland Revenue in the UK. In fact, the Inland Revenue in the UK operates on the care and management principles referred to in the Ombudsman's report, which provide for action to be taken without a statutory basis to redress a wrong a taxpayer might suffer. The number of cases brought to the Office of the Ombudsman about the Revenue Commissioners each year is relatively small so I do not see why they should be worried about an appalling vista in terms of costs.

Is it the Ombudsman's view that the Revenue Commissioners are, perhaps, confusing this with the rebate scheme? This operates successfully for businesses, when, for example, somebody overpays tax following a self assessment. It is a well established scheme which works automatically. I cannot see why the Revenue Commissioners will not do as other Government Departments do, particularly the Department of Social and Family Affairs, or why they cannot do as the Inland Revenue in the UK do, since the standards of the Inland Revenue in its redress and customer complaints handbook seem to be the standards to which they refer in their documentation.

We are addressing a fundamental issue and we will need to make clear decisions at the end of this meeting. I hope that will be done. We also must recognise that the Office of the Ombudsman is under threat, not in the sense of it being abolished but in the sense of it being left powerless.

There are a number of unprecedented aspects to this case, in terms of the direct report to the Houses and all that flows from that. There is also the clear and unambiguous statement which was made to the committee this morning. It is appropriate at this stage to remember that when the present incumbent of the Office of Ombudsman was appointed, many questions were raised in the Houses as to whether he would have the courage and authority to take on Government Departments, including the one he left. Those of us who knew him well, and knew there was no doubt that he would, will feel vindicated by the position he has taken. I am not surprised he has taken a courageous stand. When the committee concludes this meeting it should express its trust and confidence in his office and in how he has discharged business on this occasion.

This is not a zero sum effect. Whereas on this issue I disagree fundamentally with the Revenue Commissioners, I wish to ensure that we deal with it in a way that respects and supports that department in a difficult line of work. I fundamentally disagree with its line on this issue. With regard to the issues raised by the Ombudsman this morning, his submission was a model of clarity. It is detailed, comprehensive and specific. We have a responsibility to deal with a number of issues, in particular the belief expressed by Mr. Murphy that the provisions of the Act give the force of statutory authority to a formal recommendation from him. That is a clear and reasonable statement in the context of the legislation but if there is any doubt about it, we need to clarify it. It is incumbent on us to do so, although I have no doubt that it is already being checked out in both places.

What is crucial, and it is the subject of another debate that has been taking place over the last week, is the issue of costs. Costs are always an issue and parliamentarians must always keep them in mind. Those in charge of administration must be aware of them at all times. However, the issue of costs is secondary to the issue of redress, which is the primary issue here. That primary issue must be addressed. Many times in life people have to accept what the position is. The cost of implementing it is something we have to deal with. They are two separate issues.

It is always questionable when an issue of principle is parked because of an implementation difficulty. It is the oldest trick in the book for somebody, confronted with an issue of principle, to respond by saying there are difficulties implementing it. That does not fit in with our duty on this committee. We must take the decision on the fundamental issue, which is whether the recommendation of the Ombudsman deserves to be implemented.

It is clear that nobody is arguing the merits or demerits of the case. I am trying to make my argument without reference to the emotional context in which the people who are at the core of this might be situated. They are citizens of this country and they have been treated abominably. It is our duty to deal with that. If there is legislative provision to give statutory force and authority to the Ombudsman, we can move on. Has the Ombudsman taken legal advice on this? The committee should ensure the Attorney General or the appropriate authority gives us advice as to whether that is the case. If it turns out not to be the case, the answer will not be to walk away from this issue but to bring forward amending legislation to provide for it. I defy anyone to disagree with the fact that we cannot ignore the words of the Ombudsman where he states "In my view, where injustice has occurred, failure to rectify it is itself further maladministration". I want to make this plain because if it is not rectified from here on in, part of the responsibility lies with us because we are now in a position to ensure that is done. Until this point, failure to rectify it was a problem for other people. If we believe it needs to be rectified it is clear that we need to do this in a way that reflects the merit of the case and the way it has been dealt with.

Nobody on the committee could disagree with the words in the final paragraph of the Ombudsman's report that, in such a situation, were we not to take action it would not only be unjustified but it would perpetuate and exacerbate an injustice which everybody acknowledges exists. Our way forward is clear, Chairman: following our discussion, we should consider a motion of decision on this issue.

I call on the Ombudsman to respond at this stage. There are further questions.

Can I respond first of all to Deputy Bruton? I have heard the remarks about these testy exchanges. Perhaps I could quote Tony Soprano who said "This is business, not personal". I have no personal dispute with the chairman of the Revenue Commissioners. He is a man for whom I have the highest professional and personal regard. The Ombudsman always concentrates on corporate bodies, so my dispute is with the Revenue Commissioners as a body. There is a long history to this case. The normal way I proceed as an Ombudsman is that having made my initial examination, I produce a preliminary examination report which I send to the head of the office - the Secretary General or in this case the chairman. I say, "We are of the opinion that there is an injustice here and you should do something about it". That is usually the signal for some sort of dialogue, although it was not in this case, I regret to say. When it comes to tax matters the tax inspector has his own rules and culture. There is a kind of hands off approach.

We took a very unusual step in this case. When we completed our investigation report we sent it as we normally do, without our recommendations but with our findings, to the chairman and asked for comments, and we took all those comments into account. In this particular case having done so I became aware that the chairmanship was changing and I considered that it would not be fair to land this on the new chairman's lap. Therefore, we incorporated the changes that arose from their previous comments and we sent it again. At no stage was there any possibility of a settlement. There was no suggestion that Revenue could accept it in principle and could work towards implementation, which I regret. It is not the normal procedure and that is why this is the first case that has ended up in the Houses of the Oireachtas.

I would not like this to be seen, as has been portrayed in some places, as a battle between two people, although it is a battle between two institutions. Deputy Bruton asked a question as to the rationale behind Revenue and I think the chairman has to answer that question for himself. I feel that not only have they the power to do this but if the spirit is willing the solution is there.

This brings me to Deputy Burton's point that every other body is doing it and has been for years. The Department of Social and Family Affairs been running a scheme for 16 years, which has only been on a statutory basis for the last two years. The Department of Finance does the same thing. We did it with the co-operation of the Department of the Environment and Local Government where we found that local authority loans had been overpaid - back payments had exceeded the amount of the loans. All those complainants got compensation for loss of value. The Department of the Environment and Local Government said it was the right principle to apply. They were in entire agreement with it. So, what has been bugging us, as will be clear to members of the committee, is why is Revenue so different. I think the Revenue Commissioners think they are so different because they have become confused between two things. Returning to Deputy Bruton's point, they have got confused between what is called the interest on overpayments, and compensation where maladministration has occurred. The British draw a clear distinction between those two matters. In Britain, as far back as 1987, they introduced legislation to provide for the payment of interest on delayed refunds. There was a no-fault case there. However, in 1994 the British went further, introducing - it is interesting that the Treasury was involved - an ex gratia scheme, not a legal scheme, which probably gives more flexibility to deal with all forms of maladministration, including delay. The British circulars state that, in the case of maladministration, this supersedes the general interest scheme that they had introduced by way of legislation.

That confusion bothered me. In their press statements the Revenue Commissioners kept referring to the implications of a general interest scheme but I disagreed with that. We are not talking about everybody getting interest, yet that implication was clearly put there and we found it annoying. I did not intend to get into that area this morning because I think we have gone past it since the Minister has introduced a scheme which goes further, in fact, than what I was recommending. It is now a general interest scheme as well.

To complete the answer to the question raised by Deputy Burton, let me concentrate on the Department of Social and Family Affairs, which spends much more money than the Revenue Commissioners collect. We consulted them about how their scheme was going and they said that in the last year the costs under that scheme were not significant.

Coming to Senator's O'Toole's point about the authority, I have not sought specific legal advice on this because it has been there since the beginning of the Office of the Ombudsman. County managers can be difficult sometimes and when we started, many of them accepted our recommendations but said they had no statutory authority to pay. We said they had the statutory authority of my recommendation and they did not have a problem with that.

The problem one usually thinks of when one spends money is whether the Comptroller and Auditor General will query it, but the Comptroller and Auditor General has never queried payments of that nature. If there is a compensation scheme he may prefer to see it placed on a statutory basis and so would I, and I have said so in my report. However, he is not going to query payments made to redress inequity, if they are formally recommended by the Ombudsman. I just do not see a problem there. I am not too sure why - the chairman will have to explain it to the committee - Revenue got so hung up on this technical aspect of it. Surely it could have been worked out. I was forced to recommend complete payments of interest, whereas if the Revenue had agreed to apply the existing scheme we could have worked it out.

I had a call from my predecessor, Michael Mills, when he read about it in the papers, saying "Do you not remember that I settled all that in 1986?" Indeed, we were aware of the letter from the Department of Finance, which was written on behalf of the Minister. It stated: "My Minister fully understands the concerns expressed by the Ombudsman and if further cases come to light we will have regard to the same rules as we have been applying in Social Welfare". That is why I posed the question as to why at any stage Revenue asked the Department of Finance for a delegated sanction for ex gratia payments here. I am not aware that it did and I wonder why. Was it so set against this, or had it some other agenda of which I am not aware?

We found this a difficult case and I can understand why people would ask why it has not been settled among ourselves. We have settled many cases between ourselves, but in this instance there is no compromise. Compensation is or is not paid: there is no middle way. I had to take my position in accordance with my statutory duties.

I welcome Mr. Murphy and his colleagues. I am aware from his previous attendance at meetings of this and other committees that he is never afraid to say what is on his mind and he has not minced his words in his report. It appears he is asking a committee of the Houses of the Oireachtas to adjudicate on his position. We are, to an extent, in the kind of role played by the United Nations as it tries to find a way between President Bush and Saddam Hussein.

There are no permanent members on this committee.

In his report Mr. Murphy refers to the role of the joint committee on the strategic management initiative. I was a convenor of the relevant committee that considered that aspect and we made a recommendation that a scheme of compensation be put in place. Your report indicates that the Revenue failed to do that, which is an implied criticism.

Your report also indicates that the Revenue claims that it has no statutory authority to pay compensation. This implies there is no statutory authority preventing it from making such a payment. As I see it, the case rests with you. We must await a report from the Revenue.

I am disappointed that a committee recommendation was ignored, such as that of the joint committee on the SMI, which concentrated on customer service and had some success in publishing a recommendation in December 2001. It was also successful with the Department of Agriculture and Food, where an independent appeals committee was established to assist farmers. It gives a hollow ring to the charter of rights the Revenue maintains is its priority when looking after customer interests.

It is appropriate that Mr. Murphy has appeared before the committee. I have no doubt his report will be thoroughly investigated and that we will issue a balanced recommendation.

I remind Deputies that the committee will shortly be in a position to put questions to the Revenue. I call Deputy Paul McGrath.

I also welcome Mr. Murphy and his team and I compliment his office on its work. I also thank Mr. Murphy for the efficiency with which his office deals with my many requests.

Mr. Murphy implied that this is the only stand-off he has had with Departments and officials. What is the position regarding the nursing homes and the holders of medical cards? Is that a similar situation? He said the relevant Department has a responsibility to look after medical card holders in nursing homes while it takes a contrary view. Is this case the precursor of a further debate involving other issues arising in the Ombudsman's office?

No. After I produced my report and findings in that case, the Department agreed to change the regulations. I considered it to be an instance where many bad administrative principles were adopted and that I should publish the report. I have published about six special reports, but the case under consideration by the committee is different. It is the only one where my formal recommendations have not been accepted. I would be very disappointed if there is another such case in the next ten years.

What happened with regard to the nursing homes?

My recommendations were accepted.

What about medical card patients?

I made no recommendation on that but raised it as an issue requiring further investigation. I still have a number of complaints on that issue and it continues to be under investigation.

It is not true to say I do not have stand-offs, I have many of them. For example, on a few occasions, county managers have told me they will not implement my recommendations. This is where the Oireachtas and this committee is important to my work because when I tell those under investigation that I will prepare a special report they usually respond with a letter outlining their continued disagreement with my recommendations but confirming that they will be implemented. The great advantage of this committee from my point of view is that it acts as a possible sanction, but we would not wish to use it very often.

I thank the Ombudsman and his officials for a very informative presentation. Before concluding this part of the meeting I call Deputy McGuinness.

I welcome the Ombudsman's report and his comments. It is refreshing to see such a direct report and it gives us a good idea of his position. Mr. Murphy referred to his involvement in a number of stand-offs and I am sure these will continue, including the settlement of cases by the Revenue.

In this instance we are concerned with an ongoing case, but other cases involve settlements where there appears to be an element of horse trading between his office and the Revenue. In those instances, the amount he suggests should be paid to a taxpayer would differ from the final payment. If it is suggested by his office that a certain amount be paid, surely that should be the final payment. As the Ombudsman has examined the case and has presented it to the Revenue, I would expect it to honour the investigation and repay the amount recommended.

At a meeting of the Committee of Public Accounts on 23 January, I raised the repayment of capital gains taxes to a number of people, whose names I did not mention. Money was outstanding for four years and it was the cause of much trauma for the family concerned, as would be the case for any family involved in such an issue, first with the Revenue and then with Ombudsman's office. On 11 February, the Revenue issued a reply to that query to the effect that the matter had been concluded on the basis of a compensation payment from the Revenue Vote. The payment was half the amount the Ombudsman recommended should be repaid. Not only did the payee not get compensation or interest for the trauma he experienced over four years, but the Revenue did not pay him the full amount that was recommended. I find it unusual to say the least that between the meetings of the Committee of Public Accounts on 23 January and on Thursday next, this settlement would have been made and that the taxpayer involved would not have known about the various meetings that were going on regarding the whole issue of repayment. Therefore he did not have the benefit of full disclosure of what was going on, and yet was more or less told to accept the settlement. I am concerned about those people because behind every argument - we have had these arguments here - there are many other cases where the Revenue did not settle or would not settle based on advice that the Ombudsman might have given. Are there many cases like the one I described and is that also an issue?

I have to be careful here because this is an individual and he is entitled to complete privacy. Let me start by saying there is only one case to which the Deputy is referring. I have no other cases. In that case I made certain recommendations to Revenue which caused them huge problems. There was a stand-off but we had further discussions, as we attempted to in this case. Something began to emerge which I felt would not be an unsatisfactory settlement so I asked my complainant to come and see me, and we had a long conversation. I asked him to reflect on what was now on offer, which I said to him was a not unsatisfactory outcome in my opinion, and he went away and reflected. He has accepted it. As far as I am concerned, there is no disagreement any longer between myself and Revenue on that case.

That is not an abnormal situation when I am dealing with cases and we get to ascertain the amount of redress needed in a particular case. There are various measures you can use. It is not always an exact science and there is also a degree of negotiation. I cannot say enough about the case to give the committee the full details, but I am satisfied in that case that the outcome was not unsatisfactory, both from the point of view of the complainant and from the point of view of Revenue.

I will conclude with the Ombudsman at this stage because I am anxious for members to have an opportunity to listen to the presentation from Revenue. I welcome Mr. Frank Daly, Chairman of the Revenue Commissioners, and his officials, Mr. Denis McGillicuddy and Ms Kathleen Corley.

I remind visitors that while the comments of members are protected by parliamentary privilege, those of visitors are not so protected. I invite Mr. Daly to make his presentation on his response to the Ombudsman's report to the committee.

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.

I thank the chairman for his presentation. It is good to hear the second side of the issue. This does not refer to a scheme of interest on overpayment of income tax but to compensation for maladministration. The gist of Mr. Daly's contribution relates to interest and overpayments. There are always overpayments of VAT and preliminary taxes and there is legislative provision for interest in those cases. I am intrigued that the Revenue is considering an administrative scheme of redress compensation that would apply to cases of error or mistake by the Revenue. Mr. Daly stated recommendation 3 should have a statutory basis. The Ombudsman has asked for this to be dealt with on an administrative basis. We are talking about compensation for maladministration, not interest on overpayments of tax, as happens from time to time in all large organisations. That is the kernel of the issue, as the committee understands it.

We are talking about two separate issues to a certain extent. When I look at the Finance Bill proposals, which will sort out the interest on tax overpayments once and for all going forward, and I talk about the redress, it will be in cases where legal costs and so on are incurred by a taxpayer in having something sorted out or costs incurred by a delay. It is a different scheme and it probably mirrors the UK scheme where there is a statutory basis for the payment of interest. There is also the administrative redress scheme, which allows mainly for legal costs incurred, inconvenience, consolatory payments and, in certain circumstances, for the payment of interest where the payment would not be encompassed by the statutory scheme.

Our problem with this is the extent of the cases covered by the Ombudsman's recommendation to make a compensation payment - which in effect is interest at the CPI rate - to the individuals mentioned in the report and all the other widows encompassed by the O'Carroll judgment. Once one goes from the small number of individuals mentioned in the report to another 1,000 widows, particularly when one gets to professional services withholding tax cases, of which there are probably 5,500, one is getting into a general scheme of paying interest on overpaid tax. Revenue's difficulty lies in where one should stop and where the parameters should be for the scheme. All along our difficulty has never been to try to find a way to pay widows, which we would like to do, but to determine where one should stop in terms of the financial exposure for Revenue and, by implication, the Exchequer if all the categories mentioned in the Ombudsman's report are paid. It would be very difficult to ring-fence widows. If, for example, one pays interest or compensation in the form of interest, as the Ombudsman recommended, in the two professional services withholding tax cases, how could one argue that one should not pay it in the other 5,500 cases, including barristers, doctors and vets, encompassed by the decision?

The Ombudsman has argued that the matter can be narrowed on the basis of maladministration on the part of Revenue. In reality, it is very difficult for us to accept that there was maladministration in some of the cases in question. If one takes the professional services withholding tax cases, legislation was passed by the Oireachtas, which Revenue implemented in good faith and to the best of its ability, as it is required to do. Immediately the legislation was struck down as unconstitutional, Revenue began the process of repaying the amounts in tax involved. To say that because we had implemented legislation which was subsequently struck down - tax law is presumed to be constitutional - was maladministration on Revenue's part is very difficult for me to accept. There are other cases also. While I accept we cannot argue that in some cases Revenue was not at fault, that is a very significant number of cases.

I thank the representatives for attending the meeting. I would like to probe some of the issues involved. The Ombudsman drew our attention to the case of former bank officials who went to the High Court which, as quoted in the Ombudsman's report, decided that interest should be paid on the tax refunded based on the doctrine of unjust enrichment. Following that decision, Revenue went ahead and made the payment as recommended, notwithstanding its belief, which it still holds, that it had no statutory basis for doing so. While it accepted this in a previous instance, it now appears to be trying to draw the battle lines by saying while the High Court may be okay, when the Ombudsman comes forward with his 12 cases, it will not accept them. That leaves us with a strong sense that if a person is perhaps more ignorant of the tax law and cannot make his or her way to the High Court, he or she will get a different deal from Revenue than if he or she had the resources to mount a challenge in the High Court and get a ruling which seems to have established a precedent.

My second question relates to the Department of Finance's letter to which the Ombudsman draws our attention. This seems to signal, notwithstanding the fact that one does not have explicit statutory provision, it accepts that if one does damage to a taxpayer by withdrawing money he or she ought to have had, and one has some responsibility in that respect, one ought to make good the damage. As the Department appears to have given sanction, was sanction not sought in that respect? The Department of Social and Family Affairs, which deals with large sums of money, did not find that not having statutory provision prevented them from doing the reasonable and fair thing in these cases. It appears Revenue is standing alone against the view of its parent Department, the High Court and many other Departments which are in a similar position. It is difficult to understand the reason that view is being taken.

Does Revenue see the Finance Bill 2003 provision as providing the necessary authority to repay in the instances to which the Ombudsman has drawn our attention, or does it view it as only affecting repayments going forward with compensation only accruing from the date of passage of the Bill? Does it see the Bill as providing the necessary licence to repay in the other cases?

I thank the Chairman for his statement. I am rather shocked by the tone and content of the report. Given that the Revenue Commissioners have made very successful efforts in recent years to communicate to taxpayers a sense of their rights and the charter for taxpayers, I find their attitude in this regard - I do not mean in a personal way - extremely arrogant. Someone who believes he or she has a case of maladministration to be addressed by the Revenue Commissioners and reads the report will feel they have no remedy.

In recent years but particularly in the past decade there has been a series of cases where redress turned out to be important. They include social welfare payments to wives and spouses of social welfare recipients, Army deafness cases and current cases concerning redress for those in institutions. The principle underlying all these cases where a wrong has been done and maladministration occurred, which has subsequently come to light, regardless of the origins in terms of being well intentioned, involving the Revenue Commissioners and all other public service organisations is that redress must be offered in order to put the person concerned back on the footing they were on prior to the maladministration by a State body.

The point made by the Ombudsman in his report and this morning has not been answered. The point was made that there was already a statutory basis for redress, that is, the Ombudsman's Act. The letter from the Department of Finance in 1986 made it very clear that the basis for the scheme which was implemented for 14 years by the Department of Social Welfare prior to being placed on a statutory basis, rightly so, was that the Ombudsman's Act made provision for redress. The Ombudsman is offering the legal authority.

I take exception to the paragraph dealing with care and management, which I understand is a principle of the taxpayer's charter. It states any such exercise of care and management would have to be extended widely. In effect, the entire population of income tax payers are potentially on "all fours". The entire population of income tax payers should be on "all fours" if they are victims, which, as was pointed out, is very unlikely. While the record of Revenue in this area is very good, we are talking here about a principle. I cannot accept that the Revenue Commissioners, in the context of the charter and the strategic management initiative, could possibly put forward the idea that an appalling vista prevents the restitution and redress of a wrong. I reject this element of the report. I do not see the reason the Revenue Commissioners have found it impossible to accept the view of the Ombudsman that it is the Ombudsman Act which gives them the power to act.

The final paragraph of the report states the administrative scheme was initiated some time ago. Given that confidence of taxpayers in the fairness of the tax system is at the heart of the contract between the taxpayer and the State, I regard the implementation of such a scheme as a matter of great urgency. The key point in the presentation this morning is the right of taxpayers and the Ombudsman's office to offer a clear avenue of redress when a wrong is done. As Members of the Oireachtas, which passed the Ombudsman Act, that is the line the committee is obliged to follow.

I join others in welcoming Mr. Daly and his colleagues whom I compliment on how well Revenue has connected with the public and on how easy public access to the Revenue Commissioners has become in recent years. This is not my first time to make this point. Revenue is very much in the 21st century. Other Departments could take an example from the way it has moved forward.

In the written submission Revenue states the taxation Acts are very particular regarding the circumstances in which interest is payable on tax rebates. It states these circumstances are quite limited and do not cover the cases in question. In what circumstances is interest payable on rebates?

Mr. Daly said a working group was set up some time ago to deal with two specific issues, the recommendation of the joint Oireachtas committee on the strategic management initiative, and the views of the Ombudsman. The SMI recommendation was made 14 months ago in December 2001. When was the working group set up? More importantly, when and to whom will it report? Will it report to the Revenue Commissioners and will the information be made available to this committee?

The report does not appear to address what I presume is the statutory right of the Ombudsman to come back to the Oireachtas which is provided for in law. The Ombudsman has come here today to seek the protection of a committee of the Oireachtas which put his office in place. The report of the Revenue Commissioners to this committee does not address this point. Does Mr. Daly have a comment to make on the matter?

I thank the officials of the Revenue Commissioners for coming. However, I find their response absolutely inadequate, unpersuasive, flawed and hollow. It does not balance what we heard earlier, although perhaps they can add to what they have already said. Huge and fundamental issues face all of us in this room: the Ombudsman; Members of the Oireachtas, and the Office of the Revenue Commissioners. The Revenue Commissioners may have put themselves in an impossible position. They are sitting right behind the No. 8 ball.

Before this meeting concludes it is likely to take a decision and I will be supporting implementation, unless the officials of the Revenue Commissioners convince me to the contrary in their response. Their statutory powers are no greater than stated in the document. In the event of the committee taking the decision I have indicated, will Mr. Daly reject and not implement the will of the Houses, as indicated to him? The Revenue Commissioners have created a momentous conflict and presented a challenge which puts us all in an impossible situation. Things were never intended to work this way. The statutory authority was given to the Ombudsman in order that we would not find ourselves in such situations.

Mr. Daly makes reference to decisions being taken having regard to "public finances" and "public policy implications". We must conclude that he believes this decision would have negative implications for public policy. I do not know of anyone in this room who can agree with that position. Unless there is some point I am missing, I would like an indication of how the righting of a wrong would have negative public policy implications.

Having regard to public finance and public policy implications, it appears that perhaps this matter was dealt with in other places. Has it been discussed between Revenue and the Department of Finance, formally or informally? Has advice been given to the Revenue Commissioners by the Department of Finance?

Mr. Daly clearly rejects the Ombudsman's analysis of his statutory responsibility and does not agree with his interpretation of the Act as allowing him to make recommendations for implementation. He says these recommendations need not be responded to by the Revenue Commissioners but that further statutory support would be necessary for this.

Is Mr. Daly saying he does not distinguish between the issues of interest and compensation for maladministration? Nowhere in his presentation is this clear. It seems that everything is based on this. Is he aware of the issue raised by the Ombudsman regarding the distinction between these two issues in another jurisdiction which we follow closely in these matters?

Mr. Daly does not deny the finding and accepts that the Ombudsman came to a conclusion. I must ask a question which is partly personal and partly bureaucratic. Do the Revenue Commissioners, and Mr. Daly personally as chairman, feel a sense of responsibility in this case? Do they believe they have a duty to make redress for this inequity? Alarm bells ring for me when I hear someone cite an implementation difficulty as an excuse for not dealing with a matter of principle. All of Mr. Daly's difficulties relate to implementation. Given that there may be administrative difficulties in implementation, what is the responsibility of the Revenue Commissioners for the righting of a wrong? What is their responsibility in terms of dealing with an inequity? No timeframe was given in regard to the committee established to examine this issue. Deputy Finneran asked to whom would it report. I would like to hear more about that and when it will report.

While my comments have been hard hitting I respect and support the work of the Revenue Commissioners. I disagree fundamentally with them on this one issue and do not wish my disagreement to be interpreted otherwise. The work of the Revenue Commissioners gives energy to and is a vital cog of the operation of the State. That is why It must be clear that the duties and responsibilities of citizenship are also discharged.

There are a lot of questions so I will start from the top. Deputy Bruton asked about the bankers' repayment case in the 1990s. That case taken by Thomas Mooney arose out of whether social welfare branch managers were, in fact, regarded as PAYE or self-employed. The courts have ruled they were self-employed and therefore were entitled to tax rebates. Subsequently the Laurence O'Rourke case was taken in the courts looking for interest on the repayments that had been made. The basis of that case to the courts was section 30 of the Finance Act, 1976 which actually does allow for the payment of interest. It allows for the payment of interest on tax which has been paid while there is an appeal process in train and where subsequently there is a decision against Revenue.

What actually happened in that case was that the court decided that section 30 did not apply but ultimately did decide that there was unjust enrichment for Revenue and that interest should be paid. We in the meantime had correspondence and representations in respect of about 20 bank officials who were in somewhat similar circumstances. There had been a decision in relation to the taxation of their termination payments and they were also seeking the section 30 relief, as it were. We had linked them all along, in correspondence and representations, to the social welfare cases so when the court ruled in the social welfare cases that there was unjust enrichment and directed us to pay interest at, as I recall, the court rate, we also applied that to the 20 bank cases.

Even though it was not an explicit statutory provision——

Even though it was not explicitly that particular court's decision but we had linked them through the process——

Of another court decision leading on to repayments. Were you not taking the same attitude?

We had the O'Rourke case back in 1996 which did direct us to deal with unjust enrichment and to make repayments.

Sorry, another court case ruled that you wrongly deducted tax from widows whose children should have been treated as taxable persons and entitled to a rebate but you are not applying the same High Court unjust enrichment principle.

But that court case was something like eight years before the subsequent case which ruled on the interest. That court case ruled on the substantive issue of the taxation of the childrens portion of a Garda widows pension. It did not go into interest.

I know, but the High Court had established the principle of unjust enrichment even though it was not under section 30. Now here it is not being applied where the High Court has ruled in regard to another set of people. Not only that, the Ombudsman has reinforced that. That is what we find hard to understand.

The High Court had established that quite a number of years after the widows' case. I will move on to the question of the Ombudsman because quite a number of Deputies have asked about the statutory basis of the Ombudsman's recommendation. This is something that is not, as I understand it, mentioned in the Ombudsman's report that his recommendations give us a clear statutory basis on which to make these repayments.

May I interrupt? Why would the Ombudsman be obliged to refer to statutory powers in a report? That would be implied in the heads of Departments' understanding of the operation of the Act. That is an unfair request to make of the Ombudsman's office. He referred to it in subsequent discussions and in various papers at different conferences, when the conflict had already arisen. It is unfair to ask him to set it out in what would initially be a routine report which he would hope to have resolved.

I am not suggesting that the Ombudsman should actually be asked that. In 1996 for example the Ombudsman considered two of these cases and in his report he came to the conclusion that as there was no statutory provision for the payment of interest in the circumstances of either complainant - there are two of the same complainants in the current report - he could not in this instance recommend redress for them. My point is, if the Ombudsman believes now that his Act gave him the basis for a statutory implementation of that, presumably this was considered in 1996 as well.

Deputy Bruton also asked about the finance letter and indeed——

Would you mind going through that again to clarify the issue?

The point is that what is being mentioned here is that the Ombudsman's Act, by a recommendation, gives us a clear statutory basis on which to make these payments. That is not something that has been considered in detail by Revenue. To be honest it did not really arise until this morning. If that is the case, I wonder why, back in 1996 when the Ombudsman was considering two of these cases mentioned in the current report, he did not decide or remind us or tell us that at that time his recommendations had a statutory basis.

Should he have to remind you?

Well, it is not reminding us. He came to the conclusion himself and I am quoting from his own report that "as there was no statutory provision for the payment of interest in the circumstances" [This has been our point all along] I could not in this instance recommend redress for them." I suppose the question is that if the Ombudsman believed that his recommendations have a statutory basis why in 1996 did he not say that to us? Why did he not say this has a statutory basis and tell us to provide redress for those two cases?

It seems to be an important point which is germane to the whole of what we are discussing today. Am I correct in my understanding that two of the cases here now were dealt with in 1996 and there was a different recommendation?

They were considered in 1996. As I understand it they were two of the same cases and there was a different conclusion, if you like.

But they were two of the cases that are pertinent now.

As I understand it. As far as I am aware they are two of the same cases. I have not investigated it. With those cases I have not formally investigated I cannot make a formal recommendation because of the statutory provision. I had hoped by reporting them in my annual report I would not have to investigate them.

Are there any other questions?

I would like to respond to Deputy Burton. I would be quite distressed personally and on behalf of Revenue if this comes across as arrogance on our part. As other Deputies pointed out, for several years we in Revenue have been at pains to try to improve our customer service and, in particular, to try to improve our communications with taxpayers in terms of informing them of their rights through the charter of rights.

I specifically said that I am familiar with the substantial improvements that have been made by the Revenue Commissioners. It is also notable, in view of the large number of transactions which they have with taxpayers, that the level of complaints about the Revenue Commissioners is relatively low.

In fairness, Chairman, I said that during my earlier contribution but, nonetheless, I reiterate that I am deeply disappointed by the tone of Revenue's response to the Ombudsman's report. I am deeply disappointed by the report and that is not a personal reflection on anyone. As the Ombudsman said earlier, it is a reflection on the office and it is a clash of two very powerful institutions. As a Member of the Oireachtas, I have a duty to advocate the case that citizens are entitled to redress when maladministration occurs.

I acknowledge that, Deputy, and I fully accept it. The question was asked in what circumstances is interest paid by the Revenue Commissioners. There are quite limited circumstances in which we pay interest. They essentially boil down to two: in cases as I have already mentioned, where tax is under appeal and there is a requirement to pay the tax, if the appeal goes against Revenue, there is a requirement to pay interest on the tax; and the other case is a quite defined circumstance in relation to preliminary tax paid by the self-employed in which there is a specific provision allowing for the payment of interest on overpaid preliminary tax. The payment of preliminary tax involves an estimation process on the part of the taxpayer because they are paying a proportion of their tax before the end of the tax year. It is a specific provision.

Returning to the general question of interest on payment of tax, it can be presumed that when that interest provision was being considered, the issue of payment of interest on overpaid tax also came into consideration. A definite decision would have been taken to confine this to preliminary tax on the basis that the taxpayer was making an estimate and that it was really a tax compliance measure to encourage adequate payment of tax and ensure that if it was overpaid, the taxpayer would obtain relief. The Finance Bill 2003 proposal, as has been mentioned, goes far beyond that. Without getting into an argument about whether there is fault on the Revenue side, it puts everybody on the same footing and gives a general provision about interest on overpayment of tax.

Questions were asked about the working group on redress which I have set up. I cannot give the exact date, but this happened some months ago. I have already been given a preliminary report from the group which will be discussed by the board of the Revenue Commissioners next week. The work of the group is well advanced and I have no difficulty, as was suggested, returning to this committee or any committee - such as the Strategic Management Committee - when that work has been finalised. To a certain extent it has been overtaken by other events in that the Taoiseach has asked the implementation group of Secretaries General to look at this question in terms of the Civil Service in general. Obviously we would not wish to be out of line with that. We would hope that we would play a lead role in it by virtue of the fact that we have already done some work on it.

The reason I raised that point was that the functions of the SMI committee have been passed on to this committee. We will be following up on the recommendations made and will possibly make new recommendations. It would be appropriate and helpful if whatever information from the working group would be channelled to this committee.

I apologise to the Deputy. I was not aware that it had been passed on, but that makes it even more appropriate that we should come here.

I find it interesting that the compensation and interest payment schemes essentially apply to people in self-employment - to all intents and purposes, those in business. Does this not go to the heart of one of the problems experienced by many PAYE taxpayers with the Revenue Commissioners, namely, that it is somewhat like the banks in that if one owes €100 they will come down hard but if one owes €10 million they are forced to treat one with due respect? There is a widespread perception that although tax rates are now lower, PAYE taxpayers and people on low incomes do not get as good a deal.

I support the refunds of tax paid in relation to self-assessment. It is essential for the system that if there is an over-calculation or a change in circumstances, a refund be made. I would like to see the Revenue reach out to people on smaller incomes and those in the PAYE sector because these taxpayers often feel powerless against what is a very powerful institution. I ask that the scheme which Mr. Daly described should come forward as quickly as possible so that PAYE taxpayers and pensioners feel they will be treated in the same manner as people in business.

I will ensure the scheme will come forward as quickly as possible, in so far as I can on behalf of Revenue. It would also be very important that it should be publicised as widely as possible. We have a very good record in that regard. Every scheme and every precedent has been placed on our website for quite some time, except that not everybody has access to websites. When we have finalised this scheme we will publicise it as widely as possible.

On the general question of whether interest payments apply to the self-employed and the self-assessed and not to the PAYE taxpayers, Members will know that I cannot discuss Government policy. The application of interest in particular sectors of the tax code would be rather more a matter for Government than for Revenue. We apply the law as it is passed on to us.

In recent years Revenue has been ratcheting up the process of charging tax on underpaid self-assessed tax from the self-employed and from business. Generally we now do not let anyone get away with underpayments without the application of interest. On the PAYE side, we are much more lenient, if I can put it that way, in that there is no interest on underpaid PAYE tax.

On the substantive issue of why there is interest for the self-employed and not for PAYE workers, that really is a matter of Government policy. This matter has been completely overtaken by the Finance Bill proposals which put everybody - the self-employed, businesses and individual taxpayers, PAYE or otherwise - on the same footing.

Essentially Mr. Daly is telling us that the maladministration which the Ombudsman discovered is not a sufficiently discerning principle for the Revenue to apply the restoration of the full value of their money to people. That is his argument. In the case of the widows, there was a High Court finding which stated that the Revenue wrongly applied the tax law in respect of these people. There could not be a plainer case that Revenue was out of court and the people concerned were justified. They had suffered damage and Revenue was obliged to make good that damage in current money terms, not in historical terms. Revenue had enjoyed the benefit of their money for several years. There are clearly grey areas where it is not possible to determine whether it was maladministration or whether the taxpayer did not bother to check something he or she should have claimed. However, in the case of the widows there is absolutely no doubt this was maladministration. I do not think the Ombudsman would draw it to our attention if it was opening up a huge range of cases.

In relation to the Ombudsman drawing attention to the delay in social welfare payments, the Department of Finance has clearly indicated the Minister understands the concerns expressed by the Ombudsman and that if any cases come to light other than for social welfare payments, it is proposed that regard will be had to precedent in resolving them. That clearly was a view. I do not share the Ombudsman's earlier view that the Department of Finance was holier than thou in this. I think it was quite complicit in the approach that Revenue was taking. To judge from what the Minister said in the Dáil, his Department has up to this supported the stonewalling of Revenue. I do not see the Department as being whiter than white in this. It is wrong in the same way that Revenue is wrong. Perhaps it is trying to put things right from 2003 onwards but the issue for us must be that the Ombudsman has drawn attention to an historical injustice. They are making it right for those not affected by the ruling but here we are apparently saying those who created the impetus for reform will be left with one arm as long as the other.

Before Mr. Daly answers, can he deal with the questions I asked because they flow right into Deputy Bruton's? I would like to get an overview on whether the Department of Finance was complicit.

While we had informal discussions with it, the Revenue Commissioners are independent of the Department of Finance. Traditionally, since the foundation of the State it has been the accepted policy that the Minister does not get involved in the day-to-day decisions of the Revenue Commissioners. Ministers from all parties have accepted this as something very valid. We would have had informal discussions with the Department of Finance on this because obviously it was going to be discussed in the context of the Finance Bill 2003 and the proposals on interest. However, I am not going to push responsibility on to either the Minister or the Department. Whether it was right or wrong, it was Revenue which took the decision. As to whether an ex gratia scheme or the extension of the letter of 1986 is an issue or a solution, while I will not infer what the view of the Department of Finance might be, I should imagine it, too, would be concerned about the financial implications. The essence is not that we do not want to pay widows. I am at pains to say this.

We need to know this. Did the Department of Finance state this should not be paid because of the implications for the public finances?

No, it did not. Going back to the Senator's point about implementation versus principle, from our point of view there is an important principle at play. Rightly or wrongly, we believed in looking at the totality of cases, at what Revenue would have been doing if we had paid interest in the cases in question. We did not believe we could pay, for example, the group of widows without paying others. Obviously, the recommendation encompassed a whole group of cases. We find it hard to see where the line is between paying widows and not paying, for example, the 5,500 who overpaid professional services withholding tax. Where is the line? How is a line created? The Ombudsman said the one year rule would exclude all those who had not already made claims. However, that to my mind is something that could be challenged.

Where does that leave Revenue? If we take a decision here today, it will have to deal with that point.

I was going to come to that, because that was the final question the Senator asked me. Obviously, if this committee takes a decision today, Revenue will have to consider it. Revenue is not in the business of not implementing decisions or not trying to implement decisions of the Oireachtas. I just want to be sure when I get out of here that I have a statutory basis on which to make any repayments that might be recommended. I have to make sure that in terms of the Comptroller and Auditor General and my responsibility as Accounting Officer, I have that basis. If the committee makes a recommendation, then certainly I will take it into consideration.

That is the point I wanted to get at. Revenue will not have an additional scintilla of legislative authority walking out of this room. The only difference will be that a decision will have been made. I want to know if there is a possibility that a decision taken in this room by this committee, by the Houses of the Oireachtas, will not be implemented. That is what I want to hear. Otherwise Mr. Daly is wasting our time. We are here to come to a judgment on something. I want to be clear that if we come to a judgment, it will be implemented, because if it is not, we have all wasted a morning.

I fully accept the authority and status of the Oireachtas. I will consider very seriously any recommendation that comes from this committee. Members need have no doubt aboutthat.

Will the Chairman of the Revenue Commissioners advise us of the nature of these informal discussions? Are they the subject of minutes or notes? From the point of view of the workings of this committee, it is important to know the attitude of the parent Department of the Revenue Commissioners. While I know there is a Chinese wall, I would like the Chairman to expand on these discussions. When did they take place? How extensive were they? Is it possible for us to get information about their nature? The Office of the Ombudsman has been such a major success in terms of public administration, both for citizens and the Civil Service, that it is vital we clarify the role of Revenue's parent Department in this. Were these informal discussions the subject of notes or documentation? How informal were they? When did they take place and how protracted were they?

They were quite informal because they were peripheral to the discussions on the interest provisions being made in the Finance Bill 2003. In so far as there were discussions on this issue, they would have taken place in that context. In that context, obviously this was discussed at, for example, the tax strategy group. Therefore, there will eventually be minutes from that group. The Deputy referred to the Department of Finance as the parent Department but we are accountable to the Minister rather than the Department. Following the discussions on whether Revenue should implement this report, the decision was ours and we did not ask whether the Department of Finance approved of it or if it thought we should go this way or that way.

In my interpretation of this, the professional services withholding tax case and the widow's pension case involved in the O'Carroll High Court judgment seem to be different. The withholding tax case arose from legislation that was introduced and then rescinded but the widow's tax of children's income seemed to be an interpretation by the Revenue Commissioners of tax law, which was found out to be wrong. Therefore, they are different. Is that not so?

Certainly, the professional services withholding tax case was one where the law was struck down as being unconstitutional. The original O'Carroll case decided that the pension entitlements of the child were not taxable in the hands of the widow. That was a case where the settled interpretation of the law, if I can put it that way, was overturned.

One was to do with interpretation whereas in the other the law was struck down.

In that one the courts actually interpreted the law differently. In effect, I suppose I would not say the law was struck down.

On that basis, one could bring test cases if one was really worried about an appalling vista opening up.

Those decisions dealt essentially with whether the income was taxable, they did not deal with the question of unjust enrichment or interest or any of the consequences emerging from this. The Ombudsman, Mr. Kevin Murphy, has spoken of his respect for Revenue and his personal respect for me. I should reciprocate that, both in relation to the Ombudsman's office and the Ombudsman himself. He made his finding in good faith, and it is a valid finding in so far as he is quite entitled to make it, but Revenue also acted in good faith after much soul-searching and serious consideration. One does not take on the Ombudsman - particularly the Ombudsman and a group of widows - without realising that the situation will be controversial.

It could also involve taking on the Houses of the Oireachtas.

I assure the Senator I am definitely not taking on the Houses of the Oireachtas.

May I draw the attention of the Chair to the motion which Senator O'Toole and I submitted?

Members will have to leave this meeting shortly for a vote in the Dáil on the Capital Acquisitions Tax Consolidation Bill. I thank the Chairman of the Revenue Commissioners and his officials for their informative presentation and replies to questions. It is a matter for the committee to consider what course to follow next.

Deputy Burton and Senator O'Toole have submitted a motion.

I ask the Chairman to read the motion.

I will read the motion. Normal procedure is that motions must be submitted four or, in exceptional circumstances, two days in advance. The committee will decide what action to take. The motion, as submitted, reads:

That the committee recommends that the report of November 2002 by the Ombudsman on redress for taxpayers concerning the refusal to pay full refunds of income tax to widows and to compensate taxpayers when refunds are wrongly delayed, be implemented in full and the committee reiterates its full confidence in the office of the Ombudsman and the work carried out by that office.

The motion is signed by Deputy Joan Burton and Senator Joe O'Toole, as proposer and seconder. I have outlined the normal procedure in these matters.

That is fair enough. If it is more appropriate to deal with the matter in four days, we can do so.

Having regard to a number of issues raised at this meeting, I suggest we have a draft report for consideration at the next meeting. Following approval as a draft report by the committee, I suggest that it be circulated to the Revenue Commissioners and the Ombudsman for their observations. Any final observations they may have on our draft report can be included in a clear, succinct and concise report to be laid before both Houses of the Oireachtas.

On a point of order, the Finance Bill will be on Committee Stage in two weeks. If the impasse is not overcome, we may be seeking certain changes by way of amendments to that Bill. In drawing up a report, is it possible for the secretariat to alert us to the need for consideration of this on Committee Stage, when Members of the Dáil will have an opportunity to discuss it? We should not allow the Finance Bill to be passed, produce a report six months later and then find that we have to wait a further 12 months to deal with the matter.

The point is well made. We will try to progress matters as quickly as possible. As Deputies are now required in the Dáil Chamber, we will suspend the meeting until 3.30 p.m., when we are to meet a delegation from the UK Parliament. At the commencement of that meeting, we will deal first with some outstanding matters on our agenda, including the Redress Board.

The joint committee adjourned at 5 p.m. until 3 p.m. on Thursday, 6 March 2003.