Brexit Preparedness and Related Matters: Revenue Commissioners

No. 6 is engagement with the Revenue Commissioners on Brexit preparedness and other matters. I welcome the chairman of the Revenue Commissioners, Mr. Niall Cody, and his officials.

By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of the evidence they are to give to the joint committee. If, however, they are directed by it to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or an entity by name or in such a way as to make him, her or it identifiable.

Members are reminded of a long-standing parliamentary practice to the effect that Members should not comment on, criticise or make charges against a person outside the House, or any official by name in such a way as to make him or her identifiable.

I invite Mr. Cody to make his opening statement.

Mr. Niall Cody

I welcome the opportunity to make an opening statement. I am accompanied by: Gerry Harrahill, commissioner; Therese Bourke, principal officer in personal taxes policy and legislation division; and Clare Omelia, principal officer and liaison to the Oireachtas committees.

Revenue’s role is to serve the community by fairly and efficiently collecting taxes and duties and implementing customs controls. Since 2015, we have had a dedicated customs division. We started considering the implications of Brexit before the UK referendum. Budget 2017 provided funding for additional Revenue staff to prepare for Brexit and to scale up our customs IT framework. Initially, our preparations were based on a central case scenario and a transition period to the end of 2020. The Government has indicated that in the event of a no-deal Brexit, it will engage with the EU Commission and EU partners regarding North-South trade. Revenue will continue to provide technical support to the Brexit team in the Department of the Taoiseach, the Department of Foreign Affairs and Trade, and the Department of Finance.

If the UK leaves the EU customs union, it becomes a third country and the free circulation and movement of goods between EU member states and the UK will end. This will substantially increase the proportion of Revenue customers who are required to deal with customs formalities and other related obligations. It will present a significant challenge for many of those businesses, which do not have any experience of third country trade and what it entails. Revenue’s responsibility and priority is to provide high-quality service to support voluntary compliance and to put in place the Revenue resources to facilitate the efficient movement of legitimate trade in the new trading environment.

To put this in context, currently approximately 17,000 businesses trade with third countries. During 2018, Revenue, through our electronic systems, processed 898,000 import declarations and 762,000 export declarations, and 5.6 million transport documents related to this trade were declared in our eManifest system. We process 39,000 transit declarations, and 100,000 safety and security declarations are made per annum through our import control system.

Currently, businesses that trade with the UK do not need to engage with customs formalities. Our data indicate that during 2017, 84,000 businesses engaged in trade with the UK and of those, more than half were engaged in regular such trade. Post Brexit, import and export declarations could increase to as many as 20 million per annum.

As part of the co-ordinated efforts of Departments and Government agencies, Revenue’s overarching objective is to enable and support businesses to trade with the UK as a third country. I will summarise for the committee some details on our progress on the matters which are directly within Revenue’s control.

Over the past 18 months or so, Revenue has engaged closely with businesses on the steps they should be taking to prepare for Brexit. This engagement has been through the customs consultative committee, made up of Revenue and representatives of import and export trade organisations; by participation in events organised by other State agencies, including Enterprise Ireland and Bord Bia; industry organised events; and meetings with representative groups. We have also had one-to-one engagement with logistics companies and larger importers across various sectors, and our level of engagement with companies has intensified.

Our message to businesses has been clear and consistent: they need to undertake a Brexit impact assessment for their business; they need to identify the challenge or challenges of adapting their business processes; and they need to be ready to comply with the customs requirements that will arise from trading with the UK as a third country. We have emphasised the comprehensive information and support that is available from Revenue, and how it can be accessed and used.

We identified two key trader groupings, which are expected to be significantly impacted by Brexit. These are large economic operators that trade with the UK and logistics companies or freight forwarders. We wrote to these traders last November, highlighting the Brexit-related Revenue supports available to them and inviting them to a series of Revenue Brexit seminars. These events aim to explain customs requirements and formalities; highlight simplified procedures that facilitate the efficient movement of goods; and provide information on how businesses can apply for appropriate authorisations to better position themselves to trade with, and through, the UK post Brexit.

At the seminars, traders can speak directly with Revenue experts across a range of specific customs themes. Experts from Departments and agencies, including from the Department of Agriculture, Food and the Marine, and the HSE’s environmental health service, also participate in these events. In December, seminars took place in Cork and Dublin. This month, we have held seminars in Galway and Dundalk. Today, there is seminar in Dublin Castle, and one next Wednesday in Wexford, with Limerick and Sligo scheduled after that.

Revenue has identified approximately 70,000 small and medium-sized enterprises that traded with the UK in 2017. We expect that most will engage a customs broker to meet their customs requirements. In that regard, we had a dedicated briefing seminar for customs brokers and agents earlier this month to raise awareness of the likely increased demand for the services of such brokers and agents, and of the issues that arise for businesses trading with the UK as a third country. In December, we held a meeting for all customs software providers to brief them on the changes we are making to our systems to cater for the UK as a non-EU member. We are satisfied that post Brexit, their software will interact correctly with Revenue systems. Revenue is engaging directly with the Irish Small and Medium Enterprises Association and the Small Firms Association, and by the end of this month we will have contacted all these traders directly to advise them on the importance of preparing for Brexit, and provide guidance on the supports and information available from Revenue in advancing those preparations.

Revenue’s overarching approach is to carry out the required customs controls through a risk-based programme of post-clearance checks and customs audits which, to the greatest extent possible, will take place at traders’ premises, away from the point of importation.

The customs division is overseen by my colleague, Mr. Harrahill, and is headed up by an assistant secretary. The dedicated Brexit unit, which has 14 full-time equivalent staff, draws together and co-ordinates expertise from relevant specialist areas throughout Revenue including customs; indirect tax; information technology; international relations; legislation; recruitment and training; and statistics, research and analytics. We are involved in a significant programme of Brexit-related recruitment and training.

In our initial planning process, based on the assumption of a transition period to the end of 2020, Revenue determined that an additional 600 staff will be required overall, to be deployed on a phased basis in the period up the end of December 2020. It was estimated that approximately half would be assigned to import and export trade facilitation activities; and half to the national divisions, engaged in trade facilitation, and customs control and oversight activities, at specific trader case level. This work will include: providing support to businesses to meet their customs obligations; processing and assessing customs authorisations; ongoing monitoring of traders with customs authorisations; performing controls on the movement of goods; and auditing businesses regarding their customs activities.

Budget 2017 provided funding for 40 Revenue staff to prepare for Brexit. By the end of last year, these new staff had completed their training and were deployed. A Government decision of September 2018 approved the phased recruitment of additional staff. Internal, interdepartmental and open recruitment campaigns began. The Public Appointments Service ran an open recruitment campaign, for customs officers to work on a 24-7 basis, which attracted more than 3,000 applications. Interviews began in October 2018 and successful candidates proceed onto a five-week training programme.

In preparation for a no-deal Brexit, we have accelerated and expanded our recruitment and training schedules to meet the end-of-March deadline. We are on track to have over 400 additional staff in place by the end of March. We have reassigned serving staff, are preparing for any necessary further redeployments on a temporary basis and will have the balancing complement of additional staff recruited by the end of 2019. We are working with the Department of Agriculture, Food and the Marine and others to co-ordinate activities for optimal trade facilitation at our ports.

IT systems are at the heart of all Revenue’s operations, and are also central to how Ireland and the EU facilitate the fast and efficient completion of customs formalities. Revenue systems were not originally designed to handle the number of customs transactions that can be expected post Brexit. In budget 2017, the Minister for Finance included provision for a €2 million investment in scaling up our customs IT framework and we have carried out significant work to increase systems capacity to cater for trade with the UK as a third country.

All our IT preparations are currently on schedule.

Based on the progress made to date and the robustness of our testing programmes, we are confident that by the end of March 2019, our IT systems will handle the increased transaction levels in a no-deal scenario.

Revenue plays its part at EU level in Brexit preparations. We are involved in meetings and workshops on the continued use of the UK landbridge and in meetings of a like-minded group of member states including Ireland, France, Belgium, Germany and the Netherlands. Our aim is to encourage a collaborative approach to ensure the consistent treatment of traders by the member states concerned after Brexit and to address common challenges such as efficient processing of roll-on, roll-off traffic and making sure that trade movements under the customs transit procedure operate with maximum efficiency, thereby ensuring the smooth flow of legitimate trade. We are satisfied that our concerns are understood and appreciated by the European Commission and the customs administrations of the member states concerned. We are also actively engaged in the preparatory work that is co-ordinated by the Department of Foreign Affairs and Trade. In this, Revenue supports the task of ensuring that Ireland’s unique position is understood and conveyed into the international negotiation process through the appropriate channels, that analysis is undertaken to identify the consequences of Brexit and that efforts focus on maximising the free flow of legitimate trade post Brexit.

During 2018, an interdepartmental group chaired by Revenue considered the adequacy of port and airport infrastructure and facilities post Brexit. The group, which is now chaired by the Department of Public Expenditure and Reform, includes representatives from Revenue, the Departments of Agriculture, Food and the Marine, Health and Transport, Tourism and Sport, as well as from the Office of Public Works, OPW. The group considered physical infrastructure requirements to facilitate and support the movement of legitimate trade, including requirements of Revenue, the Department of Agriculture, Food and the Marine and the environmental health services to carry out any necessary customs controls and sanitary and phytosanitary, SPS, checks at ports and airports. The OPW, which is responsible for the delivery of the required infrastructure, is now actively engaged with relevant stakeholders with a view to ensuring that needs are met.

In a no-deal scenario, the free circulation and movement of goods between EU member states and the UK will end. This will pose significant challenges for Ireland and other member states, as well as for the UK. Irish businesses engaged in trade with the UK will be obliged to comply with customs procedures and controls. The Union customs code, UCC, provides streamlined and simplified procedures and Revenue has invested in scaling up its customs IT systems to handle the increased transaction levels. We are engaged with businesses to help them to prepare for trade with the UK as a third country and we have prioritised the deployment of staff to facilitate trade. The Government has made clear that its overriding objective is to avoid a hard border on the island of Ireland. Revenue is not planning for customs posts on the land border. The Government has indicated that in the event of no deal, it will engage in intensive discussions with the European Commission and our EU partners and Revenue will provide whatever technical expertise and assistance may be required during this process.

In keeping with Revenue’s role and responsibilities, we are strongly focused on facilitating the efficient and timely movement of goods in compliance with customs controls, post Brexit. We will continue to work to support trade and businesses. We are determined that all that is in our control to do will be done. Revenue will be as ready as we can possibly be to deal with the outcome of unfolding political and policy developments.

Moving now to the second of this morning’s topics, under section 114 of the Taxes Consolidation Act 1997, employees are entitled to a deduction for expenses that are wholly, exclusively and necessarily incurred in the performance of the duties of the office or employment. Revenue publishes statistical information on the cost of tax expenditures, including claims by all taxpayers for allowable expenses that they have incurred in the performance of their work. The latest available statistics show that in 2016, there were 545,600 such claims at a total cost to the Exchequer of €85 million. Of this, approximately €38.4 million relates to the cost of claims for what are known as flat rate expenses. Final figures for 2017 will be available later this year. The actual cost to the Exchequer is dependent on the specific circumstances of each taxpayer and will vary depending on whether, and to what extent, the taxpayer has taxable income and whether such income is taxable at the standard or marginal rate of income tax.

Tax relief for flat rate expenses is given as a deduction from employment income. When, for example, an employee pays for tools that are necessary to do his or her job, but which are not provided, paid for or reimbursed by the employer, the expense is tax deductible. This expenditure is the same for employees within certain categories and over the years, Revenue engaged with employee representative bodies to determine a flat rate expense within occupation categories, such that large groups of employees working in the same sector can more easily avail of their entitlements. The flat rate expenses regime is a concessionary practice operated by Revenue. Its purpose is to simplify administration where the specific legislative criteria are met, to help both the taxpayer and Revenue by making it easier for large groups of employees working in the same sector to avail of their entitlement to tax relief in respect of expenses incurred in the performance of their employment duties. In practical terms, this means that the flat rate expense that is agreed between Revenue and the relevant employee representative group can be claimed, unvouched, by all employees within that category using Revenue’s online myAccount service.

In a series of agreements reached over a period spanning 40 to 50 years, flat rate expenses are in place for 53 industry groups, covering around 134 employment categories. The list of flat rate expenses and employment categories is published on Revenue’s website. Many of the rates that are now in place predate a range of significant changes in employment circumstances, regulations and working practices that have come about over the years. As one example, the Safety, Health and Welfare at Work (General Application) Regulations 2007, oblige employers to supply their employees with personal protective equipment. If this expense is no longer actually incurred by employees, it follows that it is no longer justified or proper to be included as an element in the flat rate expense amount for the relevant occupation categories.

It is clear that the flat rate expense administration system creates efficiency for both Revenue and taxpayers. However, its operation does not relieve Revenue of its obligation to administer the tax system in accordance with tax legislation. In 2018, a comprehensive review of flat rate expenses began to ensure expenses previously agreed are still justified and are in accordance with the legislative requirement for deduction. We are in a process of engagement with the various representative bodies to consider whether the respective flat rate expenses are still appropriate. At the end of the process there will be adjustments to decrease or increase rates to reflect actual expenses incurred by employees or to withdraw rates in some categories if they are no longer in keeping with legislative requirements. The committee will be aware that it was initially intended to implement any changes on a phased basis according as the categories are reviewed. However, in the interest of fairness to all workers, Revenue decided that all the changes will be implemented together on 1 January 2020.

By providing assurance of compliance with tax legislation, the review under way will support the continuance of what has been a very efficient and effective administrative system. Finally, it is important to point out that neither the flat rate expense regime itself, nor the review, affect the statutory right of any employee to claim a deduction for expenses wholly, exclusively and necessarily incurred in the performance of the duties of his or her employment, to the extent to which such expenses have not been reimbursed by the employer. Revenue has a strong track record of being proactive in encouraging taxpayers to claim their proper entitlements. We will continue to prioritise our actions to enhance taxpayers’ awareness of their obligations and entitlements.

Moving now to the final topic, the committee is aware that on 31 January last year, the Government published a report entitled “The use of intermediary-type structures and self-employment arrangements: Implications for Social Insurance and Tax Revenues”. The report was prepared by a working group comprising the Departments of Employment Affairs and Social Protection and Finance, with technical support from Revenue. It found that on aggregate, there is no evidence of any significant change in the level of self-employment in the economy and that there is limited evidence of bogus self-employment or disguised employment. Its recommendations included policy matters, including considering reducing the differential in social insurance rates contributions payable by self-employed people as compared with the much higher level of the total payable by, and in respect of, employees.

The report outlined the changing face of the labour market and emerging new forms of service relationships in the so-called "gig" and "sharing" economies that have blurred the lines as to what constitutes contract of service, that is, an employer-employee relationship and contract for services, that is, a self-employed contractor. As an alternative to the traditional employer-employee relationship, intermediary-type structures are now common as a means of providing labour. These are used for example in the airline, IT, and pharmachem industries and in other industry sectors such as media, entertainment and construction.

These structures can take the form of a personal service company, PSC, of which the worker is a director or employee or both; or a managed service company, MSC, of which the worker is one of a number of directors or employees or both.

It is Revenue's responsibility to protect income to the Exchequer from all taxes. Revenue's compliance framework identifies risk, including the tax risk associated with the use of different employment relationships and structures to provide labour. Such arrangements create different outcomes in terms of employers' and employees' PRSI. They may also give rise to tax risks, in the potential to defer payment of part of, or all remuneration, with a consequent deferral of payment of the associated tax and USC; or payment of unwarranted tax-free expenses; or different pension planning or tax planning opportunities. Revenue conducts a full range of interventions to combat all types of tax evasion. Revenue interventions include a focus on the practice of disguised employment, and challenging the inappropriate classification of workers as self-employed contractors. The determination as to whether a person is employed or self-employed is primarily made by the Department of Employment Affairs and Social Protection, and matters of policy in this area are for that Department and the Department of Finance.

Finally, I must draw the committee’s attention to my obligation, under section 851A of the Taxes Consolidation Act 1997, to uphold taxpayer confidentiality, and I will try to answer any questions the committee has.

Cuirim fáilte roimh an Uasal Cody agus a chomhghleacaithe chuig an choiste. Tagraím don mBreatimeacht ar dtús. As we get nearer to the end of March deadline there is increased anxiety, worry and concern about the potential outcome of a no-deal scenario. I think I can say without fear of contradiction that nobody in this room wishes for that. There does need to be a very honest and open conversation about what will happen, particularly in the Border region. As Mr. Cody knows, I represent the constituency of Donegal. I cross the Border twice to get to Dublin. There is, rightly, much cross-Border interaction in that region for goods, services, shopping and so forth. People want to know whether the Brexiteers are right when they say that a no-deal crash-out scenario will not result in any Border checks and that things will go on as normal, that this is scaremongering from opponents of Brexit, or will things change dramatically in respect of cross-Border trade, shopping and impediments placed on businesses which have worked freely for many decades?

Mr. Niall Cody

We share a concern about the implications of a no-deal Brexit. The implications of Brexit will lead to significant change in how trade is conducted. I have to be careful in what I say because when I say something it ends up as headlines in various places. The Brexiteers are not right. There will be significant change and what we have to do and what we are trying to do is manage the implications of legitimate trade. In my opening statement I concentrated on how we facilitate legitimate trade. There are significant other challenges that will flow into the future in respect of tackling illegitimate trade but the first concern is to ensure that there are systems in place to deal with legitimate trade.

When I was before the committee in May 2017 I said we were not planning for Border posts in - to cite the Deputy's case - Donegal. We are not planning for Border posts. The Government has indicated that in the event of a no-deal Brexit there will be "difficult conversations" - I think that was the phrase used - with the Commission to work out how the North-South process would work while protecting the integrity of the Single Market and the Union customs code because the integrity of the Single Market is critical to the economic life of the country. There will have to be a declaration process and that is why we have concentrated on scaling up our IT systems to allow traders in the Republic make a declaration and that the declaration process for the import of goods from Great Britain or Northern Ireland will have to flow from leaving the customs union. That is the process.

There is an administrative cost associated with that declaration process that has been estimated at being in the region of €100 per movement. It will impose a significant burden on industry and business. Mr. Cody also mentioned that, notwithstanding the beefing up of the IT system in Revenue, certain importers and exporters will not be using the system online. Therefore they will have to present at fixed positions that already exist in Donegal and elsewhere. Have those customs premises, to which people will be diverted, been upscaled to deal with the increased activity that will take place?

In Donegal there is a lot of suspicion about the coincidence that there have been significant works going on in the three customs posts in Bridgend, Lifford and Pettigo-Belleek, in recent months. Indeed the Lifford one received planning permission last year where the old customs facilities have been demolished and the site cleaned up and secured with 2.4 m high fencing. It is coincidental that these three sites were left like that for decades and now all of a sudden, there is significant work and tidying up going on at the three major crossings. There is a concern that there is potentially more than what is being laid before the public.

Mr. Cody says difficult conversations are needed with the Commission but what is the Revenue's understanding now, in the context of a no-deal Brexit, of the demands or expectations of the Commission on the Border on the island of Ireland vis à vis checks and monitoring of the Border?

Regardless of any other implications of Brexit, there will be an administrative burden on businesses that import goods from or export goods to the UK. That is a consequence of the UK not being in the Single Market and the customs union. My counterpart in the UK got beaten up, so to speak, by Brexiteers for trying to put a cost on that in respect of the number of transactions. It is very complicated for a number of the logistics companies and the business model where a load for multi-consignees is brought in. We try to provide a framework, facilities and ICT infrastructure to facilitate the free movement. We could go away from this meeting saying that Niall Cody said it will be all right. It will be a significant cost implication for businesses engaged in trade and depending on the sector even more so, and by the time we finish today we will talk about various sectors, for example, the agrifood sector.

I can tell the Deputy and his constituents that we are not involved in the cleaning up of any facilities for Border posts. There have been a number of questions, and I hear about Border posts being done up for Revenue. I did not even know that that work was done in those locations. Some of the locations are owned by the State, some are not and some of the original ones are gone. Where they are State-owned, I imagine at various times insurance, health and safety and many other issues will probably have to be looked after by the Office of Public Works, OPW.

We have been involved heavily in work on the physical infrastructural arrangements that are needed in the ports. They are significant, and they will involve expenditure. We do not have the facility to have secret funds and secret expenditure; it has to be voted. The Deputy's colleagues on the committee which is meeting next door would have great fun with me if I had magic resources. I assure him that no work is being done on Bridgend. We still have an office and staff in Bridgend. Around the time I was before the committee previously, I was in the offices in Letterkenny and Bridgend and the principal officer in Donegal at the time brought me out to show me the location of the original Bridgend customs post. It was a lovely sunny day but I said we had better get back into the car because it would have been a very interesting photograph in the newspaper of the chairman of the Revenue Commissioners surveying new posts. The Deputy might even have come in and told me I was seen up there. I assure him we are not planning in that regard.

On the discussions that will have to take place with the Commission, they are conversations that would have to take place. When they take place, all of us will be caught up in the negotiations about what is happening, which are led by the Departments of Foreign Affairs and Trade and the Taoiseach. We provide technical support. The issue so far is that there is a withdrawal agreement agreed by the EU and adopted by the 27 countries. It was agreed originally with the UK Government, and there is a process to be gone through in that respect. We will provide whatever support is necessary when and if negotiations have to move to that phase. I could not possibly speculate about what it is that would have to be done but there are certain clear principles that flow from being a member of the customs union and being in the Single Market. When Britain leaves, it will leave from being in a position that it is in the customs union and in the Single Market and there is regulatory alignment at the start.

I appreciate that. I take Mr. Cody's point and his assurances that the permissions granted for the Border posts are not part of Revenue's planning for infrastructure on the Border. Regardless of the outcome of the European Commission discussions, can he, as head of the Revenue Commissioners, inform this committee and, importantly, inform people living on the Border, that his officials will not participate in checks on the Border? Is he ruling that out regardless of any outcome of negotiations or is that a possibility?

The Deputy is running out of time.

I have one final question.

Mr. Niall Cody

I could not come in here and rule out something forever. It is not in my authority. Before the Single Market in 1993, there was a process around Border controls. The Union Customs Code, and developments in customs and in the World Customs Organization, which Mr. Harrahill could talk at length about, have evolved significantly. With every year we are moving towards a more IT-based customs framework but there are particular challenges. The previous time I was before the committee, Senator Conway-Walsh and I chatted about cross-Border shopping and buying a dress in Belfast; she was buying a dress and I was talking about it. There are particular challenges relating to private consumers and cross-Border shopping because as we went into it on the previous day, there are particular rules for the customs process in that goods with a value in excess of €300 being brought across a land border fall to be presented. That is a particular challenge. What we have focused on is trade - business-to-business - because that is the bulk of the money and the risk. We must remember that the customs duties are a complete competence of the EU. It is its money. We collect it on behalf of the EU. It is a big part of the funding. The key issue for us is ensuring that we collect the proper customs duty which is primarily involved in business-to-business trade. The particular challenge we face is dealing with the areas that cannot be looked after in that business-to-business environment. I regard that as a major challenge and something we need to examine in a context of the common travel area.

I have one question about flat rate expenses but I would make the point that Revenue will not stop cross-Border trade so do not make us criminals because we are buying our shopping in Derry or Omagh, or vice versa. We need to sort that out because it has been happening for decades. It will continue happening, so we need to find a specific arrangement in that respect.

Regarding the question-----

Mr. Niall Cody

That is very important because I believe that becomes an impossibility. It is an area in which there is not a particularly big fiscal risk but it is a particular challenge. It is different when it comes to issues such as vehicle registration. There is a framework for such issues but certainly-----

I am conscious of the time, so I would like Mr. Cody to discuss the flat-rate expenses issue, which is what I asked the committee to invite him here to discuss. The Taoiseach warned us that changes will not be made until 2020, if at all. He also said that he would politically-proof every outcome when the review is decided. This is obviously concerning, given that the Revenue Commissioners are independent. Can Mr. Cody discuss the engagement he has had with any ministerial officials about this? Can he tell us if the review has been completed for certain types of flat-rate expenses? Will the decision reached apply, meaning that people will lose their flat-rate expenses from January next year? I completely disagree with such an approach; it will place a significant burden on Revenue officials at this time.

Can Mr. Cody inform us whether the flat-rate expenses the Taoiseach and his Cabinet colleagues are benefitting from will be included in the review? I refer to the dual abode allowance, where they can claim up to €3,000 unvouched for maintaining a second residence in a hotel, or €4,500 unvouched for the costs of having an apartment in Dublin. Are they also on the chopping block or is it just shop assistants, hairdressers, fishermen and women who are being targeted?

Mr. Niall Cody

We are not abolishing flat-rate expenses. We are reviewing the entitlement to such expenses where it arises under legislation. We have carried out reviews of it, and completed reviews in certain cases. That will stand, unless between now and 2020 some other evidence comes to light that a change is needed in that area. We will continue the review of the rest of them, and we have undertaken not to commence its implementation until we have completed all of them. We will have that done by the end of this year. Any changes will have effect from 1 January.

The issue about particular expenses provided for in the legislation is a matter for the Oireachtas. The dual abode allowance, for example, is specifically provided for under legislation. Our job is to implement the legislation as provided for. The review will continue. We are not starting on the basis that they are being abolished, but we are considering whether categories of employees undergo expenses "wholly, necessarily and exclusively". That is the legislative provision. If the legislation was to change, we would obviously implement the new legislation.

The background to this review is that over the past number of years new categories of employees and their representative groups have approached us and made a case. We examined the case with regard to the legislation and the expenditure, and granted new types of flat-rate expenses. We were asked about differences in some of the more historical types of expense regularly in parliamentary questions. I recall the commentary on lower rates for females compared to males in certain cases, and vice versa. We were asked how this could be the case and told that it does not make any sense. There was an issue regarding what constituted "wholly, necessarily and exclusively". We mentioned the health and safety issue. It would be a poor employer in this day and age who expected his or her employee to pay for something that is wholly, necessarily and exclusively incurred in carrying out his or her employment. The reality is that if one has to, one is entitled to claim. If there is a category where the flat-rate expenses system works better, we will implement it. Our system is so different from what it was in the 1960s when this process started, so if an individual employee who is not part of a representative group incurs expenses, he or she can log on to myAccount and complete a form 12 electronically in two minutes. We have a system that is so different from what was in place when the flat-rate expenses system started. Until 2008 or 2009, every few years the consumer price index was raised but not fundamentally reviewed. The economic downturn came, and many of the flat-rate expenses stayed as they were for a number of years before new categories came in. The process is just part of what Revenue does across the wide portfolio of risk we deal with. It is part of our obligation in the proper interpretation and administration of the law. We are not withdrawing the system, but the review of flat-rate expenses will continue. We go about our business in as effective a way as possible. Sometimes we find ourselves the subject of a media flurry, in situations where perhaps we have not thought enough about what we do and how we get the message across. That is the reason the finance Bill process started. We considered the idea that six or seven parts of the flat-rates expenses system had been completed but that the others would not be completed in time. That is why we decided to postpone implementation of the changes until all the categories of flat-rate expense had been reviewed. It allows for an element of fairness.

I welcome Mr. Cody and his colleagues. In the event of a no-deal Brexit on 29 March, aside from the crisis political discussions that will arise at that time, will he set out the legal position regarding the role of the Revenue, Ireland's responsibilities in the context of the UK leaving the Single Market and the customs code of the Union from that date?

Mr. Niall Cody

The most straightforward answer is that the UK will be a third country, and in that regard it will be no different from any other non-member of the EU in the Single Market. From a customs perspective, all of the rules that apply to the import of goods from outside the Community will apply to the UK. There are specific provisions around different issues such as land borders, which we have touched on. We have been in situation of not having an external land border, from a customs union point of view, since we joined the EU. However, joining the Single Market was the event that allowed us to remove the border controls I discussed with Deputy Pearse Doherty from 1 January 1993. Certain things flow from a customs perspective, and other things flow from an excise perspective. I imagine that all of us in the room are fascinated by much of the ongoing commentary, and I am regularly surprised to hear certain Members of Parliament in the UK talking about the different VAT regimes and different excise regimes, and suggesting things could work along those lines. There is a suggestion that they could work differently between Ireland and Northern Ireland because VAT and excise is different. I always wonder why the follow-up question from the interviewer is never to suggest that it works because the UK and Ireland are both in the Single Market. The Single Market provides the framework for the VAT process and the excise process. There is a VAT information exchange system in place in the EU, which is an IT system used by the 28 member states that no other country uses.

That is what allows the movement of goods.

There are complex VAT directives. My colleagues are probably starting to smile because I was involved in the run-up to the Single Market at a much more junior level in the area of the VAT directives. The excise movement control system is an IT-based system that facilitates the movement of excisable products across frontiers throughout the community. If the UK left the Single Market immediately with no deal, it would no longer be part of the Single Market VAT rules or the excise rules. If someone is not part of the VAT or the excise rules they go into the customs rules. One is either subject to the customs rules or the EU VAT and excise rules.

Does the national authority, in this case the Revenue Commissioners, have any discretion in the application of the customs rules in respect of trade with a third country or are they essentially acting as an agent of the European Commission?

Mr. Niall Cody

Customs is an EU competency and the customs legislation is based on regulation and direct application. It is for the national authority in a member state to decide how to implement the EU's customs code within the framework of the regulations. The Customs Act 2015 supports the EU's customs code and deals with powers and sanctions within the framework of the code. Customs duties are EU money. We collected €333 million in customs duties in 2018, which becomes part of the own resources of the EU and in respect of which we are subject to audit every year. The country is entitled to retain 20% of the €333 million and 80% goes to the EU.

Have the Revenue Commissioners done a calculation of approximately how much would be collected on the basis of existing trade with the UK in the event of the UK becoming a third country?

Mr. Niall Cody

It is impossible to say. The value of imports from the UK as a proportion of imports from third countries is something like 60% but the figure depends on the breakdown of tariffs. Customs is now more about regulatory control, protecting markets and protecting environmental rights in the market. A lot of goods are subject to very low customs tariffs, if any, but the greatest level of tariffs is in the agrifood sector, which accounts for a lot of the imports from the UK. This will be the challenge from the export side too.

There is no estimate based on existing trade.

Mr. Niall Cody

No, but 60% of the value of imports would be another €200 million and this would disproportionately weigh on another €300 million. There will probably be a significant change in trading patterns over time so it is difficult to say.

In May 2017, when we had a meeting with the former Commissioner, Mr. Orban, Mr. Cody mentioned this point. The Commissioner set out the details of the electronic customs declaration and said that between 6% and 8% of the traffic would need to be the subject of some form of check, whether of documentation or in the form of a physical inspection. Is that still an accurate estimate? Mr. Cody said that, post Brexit, import and export declarations could increase to as many as 20 million per annum, both east-west and North-South and, at between 6% and 8%, this would be between 1.2 million and 1.6 million checks at the Border, at our ports and at our airports. Is that estimate still broadly accurate?

Mr. Niall Cody

The 6% and 2% estimates are broadly the same.

I think Mr. Cody means 6% and 8%.

Mr. Niall Cody

Because of regulatory alignment, in the initial stages of the UK's departure from the Union there will be a lower number of checks than we carry out on goods from third countries, because the latter are for safety standards etc. The immediate challenge of Brexit is to deal with how things change over time as regulations diverge. We have worked with our colleagues in agriculture and environmental health on simplification processes to obviate the need for physical checks. The challenges we have relate to the specific rules relating to particular goods, which require physical checks but tend not to be customs-generated.

I am looking for confirmation that the figure remains broadly accurate. It will not happen overnight but, in the event of the UK being a third country, there will be some 1.5 million physical inspections or movements having to be checked for documentation. Given movements of some 2.3 million, it will mean between 100,000 and 200,000 checks on goods going across the Border. Can Mr. Cody confirm that and speak about it in some way?

Mr. Orban spoke about facilitation posts that would not necessarily be at the Border but would be between 10 km and 15 km away. What are the facts in respect of that issue?

Mr. Niall Cody

The 20 million to which I referred comprises imports and exports but the physical and document-checking always focuses on the inwards direction of trade. The import figure is approximately 11 million, with 9 million on the export side. There are also express carriers which carry out multiple small transactions, though I will not name any one of them. The process is dealt with by those companies.

The Deputy asked about the posts at a distance of 15 km from the Border.

In 2016 part of our team in the customs division started exploring what would be involved. That has been an iterative process. We all remember the draft report, which was preparatory work, that ended up as headline news. There was a lot of work done. We looked at different border processes, including those between Norway and Sweden and between Austria and Switzerland, and looked at various options. We have looked at what we can do and the reality, which I am sure Deputy Doherty will confirm, is that a trade facilitation station 15 km west of Bridgend would not be considered as other than a border post. We have moved away from that. We want to look at and explore the idea of trader premises, bonded warehouses, and customs warehouses, ideally the consignee's premises, and at building these into our risk-based approach to controls. One of the things the European Commission, the Union's customs code, and the Directorate-General for Taxation and Customs Union is really interested in, and on which they have done some preparatory thinking, is how best to work an integrated tax and customs approach to the risks presented by customs. We are fortunate that we have an integrated tax and customs administration. That is not the case in all countries. In some countries the tax authority has to go through a legal framework to engage with the customs authorities whereas we have an integrated system and we look at importers on a-----

I will ask my two final questions because my time is limited. Was political direction given to the Revenue around the summer of 2017 to change its approach to making preparations for Brexit?

Mr. Niall Cody

No. I remember reading in the newspaper one Saturday morning that Revenue had been instructed. I thought to myself that there must be somebody in Revenue more important than me because nobody had instructed me. Every so often I read about political instruction but I have never experienced it. We looked at things in the context of how to meet our requirements to facilitate the free flow of commerce. We do not operate in such as a way that we could have secret plans and secret expenditure, to return to that idea. We are subject to scrutiny here and are subject to the budget and to the Estimates process. This committee will have to sign off on our Estimates. The Minister will be here.

Mr. Cody said that, based on the benign scenario of a deal and a transition period, Revenue determined that an additional 600 staff would be required. Does he have an estimate of what would be needed in the event of a no-deal Brexit?

Mr. Niall Cody

The central case that formed the basis for the Government decisions in July and September was based on a withdrawal agreement, a transition period, and the full implementation of the process with effect from 1 January 2021. Our plan suggested that we would need in the region of 600 staff and the infrastructure to administer them from 1 January 2021. Effectively what we have to do in the event of no deal is to pull that forward to as soon as possible in 2019. The 600 staff required for 1 January 2021 now have to be put in place as soon as possible. We will not be able to have them all in place for 30 March.

That 600 was based on the central scenario-----

Mr. Niall Cody

Yes, but the central scenario finished-----

-----of a transition period and then a trade deal, which is very different from a no-deal Brexit.

Mr. Niall Cody

The central case was based on a transition period and the UK then leaving. It did not attempt to predict what the future trading agreement would be. The central case was an agreement and a transition period to allow the infrastructure to be developed, but it involved the UK leaving at that point. That was the central case.

So 600 is the number even if there is not a deal.

Mr. Niall Cody

That is the number even if there is no deal. It is really interesting to see other countries' plans. Germany is talking about needing 900 staff and the Netherlands is talking about needing 1,000. With regard to the UK at various times I have seen figures including 6,000. There is an element of managing as best we can but things will change in the Estimates process over time. Trade will change. It is to be hoped that simplification and modernisation will continue. We had to be prudent and to get people. I am sure one of my colleagues will talk to us about what will happen in the ports in the event of the UK leaving. There are significant challenges for us. We need to move to a 24-7 trade facilitation process to allow Dublin Port and Rosslare Europort operate properly. There is a challenge in keeping goods coming in, but we also have to make sure that the ports are not clogged up for goods going out. It was interesting that 3,009 people applied for our trade facilitation posts. That was phenomenal. We must be seen as a good place to work.

I have a few follow-up questions for Mr. Cody and his colleagues. In his presentation he said that "The Government has made clear that its overriding objective is to avoid a hard border on the island of Ireland." and that "Revenue is not planning for customs posts". For context, he also said: "Revenue’s overarching approach is to carry out the required customs controls through a risk-based programme of post-clearance checks and customs audits which, to the greatest extent possible, will take place at traders’ premises, away from the point of importation." I have a couple of points following on from those of Deputy Michael McGrath. How far advanced is Revenue in coming up with that process? The process effectively involves carrying out controls at the traders' premises as distinct from doing so at a post or border. Will that satisfy EU Single Market and customs control requirements? Will Mr. Cody give me an idea of the practicalities around this? Would what Revenue is looking at proposing, which is in essence no border but checks at traders' premises, satisfy the requirements of the EU Single Market and EU customs rules?

Mr. Niall Cody

All of the provisions we talk about are already carried out in respect of trade with third countries, but there are challenges, particularly in respect of particular categories of goods. From a customs perspective-----

Will Mr. Cody give us an example of how goods coming in from a certain country are dealt with at the moment? Will he give us a practical example? Everything is a bit abstract at the moment.

Mr. Niall Cody

I will. In fact, I will ask Mr. Harrahill to outline the procedures.

Is Mr. Cody saying that what is being proposed here satisfies Single Market and EU customs rules?

Mr. Niall Cody

I am saying that the type of provisions on which we are looking to base our controls of legitimate trade build on measures within the Union's customs code.

That is in operation.

Mr. Niall Cody

It operates currently but there are processes to be gone through and declarations to be made, as was mentioned in the discussion with Deputy Michael McGrath. It is not as if nothing will change; rather, there will be a whole process of declarations within our IT framework and there will be auditing. That is necessary because if the UK was not part of the European Union VAT and customs system, Irish traders would be concerned because the UK would never be able to sell anything to an Irish trader again.

I am interested in hearing how it operates in practice. Will Mr. Cody give an example?

Mr. Niall Cody

It would be best if I asked Mr. Harrahill to give a practical example.

I ask for a current example.

Mr. Niall Cody

Yes.

It should refer to the country, type of goods and the way they are coming in.

Mr. Niall Cody

I would rather not mention specific countries.

A third country outside the EU would be fine.

Mr. Gerry Harrahill

If a product is sourced in Ireland from a third country, the normal scenario is that it would be an import. A declaration is made by the importer, for example.

Would that be made by the importer or an agent on behalf of the importer?

Mr. Gerry Harrahill

It depends on the relationship between the importer and the person running the business. In some instances, a large importer will do all the customs formalities, whereas other operations will have a customs broker or customs agent. An entry is made into the import control system.

Mr. Gerry Harrahill

From Ireland. In this scenario, let us assume the importer is in Dublin. When the entry is made, there will be an alert in the system - this is all done electronically - that an import is due. That import has all the relevant information required to be able to track and identify what the import is.

That is within the current EU Single Market customs system.

Mr. Gerry Harrahill

Yes, that is the framework. The import is from a current third country.

I accept that, but it is within the computer system.

Mr. Gerry Harrahill

Yes. I will return presently to the question of how far advanced we are. Once this information is available, an electronic risk assessment system is undertaken to ensure that all the things that are meant to be done as part of that import are in place. For example, if a commodity is subject to a licence, that licence must be in place. Similarly, there could be a declaration that it is a particular type of commodity, where the commodity code is at variance with that, or a valuation outside of the deviation one would expect could be put on the goods. All of that goes on seamlessly in the background.

Let us say the commodity is coming in on a ferry into Dublin Port. When the ferry is 15 minutes from the port, the person who is doing the import gets a signal from Revenue that the goods are free for circulation or that they may be subject to a documentary check or a physical check, depending on what our risk analysis system indicates. If the goods are legitimate and everything is okay, the import gets what we describe as a green routing, where the truck comes off the ferry into Dublin Port, travels on to the M50 and off it goes. If the goods are subject to some kind of control or check, which may be a Revenue check or one on behalf of or by the Department of Agriculture, Food and the Marine, assuming the check is satisfied, it takes-----

Where would that check take place?

Mr. Gerry Harrahill

It would currently take place in Dublin Port.

Under what Revenue is proposing in a Brexit scenario, where would the check take place?

Mr. Gerry Harrahill

It depends on what the importer has done, which brings me back to the question of how far advanced we are. The important thing to bear in mind is that the key to all of this is information about the particular trade movement.

Mr. Gerry Harrahill

Yes, but the basic data have to be available. I have attended most of the seminars that have been held, and we are giving a clear message to businesses that they need to get the core information right and give it to Revenue in time. I return to the original statistic that 92% of the existing profile of trade is cleared and goes through, and we expect that to continue to be the case. The profile of trade with the UK is somewhat different because there is a much higher volume of smaller consignments.

Let us say goods are coming in from a third country outside the EU. How does VAT kick in at the point of entry? For instance, in the EU a zero rate of VAT applies because the goods go back into the system. When the law was introduced in 1993, I was in practice and it changed the position overnight. The VAT information exchange system statements were used although I do not know if they are still used. How does the VAT point of entry work now?

Mr. Gerry Harrahill

The normal process for an import such as that and for most current imports will be undertaken by an importer who has a simplified procedure in place. There is the risk analysis system and if there is a simplified procedure with a guarantee in place, at the same time as we have checked to say it is a green routing, we are also electronically checking that there is sufficient money in the guarantee in place to cover whatever customs duty and VAT might be due on the product.

Let us say the goods are selling in Ireland at a VAT rate of 23%, when will the VAT be physically paid?

Mr. Gerry Harrahill

Normally, if a guarantee is in place, a deferred payment arrangement will be also in place. If the import is coming in today, the VAT will be paid on the 15th day of the next month.

It is taken from the account by direct debit.

Mr. Gerry Harrahill

Effectively, yes. The guarantee is in place and, therefore, we are covered in that regard. On a real-time basis, as the imports are happening, we are doing the risk analysis. For cases where customs duty and VAT at the point of import are due, we are checking in real time that there is cover in place.

It has an impact on cashflow.

Mr. Gerry Harrahill

Yes.

Can businesses file VAT returns on a monthly basis to claim refunds?

Mr. Gerry Harrahill

No.

Depending on the time it is brought in, therefore, it could have a significant impact on an importer bringing in goods as part of a manufacture process or goods to be sold in Ireland.

Mr. Gerry Harrahill

In that kind of scenario, goods can be brought in under a customs procedure. If they are brought in, processed and then go onto the Irish market for free circulation, the point when they go on the market is when the customs duty and the VAT become payable. There are special procedures for inward and outward processing.

Will Mr. Harrahill comment further on how advanced Revenue is because this is a significant measure? The Revenue Commissioners are taking the third party process that currently applies to imports from countries outside the EU and seeking to bring in a more refined model that avoids any form of hard border. Is that a reasonable analysis?

Mr. Niall Cody

We must be careful with our language. Processes will be carried out in the ports and airports on an east-west basis. We have invested in our IT systems but also in our planning for infrastructure in the ports, engagement with the Department of Agriculture, Food and the Marine and environmental health officers. As a country, we must protect our position in the Single Market and the Union's customs code.

Two infrastructural arrangements are ongoing. We talked about the central case. All the State agencies have identified the central case infrastructure arrangements in Dublin Port, Rosslare Europort and Dublin Airport, with a view to having those facilities in place for 1 January 2021.

That is east-west.

Mr. Niall Cody

Yes. We also have the no-deal contingency plan, in which we must put infrastructure in place in Dublin Port and Dublin Airport to meet our requirements. It will not be as good as what we are hoping to have in place for 1 January 2021. It will involve checking and there are risk criteria. The fiscal risk is the lesser of these risks. There are checks in the agriculture and health areas to safeguard products and health. We have had meetings with colleagues in the Department of Agriculture, Food and the Marine and people dealing with environment, health and safety. One of my colleagues said at a meeting that I was only worried about money and I can always get the money another way. We have powers and provisions in that respect. If somebody gets away with something, we can always stop him or her the next time.

With regard to a particular disease or health risk, that is why there has always been an all-island sanitary phytosanitary, SPS, position. Going back to the incidence of foot and mouth disease, the island was affected. Our colleagues in the other agencies will say it is not a great comfort to find out that something has come in. These are the challenges we face.

What is the progress on the process of post-clearance checks on a trader's premises, for example? How advanced is the office in putting in place the new process for the UK being seen as a third party?

Mr. Gerry Harrahill

In terms of where we are, it is important to note that we are probably a step back from that and the issue is now where are trade and business at. That is why we are having a really intensive engagement with trade and business to get them to think about this. Many trade and business companies trade only with the UK and will never have had to complete customs formalities. This relates even to the understanding of what customs is about and what it means for import and export, for example, if goods originated in the UK or China. There is a range of actions that must be taken by the importer or the person running the business for which they have the responsibility.

We have been giving a consistent message to businesses for several months on the importance of doing this assessment and being very clear as to who has the information in order to be able to make this declaration. The businesses must be clear on the consequences if the information is not provided or is inaccurate. I have stated at seminars that not following the procedure will give rise to delays and cost money, and that will have an impact on the viability of a business. It is really in the interests of business to get this assessment done.

The second element, to which the Senator is referring, is our ability to process that information. We are satisfied we have the information technology infrastructure in place to cope with that and the potential for an increase in the number of declarations to 20 million overall. With regard to infrastructure, there is a whole-of-Government approach in trying to ensure that is in place, particularly in Dublin Port and at Rosslare.

The third element is the availability of our people on the ground at ports and airports and being available to support business in getting this right. We start from the premise that almost everybody wants to do this right and in a way that is as efficient as possible. We are there to help, support and guide business to get that through. One of the issues giving rise to delays is the matter of rules of origin, which I mentioned. It is the second most common reason we end up stopping products. Much of the time it is not because people are bringing in products from places they should not be but rather that the declaration is incomplete or invalid. We are investing heavily to try to front-load this. If we can get this right for trade and business - we see it very much as a partnership approach - it will make it easier for us and it would certainly make life much easier for business.

Did the Revenue Commissioners get an opportunity to see what the implications would be for the Republic of Ireland of a hard Brexit, a no-deal Brexit or a soft Brexit? What would be the implications for Ireland Inc. in terms of tax revenues or the overall perspective?

Mr. Niall Cody

The Department of Finance is leading on the macro effects. I hesitate to say but there may be some further papers published in the next while on that. I know there is work ongoing and work has been done between the Department of Finance and the Economic and Social Research Institute. There was an earlier study by Copenhagen Economics. With all figures, we provide the information in our systems to support the analysis.

The Revenue Commissioners has done no in-house analysis on this.

Mr. Niall Cody

We would not have the capacity to do it. We are busy trying to ensure tax and duties are collected.

I have a couple of questions on Brexit before focusing on bogus self-employment. Mr. Michel Barnier stated in yesterday's Luxembourg Times that there will be checks in the case of a no-deal Brexit. He stated everything possible would be done to enforce them unobtrusively but that will not be possible with everything. He asked how animals crossing the Border would be taken into account if there are not checks. It is difficult to read that in any way other than saying there will be a substantial hardening of the North-South Border if there is a no-deal Brexit and there is not some other deal, which is the Government's main response currently. Is that a fair interpretation of Mr. Barnier's comments? Does Mr. Cody agree with those comments?

Mr. Niall Cody

As I stated in my opening statement and earlier, in the event of a breakdown of the withdrawal agreement, the Government will engage in intensive consultation with the Commission and we will support that with the provision of the analysis we can do. That is what we will do in such a process. We must consider the practicalities. It is why there was an all-island approach to SPS, as I mentioned earlier, and I referred to the foot and mouth outbreak. Ireland was seen on an all-island basis in that case to prevent the contamination of the national herd. These matters must be teased out. It is not in anybody's interest on this island that there would be a threat to the health of the national herd in any livestock or bloodstock. The energies of the task force, the Government and the EU have been in agreeing the withdrawal agreement. That took two years. That process is not finished and if there is to be something else, that process has not started. When it starts we will support and provide the technical expertise that we have to the lead Brexit negotiation team in Ireland. That is all I can say at this stage. It would not help in any way for me to speculate on the Commission's approach.

Sure. There was a question earlier about customs being a European competence, which was significant. I will pose this question very simply.

If after the end of March, for example, there is a crash-out Brexit and if the European Commission says there has to be some form of border checks on the island of Ireland, is it legally the responsibility of Revenue to implement them, given that customs is a European competence?

Mr. Niall Cody

Our legal obligation will be to implement the Union customs code. That is what we have to do and that is what we will do. How it is implemented becomes an issue for the national authority. I mentioned earlier how we are subject to audit annually, and rest assured that is a robust audit process because it is an EU competence and we will have to be able to show that we are implementing the Union customs code and meeting our obligations to the Single Market. We will engage in that process and the Government will have to take part in significant discussions over the next while. It is pointless for me to speculate on where that might end up.

Hypothetically, if the Commission said that, as a result of this crash-out Brexit, we need to have borders at every point where British goods are entering, which would apply particularly between the North and the South of Ireland, would the Revenue Commissioners not simply have to implement that?

Mr. Niall Cody

The way customs is administered does not work like that. The Commission does not issue an instruction. The regulations are there and it is up to the national authorities to implement same, and that is what we would have to do. If there is a concern as a result of an audit in three years' time that we did not do something particular at a certain time, that becomes a process then. It is not like the Finance Bill is published and we issue a tax and duty manual about how a particular provision should work and taxpayers are supposed to implement that, because that is different.

I want to move on to the question of bogus self-employment. Does Revenue have any estimate on or does it do any work to establish the loss to the public purse as a result of so-called bogus self-employment?

Mr. Niall Cody

I have spoken about bogus self-employment at this committee and at the Committee of Public Accounts for the past five years. We have to be careful because bogus self-employment has a cachet. There are various different forms of employment, self-employment and working relationships. We pay particular attention to it, we do a significant number of real-time business visits and site visits and we interview probably thousands of people every year on their employment status in the construction sector and other sectors.

I mentioned the review in my opening statement. The review tried to put a framework around the potential social insurance and tax loss if certain scenarios pertained. The real challenge is that the nature of that bogus self-employment is now mostly done through different corporate structures such as the personal service companies and the managed service companies. We do not have look-through provisions to look through a limited company. One of my colleagues was telling me about their nephew who recently began work in a particular sector and he signed various documents, including one to establish himself as a limited company. These were the terms of engagement and that is not bogus self-employment. It is a legal corporate structure, and if we want to have a provision to look through that legal structure, change has to take place in the law. We carried out a contractors project a few years ago and it was subject to study by the Comptroller and Auditor General. In that, we looked at personal service companies and managed service companies, and while there were challenges around overclaiming of expenses etc., we were not looking through the limited liability corporate structure, and things that flow from that. This report was done in parallel with the work that the Taylor commission carried out in the UK. There have been recent cases in the UK that have looked through because they have provisions that allow them to look through.

The big challenge is that there is a fiscal advantage to having a self-employed structure in employer's PRSI. That is the monetary driver. There are other drivers that I do not need to tell the Deputy about because I know he has paid close attention to the whole area in recent years. There are different workers' rights involved which sometimes are a driver in some of this. The nature of what an employee, employment or self-employment is includes situations which are very advantageous to people because they are high earners in a particular structure, and we would have seen more of it as the recovery started in some of the more precarious sectors. We pay close attention to the construction sector, obviously, where the subcontractor model is well established and very positive for those who are subcontractors. As the construction sector started to come back in about 2011 or 2012, we would have had a lot of complaints around bogus subcontracting, but as the construction sector has improved, the nature of the changes in the power relationship become different. We pay a lot of attention to this, we reclassify people, we will respond to information and we will interview, but the issue around addressing corporate structures is really a legislative one.

I was at a committee meeting with the Department of Employment Affairs and Social Protection recently and it said it does not keep any statistics for the number of cases of bogus self-employment it deals with because it deals with one end of the problem and Revenue is dealing with another end of the problem. Revenue obviously does not have very definite figures or estimates on what is lost. The Irish Congress of Trade Unions, ICTU, had a report which suggested it was €80 million in construction per annum and €640 million since 2007. There are other estimates which are substantially higher. In their opening remarks the witnesses said that Revenue relies on the report from the Department of Employment Affairs and Social Protection, but as was said, the report does not really say what things actually are. To what extent is Revenue looking at and investigating this problem? I saw a report in the newspaper which suggested that at the end of 2016, Revenue carried out about 18,000 inspections and got €54 million between back taxes and fines etc. which came from some form of bogus self-employment. Can Revenue put any sort of figure on this whatsoever?

Mr. Niall Cody

I can set out the various figures where we reclassify a number of people as a result of work we do. If the Deputy gives me a bit of time, I will come back to him on this before the session has ended, but on the aggregate level, there is no evidence that there is a significant increase in the number of what would appear to be employees who are self-employed.

There was growth over the past ten years in personal service companies and managed service companies. There are a number of companies whose business model is establishing those types of processing. There are thousands of these companies and many people are perfectly happy to have moved to a director position. During our examination of the contractors, I was fascinated by some of the managed service companies because, generally, they have six directors and often they do not know each other and they tend to be professionals. Essentially, it is a different way of providing that model.

The other issue is the gig economy model. Members will be aware of the recently published Tax Appeal Commission's decision in regard to "in employment of". In that case, we challenged the employment status of delivery and we were successful. The reality is that in many of these areas the contractual arrangements are such that unless either party to the contract decides to tell us that it is not a legitimate contract, we cannot overthrow it.

In regard to couriers, I understand there was a meeting in 1997 with representatives of the courier industry who were seeking to have couriers in general classified as self-employed as opposed to employees. In this area, the Revenue Commissioners did not have to wait for someone to present. Rather, it had pre-discussed on the issue with the industry-employers. I draw the witnesses' attention to a note on the taxation of couriers, dated November 2018, which, at Appendix 1, sets how a courier is treated for tax purposes. It states that couriers are regarded as self-employed for PRSI purposes as a result of the social welfare appeals officers decision. In the interest of uniformity, Revenue decided with prejudice to treat them as self-employed for tax purposes. Is that not problematic in the sense that some couriers may well be self-employed but many couriers have a relationship that ticks the boxes of employer-employee? They have been working with the same company for a long time, the employer sets the terms of employment, they have little control over their employment, and it suits their employer that they are classified as self-employed. How can Revenue justify saying that, in the interests of uniformity, it treats all couriers as self-employed as opposed to investigating each set of circumstances?

Mr. Niall Cody

There has been a lot of commentary about the courier issue since we issued the guidance. If somebody is specifically an employee, he or she can have employee status, but it has to be in the context of the circumstances of the employment. There are two parties involved in the contract, which is the reason in respect of the particular delivery company we challenged the case for the particular circumstances and we were successful. The issue of the Tax Appeals Commission is discussed at various committees. The Tax Appeals Commission's decisions are now published and have been for the past few years. The recently published decision sets out the challenge made by the Revenue Commissioners, because we felt that the circumstances were such they deserved to be challenged.

Where does the idea of treating them all as self-employed in the interests of uniformity come from? How can it be justified? I understand that there is no such thing as test cases in the sense that every case has to be examined individually because the circumstances are individual.

Mr. Niall Cody

Ultimately, the Department of Employment Affairs and Social Protection is the lead in regard to the setting of employment status. Social welfare officers determine the status. We try, as much as possible, to have a shared common view between ourselves and the Department of Employment Affairs and Social Protection. That does not happen all of the time. By and large, social insurance becomes the driver. We are an agent for the Department of Employment Affairs and Social Protection in the collection of PRSI. It sometimes depends on the role of what the delivery driver does. Where a person is involved in doing other work in addition to delivery, such as loading and unloading, we will examine such areas. That became central to the case in which we were involved. It is a really challenging area. We have a code of practice but it is only guidance. There have been significant changes to legislation in the intervening period in the UK. This does not mean it has sorted this problem to the extent that it is a problem. The changing nature of employment is also an issue.

In a case in the UK recently, which was covered on "Panorama" or "Newsnight" and which involved the plumbing industry, everything was fine until a particular person had an accident at work. Everybody was happy with the arrangement and there were very high earners but a difficulty arose with the health entitlements of a person following an accident. That case has been through all the courts in the UK. The facts of a case are important. We try to follow the line of the Department of Employment Affairs and Social Protection in terms of social insurance contributions and entitlements. The overall numbers would suggest that there has not been a massive increase, but it is a practice in particular sectors. The issue is around moving towards a limited company type process rather than what we would term a self-employed schedule D person. If there is a schedule D type operation, it is very easy to turn that into a limited process. We do not have that look-through provision in Irish legislation.

I thank Mr. Cody.

I thank the witnesses for attending. I would like to touch on three topics. The issue of flat-rate expenses and a summary of the details in that regard was outlined in the opening statement. The number of people affected is significant. Those affected are those who support the country most and have the least control over their tax liabilities. I am not challenging the independence of the Revenue Commissioners but I would like some clarification on what consultation took place on the issue of flat-rate expenses. This seemed to me to come out of the blue. The modest increases which some people got in their net pay following the change to the tax bands could be usurped by changes in the code for flat-rate expenses. As I said, this announcement came out of the blue. At that time, there did not appear to have been any consultation with stakeholders, such as unions, on the issue. I note it has been deferred to 2020, but I would like to hear the witnesses' views on it.

Mr. Niall Cody

As I said, sometimes in doing our work we do not have full regard to the media issue. In regard to the review of flat-rate expenses, it has been subject to significant discussions and negotiations with the relevant representative bodies. In the sectors reviewed, we did not withdraw or say we would withdraw without prior detailed negotiations with the unions involved.

That engagement took place throughout 2018. We go through a process and all the figures are teased out. It becomes a problem for the union or employees involved when it leads to a reduction or withdrawal because, following that engagement, we can show that the flat-rate expense is not wholly, necessarily and exclusively incurred. That process has come in. We or the committee then get representations from unions to ask why we are doing this and stating their case, such that they pay a lot of tax. No sector had this withdrawn without engagement with stakeholders. We fell down a little in that we should have advised earlier that we were reviewing these across the sector. I take responsibility for that. The individuals involved in carrying out the review have had substantial meetings with all the representative bodies. In a review, the representative body provides the documentation, expenditure and what those provisions are.

I have looked at some historical issues. No Revenue official gets a flat-rate expense for health and safety gear. We send people out on site visits. People working in customs and in the ports wear high-visibility clothing and helmets. People operating X-ray equipment face radiation risks. We would not ask our staff to get boots themselves. We said that we would not move until 1 January 2020. Our normal approach to controls is to look at what the largest number is and how much is involved. In this case, we have decided that it is better to do them all. If there are other categories in which people are entitled to flat rate expenses, our door is-----

The Revenue Commissioners are open to looking at it.

Mr. Niall Cody

We are open to looking at it.

Mr. Cody referred to the fact that 84,000 businesses trade with the UK, 45,000 of them regularly. I am concerned about what I hear about the administration of tax through the Revenue Commissioners and the MyEnquiries line. I raised this at the Committee of Public Accounts. Since then, I have received prima facie evidence of incredible delays for people with inquiries, especially agents, and the lead time until it is dealt with. It has heightened my concern regarding the increase of business as a result of Brexit and other matters.

An agent contacted the Revenue Commissioners in November 2017 about preliminary tax for 2018 and wanted that to be back-allocated for a balancing payment for 2017. The result did not come back until March of last year. In the meantime, that customer was receiving demand after demand.

Companies can be denied tax clearance for very different reasons. It may be that the local property tax has not been not paid or there may be an issue with the director of a company. If a person puts his or her tax clearance details into the system, it provides a Dublin number. If a person calls this number, he or she is asked if he or she represents a business. If the individual involved states that he or she does represent a business, he or she is presented with five or six options, none of which relates to tax clearance. The line seems to go dead when an operator finally comes on and tries to transfer the person somewhere else. There seems to be no facility in Revenue for a taxpayer or agent to make a complaint unless he or she goes back through the MyEnquiries process, which is not timely. There is significant concern about those matters. When I was a tax practitioner, one could ring the local district office and, 90% of the time, get an issue resolved. It is not timely now. Agents are constantly re-engaging and seeking updates through the MyEnquiries line, but those who operate the latter do not respond in a timely way.

On Brexit and the increased pressure on the Revenue Commissioners, I am concerned and I ask Mr. Cody to take my concern on board.

Mr. Niall Cody

I am always interested in practical examples. One thing that is really useful to us is actually seeing and tracking the case. Our tax clearance system is automatic-----

The issue is where someone does not get the service.

Mr. Niall Cody

I know. The majority are dealt with automatically and one can see the reason in the system. There are particular challenges at certain times of year with how the tax calendar works. On Monday, our employee helpline answered 6,000 calls-----

For PAYE modernisation and such.

Mr. Niall Cody

There is a cycle that always poses a challenge for us. We are working on improving our revenue technical service, which deals with the complex issues-----

Some of these are not complex.

Mr. Niall Cody

I know.

They are basic and straightforward. The barriers to getting tax reallocated are incredible.

Mr. Niall Cody

The easiest thing to do is to provide the facility for the agents to do it themselves. We are rolling out systems to allow the reallocation of money.

That would be very helpful.

Mr. Niall Cody

There are particular challenges at certain times. I am interested in the Deputy's first example.

If Mr. Cody gives me details after the meeting, I will send that information on to him.

In the context of the profiling of corporation tax, I note an interview Mr. Cody did with The Sunday Business Post in which he talked about the top ten lead companies that pay corporation tax and the ability for them to travel in and out of the top ten. Their percentage through the recession is not completely out of kilter with what it was up until last year. What are Mr. Cody's views on corporation tax, the risk it poses and how it is profiling?

Mr. Niall Cody

I am smiling because when somebody says to speak briefly about corporation tax, we could be here for a long time. Corporation tax receipts - these amount to €10.5 billion in 2018 - increased significantly in the past three years. We have published a comprehensive report each year. We will publish another report on 8 May next showing the profile for 2018. Approximately 40% of corporation tax is paid by the top ten corporations. The point I was making in that article is the idea that this has stayed between 37% and 41% over a number of years. There is a table in the previous report, which I think Mr. Seamus Coffey addressed, that referred to how we tracked the top ten in 2014, since they were not all in the top ten at that stage, how that has changed over time, and what they are now. There have been significant developments internationally relating to corporation tax, and base erosion and profiting shifting. There has been re-profiling and re-platforming of the corporation tax figures. They are a risk; they are volatile but they are especially strong. We will publish a report on 8 May. The Department of Finance is conducting a study on whether, in light of the changes in the past few years, more work can be done on the profile.

It is, however, very difficult to profile. I was at the Committee of Public Accounts a few weeks ago and one of the issues raised was why do we not forecast it properly. I listen to many programmes about business on the radio, and one of the issues often referred to is a company not meeting its quarterly profit targets as determined three months ago. Think about that in the aggregate, where a company has full information. It is very difficult to aggregate that across. We can, however, only continue to work and look at this. It has replatformed. We look at the onshoring of intellectual property where there have been massive changes in that environment.

I thank Mr. Cody.

Senator Conway-Walsh has agreed to let Deputy Deasy go first.

I appreciate that. I welcome Mr. Cody and his officials. I have been trying to take it all in over the past two and a half hours with regard to the general message. I suppose it is a bit different from the headline we read in The Irish Times this morning, which was based on the statement given to that newspaper last night.

Mr. Niall Cody

I did not give it to the newspaper.

That is fine. Mr. Cody is trying to get across two things here today. He made it clear that he disagrees with Brexiteers who state there will not be much disruption and this is not a big deal. Notwithstanding that, Mr. Cody, with Mr. Harrahill, is making it very clear that the systems of their organisation can deal with a no-deal Brexit. Is that true? Is that fair to say?

Mr. Niall Cody

We have tried to make sure our organisation can facilitate the free flow of commerce to the best extent possible having regard to the UK potentially being a third country.

Mr. Cody has broken it down a bit more specifically than that. He spoke of three broad areas. The first was the IT infrastructure.

Mr. Niall Cody

Absolutely.

Notwithstanding the 20 million declarations that might occur each year in trading with the UK, Mr. Cody made it clear that his organisation's IT systems would be able to deal with that in future.

Mr. Niall Cody

Yes, I did.

That is taken care of. Is that correct?

Mr. Niall Cody

We have put in that and there was little spending on Brexit-preparedness across the system because nobody wanted it. The one thing the Government recognised in budget 2017-----

I get that. It is €2 million. I saw that.

Mr. Niall Cody

We have the IT framework for customs. The issue is scale. We have invested in scaling up to deal with that projected increase. We have, however, done some interesting work on how we will communicate with hauliers on ferries using smart messages from our system.

That is fair enough. That was IT and it was number one. Mr. Cody has made it very clear today, on a number of occasions, that he is confident the scenario of a no-deal eventuality can be dealt with. Second, Mr. Cody spoke about Government infrastructure across the board and he made it clear he is happy enough with governmental, intergovernmental and departmental arrangements at this point. On the ports, Mr. Cody made it clear that things would arise but he is happy enough, from the standpoint of contingency planning right now, that his organisation can deal with that, and there has been planning for that. Is that fair enough?

Mr. Niall Cody

We have engaged in planning around infrastructure in the ports and airports, both for the central case scenario and the no-deal scenario. What will be in place for a no-deal scenario will not be as good as what will be there in two years, but there will be a system in place.

That is granted.

Mr. Niall Cody

We are aiming to ensure the ports function but there will be delays for individual hauliers who are stopped. Being stopped causes delays but we hope to minimise that as much as possible.

That might be an obvious comment but-----

Mr. Niall Cody

It is a comment that is obvious but that is sometimes missed when people hear we will have the infrastructure in place.

I do not think anyone would assume or take for granted that there would not be delays and disruptions if that did arise. The third issue was helping businesses and Mr. Harrahill has dealt with that. There have been seminars, the broker issue has been dealt with and the meetings held so far have been satisfactory in that regard. I say that because we are dealing with a great deal of costs for businesses. It has been made clear that hiring a broker is something that would occur for most businesses in the event of a no-deal Brexit. It is clear to me, however, that Mr. Cody feels that his organisation has done sufficient planning, those meetings have occurred and the process is fairly advanced. Is it fair to say that?

Mr. Niall Cody

Yes. We have planned and we have engaged. That is how we try to do everything. We always try to engage with people. The challenge will be for those small and medium enterprise entities that have not heard about that engagement. We obviously go through representative bodies-----

Mr. Niall Cody

We also intend to write to individual companies that we identify as not having heard from.

That is fine. I understand where Mr. Cody is kind of caught here. A number of times he has expressed the view that it is pointless for him to speculate. That is fair enough. The dangerous area these days is when people do not say something like that and they try to talk their way out of the situation. I appreciate that fully. There is very little that Mr. Cody can say, in some cases, because it is unclear as to what will happen. I do not think anybody really has the answer or a crystal ball to let us know what is going to happen in the next couple of months or further afield. We are left, then, with Mr. Cody's organisation and how prepared it can be at this point. Mr. Cody has made it clear to the committee today that, as much as there can be preparation for a no-deal Brexit scenario, he is happy enough that those preparations are advanced and are going as well as they could be. Is that fair to say?

Mr. Niall Cody

I think that is a fair summation apart from that fact that "happy enough" is a-----

Again, Mr. Cody cannot say that everything is grand.

Mr. Niall Cody

I certainly cannot.

I understand that. At the same time, he does need to give a level of comfort in regard to his organisation's planning for a no-deal Brexit. I get that and we all get that. What we need politically, however, is to ask the questions as to whether Mr. Cody and his organisation have got to the point of being comfortable with planning at this point.

Mr. Gerry Harrahill

There are two areas worth highlighting, not necessarily within the focus of Revenue. Having been out talking to businesses and engaging with trade myself, the first issue concerns business knowledge and capacity. When we talk about the impact for business, if we take a scenario of someone engaging solely in trade with the UK, at the moment there is no customs regime at all. Once we move from that and we put any in place any kind of a regime, even if every activity ends up being green routed, it will impact on business.

I understand that. Of course it impacts.

Mr. Gerry Harrahill

Just getting to the point of understanding what the requirements are, and all of that, is a significant task. Deputy Deasy also spoke of the issue of brokers and engagement. That has been very positive but there is certainly an issue as to whether there is going to be enough capacity to service potential demand within the existing broker and customs agent community. That is not unique to Ireland.

No, it is not. That crossed my mind-----

Mr. Gerry Harrahill

Colleagues in France, the Netherlands and in the UK in particular have voiced this as an observation they have a concern about as well. Those will be some of the things that will contribute to difficulties because of Brexit. They are not Revenue related-----

I do not think they are the sorts of things Revenue can deal with right now.

Mr. Gerry Harrahill

Absolutely.

Mr. Harrahill is going well ahead and that is the correct thing to do. I do not think that question can be answered right now. There was also mention of different difficult conversations - those were the words used - with the European Commission, if needed. The one organisation that has not been mentioned here today is Her Majesty's Revenue and Customs, an organisation that Revenue deals with daily.

Notwithstanding the fact that, in some respect, no direct talks can take place between Dublin and London until negotiations are completed, have the Revenue Commissioners dealt with Her Majesty's Revenue and Customs, HMRC, in any way as far as planning is concerned?

Mr. Niall Cody

We have an excellent and ongoing relationship-----

Mr. Niall Cody

-----with HMRC. However, we have not engaged in any direct discussions with HMRC about how it might work. We cannot do so because it is an EU competency. Mr. Harrahill leads on the international area in Brussels and his counterparts from HMRC are at part of those meetings, but not all of them because there is stuff that involves the 27. Perhaps Mr. Harrahill might want to add to that.

Mr. Gerry Harrahill

In the framework of the EU and the Commission there have been a number of engagements among those most directly affected by trade with the UK, which are Ireland, France, Belgium and the Netherlands. The meetings are chaired by the Commission with the UK representatives present. However, they are about issues of common concern such as, for example, transit, which is transit through the UK coming from the mainland to here or from here to elsewhere or traffic that goes from the Netherlands to the UK and back to France. It is only in that area. The Commission has been very clear that it is in the context of trying to understand the potential impacts. We have had no engagement on a bilateral basis. It is very clear that it is the EU, the Commission and the UK.

I thank our guests.

I welcome our guests. I wish to raise a couple of matters. The customs registration numbers issued for the economic operators registration and identification, EORI, where traders have trusted trade status, would appear to be one way of preparing and making it a little easier for these companies. There were 76 applications last year and 21 were granted. That appears to be low given that there were 76. That number of 76 appears to be quite low as well when one takes into account that 100,000 businesses are trading with the UK. Can our guests speak about that, how that process can work in favour of the people who are applying for it and how we can encourage more to apply for it in advance?

Mr. Niall Cody

There are different processes and procedures. Authorised economic operator tends to be for a larger entity. Part of the challenge up to now is that if one is not engaged with import or export from outside the Community there has been no benefit from being in there. The process is only starting now. Mr. Harrahill has gone through this in all the seminars so perhaps he should take the lead on it.

Mr. Gerry Harrahill

On the first issue, anybody trading with the UK or conducting international trade with a third country will need a new EORI number. It is a basic application. It is done online and is quite straightforward. Part of the engagement we have had with trade and business is to outline the overall framework within which customs operates and some of the ways in which businesses can simplify and make things easier. However, they must do an assessment to ensure the strategy they will pursue is right for their businesses. For some, getting authorised economic operator, AEO, status, and I will return to that shortly, is absolutely right for the business. For other businesses, to be brutally honest, it would be a poor investment of time, money and expertise because the potential payback could be extraordinarily limited.

I will give a simple example. If one is involved in moving foodstuffs, due to the regime we referred to earlier regarding safety and SPS checks, having AEO status does not give one any standing when it comes to the potential for SPS checks. That is the reason we have been clear in saying, during engagement with businesses, that there are simplifications and authorisations they can get but that they must make sure they are right for their businesses. Part of what we ask them to do, and it is part of the process, is to carry out a self-assessment evaluation. Sometimes they recognise that they cannot fulfil the criteria so it is clear. For example, a significant investment is required in technology, security, training and record-keeping, and it is an ongoing investment on which we must provide some oversight. It is a Europe-wide system so when one gets AEO status it is recognised across the EU. It is not a case of us being able to say we can dispense with the criteria. The system must be robust.

That said, Mr. Cody mentioned earlier that we are an integrated tax and customs administration. There is a huge benefit we can leverage out of that, which is that it is not like somebody coming to us for the first time. If, for example, the business is already currently trading with the UK and is tax compliant, it is already on our system so we know quite an amount about it. One of the things we take account of and have regard to is its compliance record, so there are clearly advantages. We have provided on our website clear indications as to what the different simplifications are and what, broadly, the type of business is. If people go through that and then wish to talk to us about it, we are more than happy to engage with them and to suggest that this might not be where they need to go and ask them if they have thought about other things. Ultimately, it is a matter for the business to make its own decision, but AEO is useful for the right business.

How much investment is Mr. Harrahill talking about? I realise it is hard to give an average, but what if a small or medium-sized business is considering the possibility of doing that?

Mr. Gerry Harrahill

I do not wish to make a generalisation but I would be surprised if there was a significant number of SMEs that saw AEO status as being not even so much appropriate for their businesses as beneficial for them. There may be other simplifications that are far less onerous. In terms of a cost, there is no cost as we do not charge. There are people who put themselves forward to advise businesses about the best way to go about it and they will charge for that. One could argue with regard to many of the controls required for AEO that if one is running a good, tight, efficient, financially well managed business one will have most of those processes and procedures in place. That has been our experience. For well managed and well run businesses, getting AEO is not straightforward but does not represent a major hurdle.

However, Mr. Harrahill cannot tell us what the cost is or might be.

Mr. Gerry Harrahill

No, there is no typical cost. Effectively, what we look at is the processes and controls in place and they may have been in place for ten years at this stage.

In terms of the clearance agents or the brokers, who can set up as a broker? Are there clearly defined perimeters, qualifications and so forth that a broker must have to call himself or herself a broker?

Mr. Gerry Harrahill

The simple answer is "No". We do not regulate that and we have no role in it, but there is a significant community of customs brokers and agents.

Some of them would deal directly with us on an ongoing basis. Some of them provide a service which does not involve the element of interaction with us and we would not even be aware of their activity. We do not control them. We do not have a list of approved ones. There is nothing of that nature. Essentially, it is business related.

Is that a loophole in the regulation? If the work is not done properly - it can be an expensive transaction for somebody if he or she will lose stock and there are delays in all of that because the paperwork is not done properly - surely we have an obligation to ensure that there is regulation of that. It is something that should be looked at. Would it be the role of Revenue, in its capacity as experts from a revenue perspective, to advise Government to regulate the sector?

Mr. Gerry Harrahill

The one comment that I would make is that the marketplace at present seems to operate efficiently in that people who do a good job are in business and people who do not get uncovered fairly quickly. I have said as part of these seminars that one needs to ensure that the terms and conditions of the contract for whatever commercial arrangement one makes with a customs agent or broker are clear about the service that he or she will deliver but, more particularly, whether that service is contingent on anything that the business person needs to provide to the customs agent or broker, and it comes back to the question of the information. That is most important. Certainly, from my experience, the market tends to weed out the problem cases.

I know what Mr. Harrahill means. Something we as a committee may consider is identifying to the Minister that he should examine the regulation around that. I would not want to see businesses which are already pressed being exposed to rogue brokers.

Mr. Niall Cody

It is a valid concern. We have seen through a range of sectors where agents did not provide professional advice which can lead to serious difficulties for their customers.

An aspect of the customs clearance agent is not so much that the market controls it so well but that it is transactional in nature. We have seen through the years that if the agent is not doing a good job, the importer will find out quickly because of what will happen in transactions and the information in the business community, for example, that Gerry provides a very good service. The Senator's concern is important and valid. I do not know who would become the regulator. We could not become the regulator because that would be like us being the regulator of the accountancy practice or the legal practice. I refer to customs clearance agents not providing a professional service, goods being stopped and challenges there, and then there are areas around guarantees which agents can offer as well. The interesting aspect is that, in 1992, there was a whole infrastructure or series of businesses the business model of which disappeared and now the challenge is to get that back. The core is still there. Some of the challenges will be that bigger clearance agents might not see a small couple of transactions with a small importer as viable. Others will fall in to fill that niche.

It is something we will explore further anyway.

In terms of the aggregate cost of Brexit from a Revenue perspective, I note there are different amounts of allocations. Do we have the aggregate cost of a softer Brexit and a hard Brexit?

Mr. Niall Cody

Does the Senator mean an aggregate cost to the economy?

To the State, yes.

Mr. Niall Cody

We have submitted figures for the budget estimates of the cost for us in recruiting the staff and dealing with ICT.

Even in terms of paying them on an ongoing basis from current expenditure, if we never had Brexit and it was never heard of, Revenue would continue operating.

Mr. Niall Cody

We would have 600 fewer staff.

Would Mr. Cody put a figure on that, combined with the IT infrastructure, etc., that is needed? Has the time of the existing personnel been costed?

Mr. Niall Cody

In the 2019 budget and Estimate process which was based on the central case, we had an additional Brexit budget provision of €13.5 million. Of that, €10 million was staff and the €3.5 million was a mix of IT scanner technology. That was based on a three-year programme to recruit those numbers. We had a figure for 2020 for additional staffing of €21.5 million which had regard to the new staff who would come in 2020.

I want to get a picture for myself of how much overall Brexit will cost. The follow-on question is whether there is any way of us recouping any of that from the EU or must we bear the brunt of it?

Mr. Niall Cody

In the context of speeding up the process because of the no-deal, we are looking at an additional €32 million for this year. I mentioned earlier that we collect customs duty on behalf of the EU. It was €333 million last year. We still retain 20% of customs duty. We have been collecting it since time immemorial. It used to be 25% that the State would retain. It is now 20%. Deputy Michael McGrath and myself were chatting about whether the pure additional customs duty that will be collected would be €500 million or whatever. From a purely Revenue perspective, the additional proportion does not stay with us. It goes into the Exchequer and it goes back in the Estimates. We do not keep the 20%. The State keeps it. On a purely Revenue basis, we will probably collect what it will cost Revenue but the cost of the rest, such as the infrastructure, will not be in our budget. It will be in the OPW's.

What I am trying to get at is someone has to pay for this. At the end of the day, it comes from citizens and all of us paying our taxes. How much worse off will we be due to what we need to do to comply with the new regulations that will be needed?

Mr. Niall Cody

It certainly would not be our role to put a figure on the additional cost to the OPW.

I know that. I am only trying to get the Revenue figure for the moment. Will we be €30 million worse off each year, will it be much less than that or will it be cost neutral? It is difficult to estimate. I seek even a ball park figure of what it may be.

Mr. Niall Cody

If one talks about 600 staff, it would be probably €30 million on an ongoing basis.

That is €30 million extra per year over a ten-year period. I would be surprised if it was kept to that.

Mr. Niall Cody

The reality is that one will start from a position of the investment we will make and the work our staff will do. We would have plenty of work within Revenue that we could do if we had the additional resources and we did not have to deal with Brexit.

I want to ask about the different meetings Revenue has. I take much of this for granted.

How much has been invested in hardware and software in the IT upgrade?

Mr. Niall Cody

Our original budget was €2 million. According to the reply I have seen to a parliamentary question, so far we have invested €2.2 million in the customs element of our IT framework. We will have to spend more in the coming years. The European Union's customs code introduced in 2016 provides for IT expenditure for ten years in all countries, regardless of Brexit. Our investment in the customs element must look at scale because of Brexit, but we would have had to introduce new systems in any event.

Is the system fully compatible with those in place in the Department of Agriculture, Food and the Marine, the HSE and other Departments with which Revenue links?

Mr. Niall Cody

Our IT system is the gateway for imports and exports. Messages pass between us and the Departments of Agriculture, Food and the Marine and Health. That is one of the things about we have been speaking. Because of the relatively low number of issues involved in going through the varying systems there was no need to integrate them. At our recent meetings we have been discussing the idea that we need to make sure, where we can, that we further integrate our systems and look at how we manage shared resources. Ultimately, the plans for Rosslare Europort will provide for integrated infrastructure. We must consider how we will manage it better throughout the agencies involved.

Are the Revenue Commissioners only looking at that issue now?

Mr. Niall Cody

We are engaged on aspects of it.

It needs to be advanced.

Mr. Gerry Harrahill

It is also worth saying that at EU level there is a recognition of the benefits of a joined-up approach throughout in the oversight of-----

There has to be. I am concerned about the small time gap. If we are looking at a number of days only, reach 1 April and do not have full integration of all of the systems, it will really worry me in terms of delays.

Mr. Gerry Harrahill

I will come back to that issue, but I want to finish my point about the EU dimension. There is a project, Single Window, the philosophy behind which is that information will be input into the system once and that all of the various agencies will link with it.

On the specific issue of the integration of Revenue, customs and all other controls, it is already in place. When replying to Senator Kieran O'Donnell, I explained that the risk analysis was always based on a fully integrated risk profile incorporating the revenue, fiscal and environmental health risks. It is part of the existing system.

I am conscious of the time. Mr. Harrahill and Mr. Cody are satisfied that the existing systems are fit for purpose and fully compatible with others so as to avoid delays.

Mr. Gerry Harrahill

To try to minimise them.

I will use Knock airport as an example. Many of the flights are to and from Britain. What difference will Brexit make for the likes of Knock airport?

Mr. Niall Cody

We have spoken all along about the challenges for business and trade and the additional resources we will need to manage trade movements. Knock airport is not a freight centre, whereas Dublin Airport deals with high-end value goods. The controls in which we are interested for airports relate primarily to illicit goods and drugs. Essentially, there are risk-based checks at Knock airport and we will continue to make them.

Will it make any difference to passengers?

Mr. Niall Cody

We hope it will make very little difference. That is where the issue of the common travel area comes in. We are dealing with goods and customs. The common travel area is about the free movement of people between the United Kingdom and Ireland and I hope there will be little interruption.

Do the Revenue Commissioners have regular meetings with the Garda and the PSNI?

Mr. Niall Cody

We are involved in the joint agency task force with the Garda, the PSNI and HMRC. I spoke to Deputy Deasy about the strong operational links with agencies. We have spoken at committee meetings about some of the serious successes we have had in interrupting illegal trade across the Border when we worked with the Garda, the PSNI and HMRC.

Will Revenue waive the requirement for a VAT guarantee for imports from the United Kingdom post-Brexit? Thousands of companies that import without the need for a guarantee will have to provide one unless the rules are relaxed. Is that the case?

Mr. Niall Cody

Mr. Harrahill spoke to Senator Kieran O'Donnell about the VAT arrangements. On imports from outside the European Union VAT is payable at the point of entry or deferred to the 15th day of the following month, if there is a guarantee in place. We have collected approximately €1.5 billion in VAT at the point of entry on imports from outside the European Union. When the United Kingdom leaves the European Union, it will be a third country and under current legislation, VAT rules will apply at the point of entry. That will have an impact on cashflow. If the rules are not to be applied, there will have to be a change in legislation.

We will be looking at legislation in order to do that. As they come across issues that will prove detrimental to business, are the Revenue Commissioners making recommendations to the Government on legislation it might consider bringing forward?

Mr. Niall Cody

With the Department of Finance and like every other part of the system, we have reviewed the implications of legislation and how it applies and identified issues. It then becomes a matter for the Government and policy. There is no lack of knowledge of the implications of changes to VAT, excise and direct tax rules. If Deputy Michael McGrath were here, he would remember tabling a number of amendments on the direct tax rules because provisions apply in the European Union and the EEA. They will all have to be reviewed and policy decisions made.

It needs to be done quickly because of the impact on business and jobs. I want to move on to consider the flat rate.

I have been lenient because of the Senator's co-operation with others.

There are a number of questions I need to ask, but the Chairman may want to ask some of them also. There may be questions which we will not get round to asking today. Will we be able to submit them for written answers?

We are coming to the time where we may have to take a break. We have been here since 10 a.m.

Mr. Niall Cody

If there are questions the Senator wants to have addressed, I will have no problem in writing to the committee with the answers. I was going to say I would have no problem in coming back, but I do not want to say that as it might be foolish to do so.

We will take a break at 1 p.m. Mr. Cody can deal with some of the questions when we come back, if he so wishes.

The clock still reads 10:50 a.m. which is putting me off.

Mr. Niall Cody

I looked at it earlier also.

With the agreement of members, we will take a break and come back in half an hour. The voting will have finished at that stage.

Senator Horkan wants to come in as does Senator O'Donnell. I also want to ask a few questions.

Will we return at 2 p.m.?

No, that is too long.

It is 1 p.m. now. The best thing to do would be to break for half an hour.

Sitting suspended at 1 p.m. and resumed at 1.40 p.m.
Senator Paddy Burke took the Chair.

I welcome Mr. Cody and his colleagues. It has been a very informative meeting thus far. Members are learning greatly from the exchanges. I have no doubt that the committee will have further work to do on this issue.

Reference was made to the VAT guarantee and deferred payment at the point of entry. Mr. Cody mentioned that a change of legislation would be required in the case of a hard Brexit. The Tánaiste has stated that a considerable volume of legislation will come on stream between now and 29 March. The process will be quite intensive. All the time of the Office of the Parliamentary Counsel will be taken up with that new legislation. Will the provisions Mr. Cody believes are required to ensure the smooth running of customs and so on in the case of a hard Brexit be included in the legislation coming down the track?

Mr. Niall Cody

I must be very clear. If there is to be a change, it will require legislation. I am not saying that there should be a change or legislation. If there no is legislation to deal with this issue, VAT at the point of entry will be payable on imports from the United Kingdom. That is a matter which must be considered by the Minister, Deputy Donohoe, the Government and the Oireachtas. The Acting Chairman is correct that the legislation required across all various Government activities in the event of a no-deal Brexit will have to incorporate any changes required from a tax and customs perspective. The omnibus bill would be the legislative vehicle if there were to be a change, but that is a policy matter for the Minister and the Government.

If necessary, can the rules be relaxed until such time as any proposed legislation is in force?

Mr. Niall Cody

The Government plan is that the legislation will be enacted before 31 March. If there is to be change, new legislation will be in place prior to Brexit. The Government has indicated it will bring forward the heads of legislation and that the omnibus Bill will cover all matters arising out of Brexit. If the way VAT is collected on imports is to be changed, that will be legislated for.

All members have received a considerable volume of correspondence from businesspeople who are worried that the shutters will come down on 29 March and they will have to go to their banks to come up with money to pay for imports on the spot, which may put many out of business.

Mr. Niall Cody

The Minister for Finance is aware of the impact the rules would have. That was one of the earliest implications to be identified. For example, it was particularly highlighted by chartered accountants in recent months. It was probably raised in the context of the Finance Act last year. The reality is that it is a policy decision for the Minister and the Government. We have indicated the impact that would be caused but it is a matter for the Government.

When Commissioner Dombrovskis, who has responsibility for financial stability, financial services and capital markets, appeared before the committee, he stated that the setting up of customs posts, clearance areas or similar is a matter for the member state and that the member state would keep a portion of the money it collects to offset the costs. Mr. Cody expressed a similar opinion earlier. If a good was exported from Scotland or the northern part of the United Kingdom through Northern Ireland, into the South of Ireland and on to France or Spain, it would have to go through customs at the Irish Border, which would be the outpost for Europe. However, if it did not go through customs at that point, would it be possible to clear customs when it reached its destination in France, Spain or elsewhere?

Mr. Niall Cody

There are transit arrangements that apply for goods moving across non-EU countries. A bigger challenge than goods coming from Scotland through Ireland to France is goods going from Ireland through the UK to the Continent. In that case, the goods are transiting across a non-EU country and there are transit arrangements. The UK has signed up to the common transit system. There is a mechanism for goods to transit across a non-EU country, essentially under customs control.

I understand that. What about goods from the UK coming into Ireland at a point such as Rosslare and then continuing to their destination in France?

Mr. Niall Cody

If the goods were coming into Ireland, we would be interested in the declaration for an import into Ireland. Otherwise, a transit declaration could be submitted for the good to be transported from Scotland through Ireland and into France, in which case France would be the ultimate importing country.

The French could collect the tariffs or whatever, if there were tariffs.

Mr. Niall Cody

Absolutely.

We would miss out on the costs.

Mr. Niall Cody

It is probably highly unlikely that goods would be sent from Scotland into Ireland to go to France. However, goods from Northern Ireland would be transported through Dublin or Rosslare ports under the transit arrangement and then imported into France.

Revenue been in touch with authorities in other jurisdictions such as France or Spain. How will the authorities in such jurisdictions operate on the------

Mr. Niall Cody

It was discussed earlier. Mr. Harrahill may wish to outline the discussions he leads on our behalf.

Mr. Gerry Harrahill

The transit system is an area of shared interest and focus because the issue of transit arises in regard to traffic coming from the east to the land border or from the west through the UK land border.

The first significant thing that happened before Christmas was that the UK applied to be part of the common transit system. It has to be part of the system for transit to work. If we take a hypothetical situation of goods leaving Northern Ireland with the ultimate destination of mainland Britain, coming to Ireland through Dublin and back into the UK, what effectively happens is that - remembering that all of this is electronic - an additional declaration is filed in the transit system of which the UK authorities, the Irish authorities and the French authorities are seamlessly notified. As the goods move from Northern Ireland to Dublin and from Dublin to mainland Britain, there is an automatic process of notifications so that once the goods are put into the common transit system in Belfast, immediately the receipt point in mainland Britain is aware and is expecting the arrival of those goods. That is why the transit is so important for all of the member states and that is why it has been a key area of focus at EU level and even the European Commission sees it as important in terms of facilitating movements through the UK landbridge, whether that is from France to Ireland or Ireland to France.

A member of the public told me he drove from Spain to Ireland in a Spanish car. He drove into the Port of Cork and on the way in he was told that he had something like 30 days to leave again or to register the car in Ireland. Will that still be the same?

Mr. Niall Cody

The Chair is talking about vehicle registration tax, VRT, requirements. When cars are brought into the State, there is a requirement to register for VRT within 30 days. We are all aware of the importation of second hand cars into the State. What will change is that in the event of Brexit is that if they are here for over six months they are not liable to VAT but they are liable to VRT. In the event of the UK leaving the EU, they will be liable for VRT, VAT and a customs tariff where tariffs apply and in the event of a no-deal a customs tariff of approximately 20% on a diesel car and 10% on a petrol car would apply. It will significantly impact and change the economics of bringing in a car but unlike other goods, the process of registration gives us a point from which we can apply taxation. Then there are special rules if it is temporary importation or if the owner is moving residence there are some reliefs.

By and large, people are obliged to register.

Mr. Niall Cody

People are obliged to register the car anyway and the vast majority of them are liable for VRT but in a future Brexit scenario-----

What will happen with people from Northern Ireland working in the South and using their car on a daily basis?

Mr. Niall Cody

That comes into the question of the common travel area. We are talking about people importing cars but the common travel area is all about allowing the free movement of people and that is not within Revenue's control but if one is living in Northern Ireland and working in the South and driving to work, that is perfectly OK.

The Government said that it is making arrangements for east-west transportation of goods between the UK, Rosslare and Dublin. If somebody is exporting from here through Dublin Port to the UK, I presume that will change if there is a hard Brexit.

Mr. Niall Cody

This is the issue regarding the landbridge. If goods are being exported from Ireland to Britain, then it will be an export and it will be subject to import control in the UK. If goods are being sent from Ireland to the Continent through Britain, that is the transit arrangement.

What if one is sending the goods to the UK and then he or she decides afterwards to change route and send them to mainland Britain through Belfast?

Mr. Niall Cody

If goods are being exported to Britain, they will be subject to customs controls there. If they are then cleared in Britain and they want to send them to Belfast, that will be within the UK and we will not be involved in that.

It will be up to the UK to put the customs in place at the crossing point in Northern Ireland or at the port in England.

Mr. Gerry Harrahill

The regime that will apply to customs is not 100% clear yet in terms of the UK but in discussions that we have had through the forum that I mentioned earlier with the European Commission, the UK has said that to a large extent it will replicate the existing Union customs code so it will effectively mirror that same process. If goods are being imported into the UK, there will be an obligation to file an import declaration there, and the same as if one was importing in Ireland from the UK, there would be a requirement to file an import declaration on this side. The devil will be in the detail as to whether it is an exact replica of the Union customs code or whether that changes over time but that is the broad orientation that there is at the moment and the detail is being worked through in the UK Parliament at the moment.

Deputy John McGuinness resumed the Chair.

I am sorry for being late coming back. I want to recap on a few issues that were brought up. I will start with what I consider the position was when all these borders were in place. I can remember working in Aston Quay and bringing all of the customs documentation to the Custom House, having it cleared, going down to stack F to examine the goods, possibly having them inspected and then getting release of the goods. Significant time was consumed by all that. A question was asked earlier about customs clearance agents. There are recognised customs clearance agents and they have qualifications in that context but they have probably not been in use to this extent over recent years. When the goods arrive at the port, an inspection can take place there. Will that still be the case?

Mr. Niall Cody

Yes. I do not know whether it would be useful for us to outline how we visualise a ferry arriving into the port with a few hundred trucks in tail. I ask my colleague, Mr. Harrahill to come in.

Mr. Gerry Harrahill

Let us take a hypothetical scenario of leaving the UK and coming into Dublin Port. First, the ferry companies have clearly indicated that it is their intention in the context of Brexit, not to allow trucks on board their ferries unless customs declarations have been made. They clearly want to avoid a scenario where they come to Dublin and they cannot empty their vessel, thereby being unable to reload to get out again. There will be a requirement on the haulage company or the transport operator to have made a customs declaration. That declaration will have been made and Revenue will now be aware that a consignment is coming from the UK into Dublin Port.

Our risk analysis process kicks in then. When the ferry is 15 minutes out from docking there will be information available to the driver and importer as to whether they have got a green, amber or red routing.

Mr. Harrahill said that earlier.

Mr. Gerry Harrahill

They will then have to leave Dublin Port and go about their business or else they will have to-----

It is still the case that there could be inspectors there determining what is going on.

Mr. Gerry Harrahill

Yes.

Trucks coming from France will have to have their cargoes sealed going across the land bridge through the UK but as happens nowadays they pick up their goods in France or Germany or wherever but they would also have pick-ups to make in the UK. They will have to stop and break their customs seal. That will take more time and paperwork. They will fill the container and come back to Ireland. There is no question but that the cost to business will be enormous and the witnesses are agreeing with me. There will be customs clearance agents' fees. There will be possible delay on goods, perishable or otherwise, going to and from the country. At the end of all that it will be the consumer in Ireland or on the Continent, depending on the direction of travel, who pays the costs. That is a cost.

The Revenue's 600 people will be employed because of Brexit but where? Will it be for the IT system or on borders, or policing what is going on? If it is all as smooth as we heard earlier where will the 600 go?

Mr. Niall Cody

The Chairman is absolutely right, if the UK leaves the EU there is a series of formalities. I know the Chairman understands how the logistics industry works and he talks about hauliers picking up loads in Germany or wherever and that they hope to pick up consignments in the UK on the way back. That is part of the ordinary model of how the freight industry works but some of that will not be sustainable. The model will cause significant difficulties because if a truck breaks its transit arrangement in the UK, depending on what the UK does, it could generate additional burdens and when the truck comes into Ireland it will not be in a transit arrangement. The model for courier freight operators will change. The model will not be as viable as it is now.

When Mr. Cody says it is not viable or sustainable, is he saying that the option for hauliers will be to pick up the load in Germany or France, or wherever, and come straight back to Ireland, whether it is a half or a full load? At some stage that is going to have a major impact on a business. We can put that down as something serious that will impact on business and that we must consider. Is that right?

Mr. Niall Cody

Absolutely. It will have a significant impact on how freight currently works. For some it will be more extreme than others. Some logistics companies will have to think about how they do their business and what goes where. Some will have to think about not using the land bridge and coming around either to Rosslare or Dublin from the continental ports.

If a truck used the land bridge and did not stop in the UK but went from Calais to Dover and through the UK to Ireland, without any change of goods, would that have an impact?

Mr. Niall Cody

That would mean going through the transit arrangements that Mr. Harrahill spoke about earlier.

That would hold-----

With a sealed container.

With a sealed container, there would be no change.

Mr. Niall Cody

It is important to talk about the land bridge and all the arrangements that can be agreed. The transit arrangement will work but if the truck cannot get access to Dover or Calais it does not matter. The French authorities will recognise the Irish transit but if the truck cannot get on the ferry in the first place because it cannot get into Dover because of the delays there, that is another challenge.

That will be a major issue for the next day or same day delivery services, which are important, where there is a multiple of couriers and express delivery services now using airports and trucks to bring goods to Ireland because they will have to fill out individual declarations.

Mr. Niall Cody

Those are the implications of Brexit.

Mr. Cody mentioned illicit goods earlier. I take an interest sometimes to relax watching the Australian programme where people are bringing all sorts of goods in which they should not be bringing in. That too will become an issue. With that in mind we have to have more regular random inspections than normal.

Mr. Niall Cody

There are particular reasons for the issue around the major illicit goods, whether drugs or tobacco, for example there are the "illegal illegal" goods and there are items that are significantly affected by the economy such as excise levels where the excisable products are vulnerable. The smuggling of ordinary goods which have high VAT rates from Britain into Ireland has an impact on currency and when is something economically viable. It would not be a major source in the normal course of smuggling unless there is a particular advantage.

For example, if Britain decided to be far more competitive and reduce its VAT rates and do all sorts of things that have an economic impact on the goods coming across the Border, there is the potential for criminals to make a greater effort to smuggle in the goods they will make money on. Therefore, will the Revenue's customs officers not have to be far more active if there is this type of Brexit?

Mr. Niall Cody

As I said earlier today we are starting from a position where the UK and Ireland are members of the EU, we have regulatory alignment, are in a single market, and have similar standards. If the regulatory arrangements diverge, which is the reason some claim they want to leave the EU, over a period of years changes will happen and Revenue and various other agencies will have to respond to that. I do not see it as a cliff face in April. Everybody asks what if the UK goes to have low regulation and low taxes but its VAT and excise rates are at the higher end, like ours, and I do not think it is economically viable for it to slash its VAT rates. Over time it will have to deal with that.

If it did things that impacted on that.

Mr. Niall Cody

If things happen we will have to respond to them.

Mr. Cody spoke earlier to Deputy Doherty about the cross-Border issues and said that there is no customs post planned. He also mentioned then the examination of goods whether in the warehouse owned by the haulier or a bonded warehouse.

Mr. Niall Cody

Approved warehouse premises.

Will that not put enormous pressure on both the operator and the Revenue Commissioners? I know about warehouses and they are packed to capacity. There is no room. If this is going to happen, they will have to expand or build on. Even though the Revenue Commissioners are doing this, it is almost like another customs post except that it is located in the individual's warehouse or in a bonded warehouse.

Mr. Niall Cody

Some of the difference will be in specific transactions. The level of physical goods checking will be at a level similar to what we undertake now. If there are approved warehouse processes in bonded warehouses, they will have entered into arrangements with us and we will have an ongoing relationship with them. We will work on minimising it.

That refers to Revenue's current customers. This new arrangement will create a whole lot of other customers for it. Currently, people travel up and down to Northern Ireland. I watched a programme on the subject recently where there was an immediate cross-Border aspect but it was in a geographically tight location. They will be affected by it. I do not want to be unfair to Mr. Cody but I would think that this would be the opportunity, without scaring people, to set out clearly the facts of what this new arrangement might be in both scenarios. When one examines the real examples from companies in transit or which do that kind of business from Europe to here, one can see the real costs and problems involved.

Several members have asked Mr. Cody about this. Is it not the case that it will not be borderless? The European Union will say that there must be a border. It will insist on it. Some people refer to the backstop or whatever, but it looks as though there will be a border at Northern Ireland. I see no other sensible way of achieving it.

Mr. Niall Cody

The situation at present is that there is a withdrawal agreement, a transition period and a backstop. That is what has been negotiated and that is the most desirable outcome. We are trying to address what will have to happen in the event that that scenario fails and there is a no-deal Brexit. That is what we have been asked to examine. The Government and, as Deputy Pearse Doherty observed earlier, everyone in this room is agreed that we do not want the return of a physical infrastructure. However, there is no doubt that if there is a no-deal Brexit and the UK leaves the Single Market and the customs union, it will involve a requirement for controls on movements across the frontier. From the outset, Revenue has worked on how this can be done without imposing a physical infrastructure on the land frontier.

Is that not next to impossible, in honesty?

Mr. Niall Cody

That is the issue that the Government has said it will have to negotiate.

Is it possible to have a seamless transfer of goods across the border within the Thirty-two Counties without having any physical border?

Mr. Niall Cody

As I have told various committees, Revenue will give the Irish Brexit negotiating team our technical expertise on what is permissible under the Union Customs Code, UCC, and Single Market. The Commission and the 27 member states support the idea that there should not be a physical border. There have been difficult negotiations and difficult systems will have to be put in place. Whatever it is will not be as good as the withdrawal agreement or-----

I understand that. The European Union will tell us that it wants a border and Mr. Cody said that it is up the national Government to decide its response to that. I am asking Mr. Cody how Revenue responds to that. Is Mr. Cody satisfied that in that scenario, where the European Union is demanding a border at Northern Ireland, there will be no physical structures or customs posts there and that it will be done in some other way?

Mr. Niall Cody

That is the Government's aim and we will support it in-----

I understand that but how can Mr. Cody say that there will not be a physical presence?

Mr. Niall Cody

That is because negotiations are still to take place and I cannot predict their outcome.

Therefore, Mr. Cody cannot predict whether there will be a customs border.

Mr. Niall Cody

I cannot pre-empt. When the Chairman opened the meeting, he spoke of the idea of policy issues. I am here as the Chairman of the Revenue Commissioners. We are the Irish Revenue Commissioners and we implement and operate within the framework of the legislation laid down. The Government and the European Commission will engage in that discussion and we will provide the assistance and technical knowledge that we have in place. What is important is that we maximise the IT infrastructure we have and the fact that we are an integrated tax and customs administration. That is what we are here to do.

Containers and trucks come into Dublin Port where checks are undertaken and there is a possibility of random physical checks. I am not trying to put Mr. Cody on the spot on this matter, but it is reasonable to believe that in the absence of a backstop agreement that as part of their work, the Revenue Commissioners will require that they must have some sort of presence along the Border. Are the Revenue Commissioners putting these bonded and other warehouses forward as an option instead of a border?

Mr. Niall Cody

Bonded warehouses and temporary facilities are part of the suite of measures that can be used to minimise the checking at the import point. That applies equally in the case of goods being transported east-west. Mr. Harrahill is involved in some of this and I think he would like to add something.

Mr. Gerry Harrahill

I will step back for a minute, if I may. If we take existing third-country traffic at 100%, 92% is subject to customs formalities and goes through without any physical interruption by customs. Some 6% is subject to some form of documentary check and 2% is subject to a physical examination. Post Brexit, this 100% is of a much greater volume. Something close to 92% will meet all the requirements and will not require any physical interruption or intervention by Customs and Excise. Some will require documentary checks and some physical checks. A factor that contributes to the level of checking required is the presence of agricultural or food products.

In an east-west context with the UK outside of the EU, it has the potential to contribute a higher level of cases to flag, either for a documentary check or a physical examination. We have said and are saying to businesses that if they approach this on exactly the same basis they approach their third country traffic today, the vast bulk of it should go through. In order to minimise the potential for goods to be subject to a check in Dublin Port businesses need to look at the opportunities for some of these simplifications. Part of this would mean that, rather than the end point and the goods entering into what we call free circulation once they leave Dublin Port, they would go to an approved premises, which very often is where the business is run, and it would be at that point that we would carry out the physical or documentary check associated with that.

Does that activity explain the 600 staff?

Mr. Gerry Harrahill

That is part of it. For those businesses which apply for some of these simplifications - whether it is authorised economic operators or any of the others - there is an evaluation process done by the business and an evaluation done on site by Revenue staff. Dealing with the application, processing it and then monitoring it, as we would for their normal tax compliance, is part of the work of the 600 staff we talked about.

Mr. Niall Cody

Of the initial 400 staff, about 240 will be deployed between Dublin Port, Dublin Airport and Rosslare, with about 130 going to Dublin Port, 80 to the airport and 30 to Rosslare. The rest will be in the various different processes. Other parts of the border that we have are the postal centres. We have a permanent presence in the main postal centres to deal with third country products. One can imagine the impact, for example, on our operation in Portlaoise, if the UK were to become a third country. Essentially, we have a border post in places such as postal centres in Portlaoise, which will become much busier. Previously Senator Conway-Walsh spoke about online shopping, which will be hugely impacted by this. Some of our staff will be in the Portlaoise postal centre, in some of the depots of the couriers and in the big-----

They had better open an office here. Will that not hold up everything? It certainly has the potential to do so.

Mr. Niall Cody

It has the potential to seriously impact on business models. Deputy Deasy asked about our ICT and our people and infrastructure. These are the things we can control but we cannot control the fact that the UK will become a third country if it leaves the EU. This will have significant impacts on business. In a way, with regard to the debate around the withdrawal agreement, if all of this was easy and there was a solution to all of it, it would involve the UK staying in the Single Market and customs union.

Mr. Cody spoke about the budget and the cost to Revenue being roughly €30 million or €32 million.

Mr. Niall Cody

The additional figure we are looking for this year is some €32 million.

Is that €32 million on top of the €13.5 million?

Mr. Niall Cody

Yes. The €13.5 million was the original budget figure but to bring everything forward-----

Will that be €45 million in 2019?

Mr. Niall Cody

Yes.

It will be €30 million or €45 million from that point onwards.

Mr. Niall Cody

It would be the ongoing running costs.

Yes, depending on the running costs.

Mr. Niall Cody

We would hope that the IT investment stands its time, but there will be labour and staffing costs.

I would love to see a really stark warning to businesses around the issues we discussed. I am aware that Mr. Harrahill is doing different interventions with the business representatives but there are also people who do not attend these conferences and they are reliant on the matter being fixed. They believe it is too big to fail and it will be fixed. I do not think that businesses in general realise the costs involved will be horrendous. The smaller the business, the worse it will be. It would appear that companies in the agrifood sector will be particularly affected. The bigger companies may carry the cost because they already have some of this infrastructure in place. For others, however, it is going to be a serious problem.

Mr. Gerry Harrahill

We are very conscious and aware of the differing levels of understanding in businesses around the impacts of Brexit. Part of what we are trying to do with the seminars is to bring people through customer journeys. We tell the businesses that they can probably identify themselves directly or indirectly in some of these journeys. The second element is that we have written to a large number of businesses - and we will write to the balance of them - to try to bring home in very stark terms what the issues are. Interestingly, from my engagement with business, until now they have been saying they want to deal with the issue that they know will happen in the next week or the next month. I understand where businesses are coming from. They say that Brexit may or may not happen and when there is more clarity around it, they will get ready for it then. Our very stark message to them is that even if Brexit does not happen until the end of 2020, they need to be working on it.

Mr. Gerry Harrahill

Absolutely.

The issue of VAT on food supplements was raised yesterday in the House. I understood that food supplements were classified under an EU directive. Suddenly we have now moved to this imposition of a 23% VAT rate on these goods. This will cause serious problems for small shops dotted around the country, some of which are located in the high streets of our towns and villages, and to their customers. It will add a huge cost to them in the middle of all the Brexit discussion. Some of their supplements come in from the UK. With regard to the imposition of a 23% VAT rate and the EU declaring that these supplements are food items, is there any way this could be postponed until Revenue consults the stakeholders?

Mr. Niall Cody

The question about the food supplements has been the subject of significant discussion and consultation for the last number of years. This process has not just come out of the blue.

With whom has it been discussed?

Mr. Niall Cody

With the sector. There was a study for which we engaged an expert. There is a long history to this process. Back when VAT was introduced food was zero rated and there were no food supplements. As the market developed over the years, concessional treatment was given to have certain, basic food supplements as zero rated. With every year, new variants came to light and people looked for rulings for products that clearly did not qualify under the legislation. We carried out a review and engaged an expert. We got an expert report on the matter and the issue was subjected to consideration in the context of policy changes. For a change to take place it would require a legislative change but that became problematic because there is no standard legal definition of what is a food supplement. There are new products coming on the market with every passing month. Products that are licensed by the Health Products Regulatory Authority are zero rated. This would include items such as folic acid.

We would have looked at the idea of whether a legislative provision could be put in that relied on regulation by health agencies, one that would form a basis for clear rules in the absence of the alternative. As a result of different approaches, with some people applying VAT while others were not applying VAT, we issued our guidance in December. It comes into effect on 1 March 2019.

Is there any truth to the matter of EU Directive 2002/46/EC that deals with the labelling of these supplements?

Mr. Niall Cody

The issue comes down to this idea. VAT or tax legislation provides for what is zero-rated. If there was a VAT provision that built on health or regulatory regulations, it would have to be provided for in the Finance Bill. This has not been provided in the Finance Bill. Thus, we are working on the legislation as it exists.

The Revenue Commissioners interpretation of this is given to the Minister. I gather the Minister said yesterday that he normally accepts the recommendations of the Revenue Commissioners.

Mr. Niall Cody

If there is to be a change, it would require a change in the Finance Bill.

I listened this morning to a representative of all the small shops and those in the whole area of selling supplements. I got the clear impression that there was no consumer consultation or awareness of this. That was what was being said. You might let us know, Mr. Cody, which representatives were met by officials from the Revenue Commissioners.

Mr. Niall Cody

This issue has been ongoing for several years and has been the subject of significant engagement with the trade. We have looked for business cases. We engaged an external expert in the field. Part of the review would have been submitted to the Department of Finance. We will be publishing that report shortly. If you wish, Chairman, we can write to the committee setting out the history of the review.

I imagine all of us have been contacted at this stage.

Mr. Niall Cody

I will go as far as to say – I said this to a colleague yesterday – I have been lobbied by my sister, because this is going to increase the price of what she pays for supplements.

Did she fail? Obviously, she failed.

Mr. Niall Cody

I am the Chairman of the Revenue Commissioners.

Do other members wish to ask about this critical matter?

I wish to ask about the bonded warehouses. Does the Revenue Commissioners see that as being helpful? Will there be bonded warehouses throughout the country or mainly around ports? Will the bonded warehouses have an agency for customs clearance and imports? How does Revenue envisage that whole area?

Mr. Gerry Harrahill

Approved warehouse or storage facilities for customs purposes already exist throughout the country. I expect that will continue to be the case. Obviously, there will be some preponderance where business is based. We would expect the large centres of population to have facilities, but there are approved storage facilities throughout the country. One issue is whether an opportunity exists for people rather than bringing in an import in the normal way. The question is whether people could bring in something under a customs procedure and it could be delivered to one of these approved facilities. Then whatever controls might be necessary could be carried out there. Such places are countrywide.

Will Revenue have staff deployed to these bonded warehouses?

Mr. Gerry Harrahill

As part of our approach we are saying we can conduct controls and checks on the premises. We will be going to the premises and we will have people to deploy. That is part of the plan for the 600 staff. The plan is to deploy people to go to these locations rather than where some of them are at the moment. Some are currently in Dublin Port and Rosslare.

I have two quick questions. The competency for customs rests with the European Union. I want follow up on that. At the moment, what happens if we import from a third country outside the EU? How do we meet the requirement under the Single Market and EU customs rules? Is that down to an interpretation by the Revenue Commissioners in Ireland and each individual country? Is that a correct analysis?

Does it not follow then that although the competency rests with the EU, the actual interpretation of the rules is down to the individual revenue authority in the individual country? What happens in the event of whatever form of Brexit and the arrangements between east and west? We have latitude in being able to interpret meeting the requirements under the customs union and meeting the Single Market obligations. Is that correct?

Mr. Gerry Harrahill

When we say that competence rests with the EU we mean that the framework, the Union customs code, is agreed by the EU 28. The competence rests with the EU and not with us nationally. The interpretation is also a matter that the EU reserves.

Part of the engagement between member states and the Commission is to ensure that across the current 28 countries - soon to be 27 countries - there is a uniform approach. One issue that arises is that if we take a different interpretation to an interpretation in France, that can have a significant negative impact on trade at either end. Thus, there is a real focus at EU level on ensuring consistency of approach. In particular, the focus is on ensuring that the impact for business is the same. Some discretion is available to us about how we do something. Ultimately, however, the impact on business has to be the same so that we do not end up with someone being subject to controls in one location but not in another.

Particular challenges arise. Every year we get a visit from the European Court of Auditors. The court will always pick some aspect of the implementation of the customs regime. It can be a difficult, challenging and robust exercise. Ultimately, the court takes the view that we are in place as agents to collect EU money, and if we do not do that then Ireland owes the European Union a given amount.

That is not a bad exercise for the Revenue Commissioners in light of its dealing with customers.

Mr. Gerry Harrahill

It is not a bad exercise for us.

Mr. Niall Cody

Interest and penalties apply.

Mr. Gerry Harrahill

I will explain where the issue of flexibility arises. I mentioned we are out talking to trade and business. We know the profile of Irish business and we know some of the things that will work for Irish business. Earlier, I mentioned that authorised economic operator standards are not the panacea for everything. Big industry representatives maintain AEO is the way to go. The European Commission is rather relaxed. A range of things can be done. Ultimately, however, the country is assessed on compliance with the Union customs code. Oversight and rigour matter. I go to a meeting of the customs policy group every year. A report is laid on the table every year dealing with implementation of the Union customs code. It is not a place to be if a country has not been doing what it was meant to do as a member state.

Let us suppose this step is taken and the UK becomes a third country. What are the practicalities? How would the arrangement operate? Will the Irish Revenue Commissioners and the Customs and Excise be required to get sign-off from the EU on whatever scheme is put in place to deal with goods being imported from the UK to Ireland? Will it be down to operating under the same scheme that currently operates with third countries?

Mr. Gerry Harrahill

The scheme is the Union customs code.

Mr. Gerry Harrahill

It is there.

People and business associations are asking us questions also. I apologise for missing part of the meeting but I want to refer to the issue around cashflow for business. The biggest change this will bring about, apart from the timing in terms of getting physical goods in or whatever, will be to cashflow. I refer to businesses being required to come up with a comprehensive guarantee. One of the reasons we were going for authorised economic operator designation was that it could exempt them from the comprehensive guarantee where they are required to have money available in a bank account, which is money they have tied up, so to speak. Businesses are asking if there are circumstances in which they would not be required to provide a guarantee. I refer in particular to the cashflow implications for small and medium enterprises which import goods.

Mr. Cody spoke about getting a scheme that allows business to trade. Let us say I operate my business on the basis of giving customers 60 days' credit and they are getting 60 days' credit from suppliers. Historically, many businesses importing goods from countries outside the EU obtained credit terms that were not as good as those provided in the EU. In many cases, money was sought upfront. In addition, under the old system, they had to pay VAT at the point of entry and could not get goods out of the warehouse without paying the VAT. Let us take the case of a small business that imports goods valued at €100,000 each month. It will be liable for €23,000 of VAT per month. Under the guarantee system, this business would have to have €56,000 in a bank account and may even have to pay the money upfront. The credit terms may tighten in terms of its purchasing power. How can we ensure that businesses can continue to trade? If they have a very good record with Revenue in terms of their general compliance in terms of payments, what can we do to ensure they would not be required to go into the guarantee scheme? Does Mr. Cody understand the question?

Mr. Niall Cody

Yes. I will talk briefly about the VAT issue first because in the context of customs duties, tariffs are only applicable on certain goods. They are very high on certain goods and they are not high on other goods. The first issue is-----

The rate they would be charged for the goods would be based on the rate that would typically apply in Ireland.

Mr. Niall Cody

Yes, but the VAT is the €100,000 and the 23%. We talked earlier with Senator Paddy Burke about the VAT at the point of entry and what is involved. If one is importing goods from outside the EU, one pays VAT at the point of entry. One pays it as one imports it or on the 15th of the following month if one is subject to the guarantee.

Mr. Niall Cody

We collected approximately €1.5 billion in VAT at the point of entry last year. If the UK becomes a third country, clearly that figure will be significant.

Has Revenue estimated what it expects that figure will be?

Mr. Niall Cody

We did a preliminary look at it at one stage and because of the level of imports from the UK, and depending on whether they are zero-rated goods or the 23% goods, the VAT at the point of entry will more than double.

The figure would be about €3 billion.

Mr. Niall Cody

If we even say it will be an additional €1.5 billion, that would probably be at the lower end of it.

It is €3 billion in total.

Mr. Niall Cody

If it is collected evenly over the year, one twelfth of that would be payable each month. The Senator can see the size and scale of it.

All of that would be reclaimed in terms of bimonthly VAT returns.

Mr. Niall Cody

Yes. It is a different way of paying the VAT liability.

I want Mr. Cody to deal with the guarantee.

Mr. Niall Cody

Can I finish the point about VAT at the point of entry?

Mr. Niall Cody

The issue is that if there are no further changes, that will be payable upfront. The discussion we had with Senator Burke earlier was that it is a matter of legislation and a matter for the Minister to decide whether he looks at moving towards a postponed accounting system for VAT at the point of entry. If he does, it cannot be done just for imports from the UK. It would have to be done for all imports from third countries, with the obvious implications for the €1.5 billion we already collect through the system. The chartered accountants would probably have put that as the most immediate challenge. That is a matter for the Minister to-----

Do individual countries have competency? I know Revenue has to interpret the-----

Mr. Niall Cody

On the VAT issue they do.

Do they have competency on the rate of VAT and on how the VAT is collected?

Mr. Niall Cody

Under EU law, we could move to a postponed accounting system at the point of entry.

Technically, Revenue could have a position whereby people would not be required to pay the VAT until they reclaimed it. Effectively, this would create a contra.

Mr. Niall Cody

We could move to that system fully. That is the way a number of countries operate their-----

Revenue could actually-----

Mr. Niall Cody

The UK has indicated it will move to that system.

Would Revenue have no objection to that?

Mr. Niall Cody

That is a policy decision. It is a mechanism. Obviously, the process would have to be recorded and all the rest of it. Ireland had a postponed accounting system. If we go back to some of those yellow forms I used to examine, and the Senator probably did not have available when I was looking for them-----

I was never like that.

Mr. Niall Cody

There was a postponed accounting system in Ireland, I believe in the 1980s, and then VAT at the point of entry was brought in, primarily for a cashflow, in one of the budgets.

In essence, therefore, the mechanism is available if at policy or Government level-----

Mr. Niall Cody

The UK has indicated it will move to that, and a number of member states already do it.

I would have thought this is something the committee should recommend.

We could look at it.

It would be very practical for comparative reasons. I hope that negates my question on the guarantee.

Mr. Gerry Harrahill

The news is not as potentially positive regarding the customs end of things. To go back again, this is money belonging to the EU and we are effectively acting as agent in collecting that.

That is for the excise.

Mr. Gerry Harrahill

This is for the customs duty.

Mr. Niall Cody

Not excise. Excise is different.

Mr. Niall Cody

Excise and customs.

Will the witnesses deal with the issue of customs duties?

Mr. Gerry Harrahill

To get a deferred payment arrangement, one has to be authorised. Again, this is set down in the European Union's customs code. This allows one to defer the payment of the charges but one must have a comprehensive guarantee in place.

That is effectively what we would know as a tariff.

Mr. Gerry Harrahill

Yes. The rationale behind it and the thinking for our guarantee is if the goods go missing, the EU is not at a loss for the customs duty because the guarantee can be called on to cover that. That is what makes us slightly different. In fact, under the new Union customs code, even companies that have an existing guarantee must have it replaced by May of this year.

Part of the fallout from Brexit will be that an existing guarantee with a UK-based bank will no longer be valid. Unless that bank sets up an operation elsewhere in the EU, the company will have to source another bank.

It is, basically, an insurance bond.

Mr. Gerry Harrahill

Yes, effectively.

Would the tariffs that apply at the moment for third party countries apply to imports from the UK?

Mr. Gerry Harrahill

The WTO rules would apply unless there is an agreement that it will be otherwise. In the event of no deal, WTO deals will apply and tariffs are part of that.

The VAT cashflow issue can be probably overcome with a change in legislation and excise duty will be charged in the normal way. Tariffs are a fixed cost and cannot be reclaimed. What additional tariffs would be collected by Ireland on imports from the UK?

Mr. Niall Cody

We discussed this with Deputy Michael McGrath this morning. We collected €333 million in customs tariffs from third countries last year. The value of imports from the UK is the equivalent of 60% of the total imports from third countries but some tariffs under EU rules have to do with origin, quotas and the mix of goods. It will be between €200 million and double that figure.

Are there any circumstances in which there is no requirement for any physical check on goods coming in from a third country? I am aware that Revenue is moving towards a risk-based system. Could there be random checks rather than a check at the Border?

The figure is 92%.

Mr. Gerry Harrahill

Under the existing regime, 92% of third party traffic is subject to customs control and, by using a mixture of the declaration system and risk analysis, it comes through seamlessly with no intervention.

How does Revenue come up with the 8%? Does it look at 8% of goods or is it based on the risk analysis system?

Mr. Gerry Harrahill

It is based on-----

It is the figure that fell out.

Mr. Gerry Harrahill

Absolutely.

I will ask a few questions on the flat rate. Is it true that the existing concessionary arrangement, where travel and subsistence expenses are allowed via a flat-rate reimbursement, is not supported by legislation?

Ms Clare Omelia

The requirements under legislation for travel expenses are that they must be necessarily incurred in the performance of duties. There is reference to various case law in our interpretation of that, and we do not believe there is any gap which necessitates change. Our guidance notes are fairly comprehensive in this regard.

The case law is sufficient to establish whether it is wholly, necessarily and exclusively-----

Ms Clare Omelia

To clarify, the only one of the three conditions that applies to travel is that it be necessarily incurred. All other expenses must be wholly, exclusively and necessarily incurred.

Okay. Revenue believes there is no need for legislation. Does it accept that, on the basis of the recent tax appeals determination 20-TACD-2018, there is a serious discrepancy between Revenue's published guidelines on the deductibility of travel and subsistence expenses and the strict legal interpretation which Revenue had argued in the course of the determination to which I refer? If witnesses do not have the specific details, I will supply them to them.

Mr. Niall Cody

There was a recent tax appeal decision in which the Appeals Commissioner set out a view on an issue which was not in front of him. He wondered whether allowing expenses on the subsistence element or travel and subsistence was allowable. We reviewed it and it has been the subject of a good number of parliamentary questions. We have set out our position on it and we think our approach is in accordance with case law and does not require a legislative change. If we were to implement the Tax Appeals Commissioner's view on an issue that was not in front of him, we would be restricting the right of employees to claim subsistence when there is a travel and subsistence claim. If an employee was based in Limerick and was going to do a job in Galway, he or she would be entitled to claim travel but not subsistence because it would need to be wholly, exclusively and necessarily incurred but we do not think that is a sensible interpretation of case law. The import of what the Appeals Commissioner is saying is that subsistence would not be allowable in any case unless there is a legislative change but we do not think he is right.

I am trying to get at the fairness around the issue. There are categories where subsistence is allowed and its conditions are set down strictly but for those who do not come within those categories, it must be unfair to not allow them to claim subsistence. How can it be different for two different categories of people?

Mr. Niall Cody

Travel and subsistence are allowable for everybody where wholly and necessarily incurred. There have been various cases in which people have claimed a wider view of travel and subsistence, where it was not the subsistence that was disallowed but the travel. The classic case is travel to and from work, for which people are not entitled to claim expenses. An article in one of the Sunday newspapers a couple of weeks ago argued that Ireland's rules vis-à-vis contractors were very negative and did not support modern employment. I was discussing contradictions in this area with Deputy Paul Murphy earlier and we discussed the idea that if a person worked in an office at home, they should be able to claim travel and subsistence on the basis of travelling to their business location every day, even if it is at home. We also discussed allowing people to claim expenses for accommodation but that would require a widening of the expenses regime. A consultation was carried out by the Department of Finance in 2015 and a number of legislative measures were introduced in the intervening period but it would be a significant opening up of the system if we were to widen it further. There would, I believe, be serious control issues.

Would it not make sense to take the accumulation of case law and put it into legislation, to give us something modern, up to date and reflective of the working practices of people?

Mr. Niall Cody

We have issued comprehensive guidance, though various people are not happy with all of it as it relates to some of these issues we discussed earlier..

We set out the guidance on how the rules apply, reflecting the case law, and it is available for everybody. The challenge is that people in certain circumstances would like it to be wider but, if it is to be wider, legislation has to be enacted to make it wider. We have reflected the case law in our guidance and we have reviewed it, following the Appeal Commissioners. We discussed it at the tax administration liaison committee with the various tax practitioners, the Irish Tax Institute, the accountancy bodies and the Law Society. They asked us specifically whether we were changing our guidance and we said we were not and that we were satisfied with our guidance. That does not stop individuals claiming, and it then becomes a matter for the courts.

This is all an expense to small and medium businesses. If it was put in legislation-----

Mr. Niall Cody

Our guidance is very clear.

Yes, but people then have to engage practitioners to interpret it and all of that. Would it not be better to just clear all that up?

Mr. Niall Cody

Our guidance tends to be clearer than legislation because one can write guidance in more straightforward English. When the Oireachtas passes the Finance Bill and it is signed, we issue guidance on that. We are satisfied the legislation and our guidance are very clear. There are people who are not satisfied and who would rather the law was changed and the rules loosened, or they feel we might be wrong. That applies regardless of whether this is legislated for. It is a matter for the courts.

We have had a number of questions from people, some of a technical nature. Rather than go through each of them, we could pass them to the Revenue Commissioners.

Mr. Niall Cody

Absolutely.

It is necessary to take time to read the answers because they are complex. If the answers could be provided in a written format, we can look at it.

Mr. Niall Cody

Absolutely. I was looking at a reply to the Chairman on this issue, which we will hopefully clear tomorrow.

People just want fairness and consistency. I cannot see how legislation would be detrimental to them getting-----

Mr. Niall Cody

Legislation is a policy matter.

However, if the Revenue Commissioners are not recommending any changes in legislation, obviously, the Minister will not feel compelled to change it. That can influence his thinking.

Mr. Niall Cody

I do not always find that to be the case.

From looking at all of these cases, it might be. We will submit all of the questions. I would appreciate it if Mr. Cody could come back with full answers as soon as possible. We need to get to the bottom of this because it is impacting on people's lives.

Mr. Niall Cody

The one thing we pride ourselves on is trying to get back to people as quickly and comprehensively as possible. We will get back to the committee very shortly.

Along with that correspondence, I will give Mr. Cody a note that was given to me by my colleague, Deputy John Lahart, in regard to Dublin Airport, the DAA and so on. Mr. Cody is familiar with the issue. The impact of Brexit means an additional 10.1 million passengers for that airport and there is also the issue of the aviation security officers. Mr. Cody might expand on what is in this note for Deputy Lahart and come back to us.

Mr. Niall Cody

I will.

That concludes our meeting. I thank the witnesses. I appreciate it was a long meeting.

The joint committee adjourned at 3.04 p.m. until 10 a.m. on Thursday, 31 January 2019.