Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach debate -
Wednesday, 15 May 2024

Revenue Commissioners: Discussion

An Cathaoirleach

The minutes of the joint committee's meeting on 1 May and 8 May 2024 were agreed earlier at a meeting of the committee in private session.

We are joined by Mr. Niall Cody, Ms Jean Acheson and Ms Leeann Kennedy from the Office of the Revenue Commissioners. They are welcome.

I draw the attention of members to the notice on privilege. If they are on the campus, they are covered by privilege. If not, they will only have partial privilege. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against any person outside the House or an official, either by name or in such a way as to make him, her or it identifiable.

I invite Mr. Cody to make his opening statement.

Mr. Niall Cody

I thank the Cathaoirleach for agreeing to reschedule my attendance to today, after the publication of both Revenue’s annual report for 2023 and the latest series of research reports and statistical papers. The annual report marks a centenary of service by Revenue to the State.

In its correspondence last March, the committee set out a number of areas which are of particular interest for today’s meeting. For the purposes of my opening statement, I will concentrate on three of the particular areas mentioned. I will lead with the debt warehousing scheme which was introduced in May 2020 to provide a vital liquidity support to businesses coping with the impact of the Covid-19 pandemic. The scheme allowed businesses to temporarily park eligible taxes on an interest-free basis until 1 May 2024. At its peak in January 2022, there was €3.2 billion debt in the warehouse, the vast majority of which related to payroll taxes deducted by employers from their employees and value-added tax. Today is effectively the end of the warehouse scheme. With effect from today, 15 May, Revenue’s systems will be updated to automatically apply the standard interest rates of 8% and 10% on any outstanding warehoused debt.

As of yesterday, more than 11,800 phased payment arrangements had been agreed for just over €1.1 billion in warehoused debt. A further 600 applications are being finalised for debt of €148 million. This is in addition to €250 million in payments received towards payment of warehoused debt. Just over 11,700 taxpayers, with debt balances greater than €500, had not engaged with Revenue to address their warehoused debt. The total debt outstanding for these taxpayers is €175 million. Last Wednesday, these taxpayers received a demand notice giving one final opportunity to engage with Revenue to address their warehoused debt and avail of the 0% interest rate on that debt. The next step for those who have not engaged on foot of the demand notice is that Revenue will start its collection process. Tomorrow, final demands will start issuing. The final demand process involves a seven-day notice of enforcement action. It is the last stage before enforcement action is taken, if there is no immediate engagement by the business.

For businesses which have agreed, or will shortly agree, a phased payment arrangement for their warehoused debt, it remains a key condition that current taxes are filed and paid as they fall due and that all monthly instalments are honoured in accordance with the agreed payment schedule in order to retain the 0% interest rate. However, we appreciate that businesses that have entered into phased payment arrangements may run into temporary difficulties during the term of the agreement and, in those cases, we will be flexible and supportive in varying the terms of the agreement. It is noteworthy that at the peak of the last economic emergency the debt under phased payment agreements peaked at €320 million. When all agreement applications are finalised, the debt currently under phased payment arrangements is in excess of €1.3 billion. I acknowledge the work of our debt management teams and the staff in the Collector General’s division and the wider organisation in the work on the debt warehouse scheme.

We published our analysis of corporation tax, CT, payments and returns. This is the latest report in a series that started in 2015 and provides a significant level of data to facilitate policy analysis. In 2023, Revenue collected €23.8 billion in corporation tax, an increase of 5.3% on 2022. CT receipts are the second largest across all tax heads, accounting for 27% of the total net receipts for 2023. The top ten companies accounted for 52% of net receipts in 2023, a decrease from 57% in 2022, with the top ten groups accounting for 56%, down from 60%. Net receipts from smaller companies increased by €385 million compared with 2022, a growth of 9%. Revenue’s analysis also shows that more than 2.8 million people are employed by companies that filed a 2022 CT return.

In relation to the classification of employment, Revenue’s role is to determine employment status for income tax purposes. Responsibility for PRSI classification rests with the Department of Social Protection, while consideration of matters relating to workers’ rights falls within the remit of the Workplace Relations Commission. On 20 October 2023, the Supreme Court delivered an important judgment on the key factors to be considered when classifying an individual’s employment status for income tax purposes. The judgment brings welcome clarity and provides a decision-making framework to assist businesses to correctly classify workers as employed or self-employed. Following the sharing of a draft with relevant stakeholders which have provided input, Revenue will shortly issue detailed guidance to explain the implications of the judgment for tax purposes. Revenue is also working closely with colleagues in the Department of Social Protection and the Workplace Relations Commission to update the joint code of practice on determining employment status.

Finally, I draw the committee’s attention to section 851A of the Taxes Consolidation Act 1997 and my obligation to uphold taxpayer confidentiality. Subject to this constraint, I am happy to answer the committee’s questions.

Deputy Rose Conway-Walsh

I thank Mr. Cody for being here. His statement is short but it has a lot of information about where we are and the risks ahead of us. The main matter that sticks out is that there seems to be substantially different profiles between the two groups, namely, those who have engaged and those who have not. On the face of it, it seems that larger companies with a larger quantum of debt warehousing are more likely to have engaged and have phased payment arrangements. We can only work out the averages. For companies that have not engaged, it seems the average tax arrears are around €17,000, but for that have engaged the average is roughly €90,000. However, a lot of information can be hidden in averages. The purpose of the 0% rate was to help small businesses that do not have cash reserves or access to finance and for which even a small increase in costs could be detrimental.

I have a few questions to dig a bit deeper there. How many businesses of the total 12,269 that have engaged with Revenue have tax arrears above €1 million?

Mr. Niall Cody

I had expected to be talking about the businesses that have not engaged, but I can get those figures for the Deputy. At the end of the month, we will be publishing a detailed breakdown and analysis of all the ranges, such as how many businesses owe under €1,000, how many owe between €1,000 and €2,000 and so on among those that are outstanding. One of the features of the businesses that have settled is that a significant sum came in as paid. About €250 million was paid in recent weeks. In recent days, I was looking at records of the highest levels of debt on record and wondering whether they were going to come in because, obviously, that has a huge impact, and a lot of them paid in full in the past week. They did not enter into instalment arrangements, which was really welcome for us.

What has happened with the distribution is that there is a fairly broad range of those that engage, from small companies all the way through to big ones. In the case of businesses in debt of between €500 and €1,000, we have 1,000 cases, which between them owe €1 million. I think a lot of them see they are not really in this cohort at all. As part of the ongoing engagement with us, they will have a repayment for VAT and that will be set off against the debt. There is then a core of companies that always engage with us when the sheriff gives them a demand. It is inextricably hard-wired into their business model. Revenue will send a demand and then a final demand, nobody will react and the sheriff will then get involved.

Deputy Rose Conway-Walsh

Revenue obviously, therefore, monitors behaviours in the system.

Mr. Niall Cody

We were keen to highlight during the meeting how the normal collection process works. I regularly read in the newspaper about a company complaining about Revenue, as though the sheriff had appeared out of the blue. I occasionally get representations from within the Oireachtas whereby Members have been approached to say something has happened. Our system of collection is such that there is a statutory deadline by which returns and payments are due. Our debt management comes into play where somebody does not meet that, and we will send a demand. That demand will be followed with a final demand, and we replicate this in the process. The demand issued this week will be the final demand.

Deputy Rose Conway-Walsh

How much time is given between the first demand and the final demand?

Mr. Niall Cody

It will be at least a week, but sometimes it will be more than a week. The final demand, however, will be a seven-day notice where we state that if there is no engagement with us within the seven days, appropriate enforcement action will follow, and the appropriate enforcement action will depend on the circumstances of the case. Obviously, there are some cases where the Revenue sheriff is not a feasible option, if they do not have assets and so on, and it may well be a reference to the solicitor, a judgment, a mortgage or any element of a whole process up to and including liquidation. That is the kind of process we undertake in the normal course. We do not comment in the media. If somebody goes to a newspaper and says Revenue did this or the sheriff did that, we do not comment.

Deputy Rose Conway-Walsh

Does Revenue differentiate between the sums owed? If it has issued final demands and is carrying out the execution in cases where one business owes €3,000 and another owes €30,000, does it go after the one that owes €30,000 first?

Mr. Niall Cody

We will always take a risk-based approach. We are organised such that we have a case base broken up into categories. Obviously, it takes a lot to manage all the areas, so we have dedicated teams that are focused on large companies, medium-sized companies and so on. Our business is ultimately to collect money, so we will always take a risk-based approach. As I said, from tomorrow, we will focus on a figure that will be probably under 11,000 companies by the end of today, and we will focus on the larger entities first because that is our job.

Deputy Rose Conway-Walsh

Mr. Cody stated earlier that one business owed the largest sum and Revenue was waiting to see what would happen with that. Would that not suggest that business had not needed warehousing at all, given it was able to pay back the full sum?

Mr. Niall Cody

I go back to March 2020, when the then Taoiseach announced the public health restrictions. At that stage, we issued a press release about suspending enforcement action and interest collection. From memory, I think it issued on 15 March 2020. The temporary wage subsidy scheme then came in with effect from 27 March. We had no idea what was coming. Our debt enforcement suspension in the debt warehouse scheme was legislated for with effect from 1 May 2020.

I recall the Secretary General of the Department of Finance asking me, after the wage subsidy scheme had come in, whether there was anything else we should be doing, and I said we had suspended enforcement action and interest application but that the legislation provided that we should do that. I said I had been thinking of the idea of debt warehousing, which was in my head as a safe mechanism to use, but we had no idea what was going to happen. We could not have used a process where businesses applied for debt warehousing and showed their individual need. More than 100,000 entities were in debt warehousing at its peak. The original temporary wage subsidy scheme was due to last for 13 weeks and we had no idea what would happen. The scheme lasted for nearly two years. The warehousing was extended when the war in Ukraine started and the cost of living peaked. That was for a year but we had no idea how long it would be needed, and it was subsequently legislated for.

The legislation was drafted such that any business that was dealt with in our business division, which deals with all the SMEs, automatically qualified for the debt warehouse. They did not have to apply for it but automatically qualified for it. Any large businesses, which are dealt with by our large-cases division, or medium enterprises, which are dealt with by our medium-enterprise division, had to make a business case to be eligible to join it. I recall looking at cases at the time where businesses that had shut subsequently went online and some of them actually increased their business over the lifetime of the process, but if they were eligible at the start, there is no mechanism to decide they are not eligible anymore. If a business has finance, bank debt and tax debt in the warehouse, it makes absolute business sense for it to work down its non-tax debt at whatever rate of interest and to benefit from that.

Deputy Rose Conway-Walsh

Of course. I see what Mr. Cody means.

Mr. Niall Cody

I read that up to two weeks before 1 May, insolvency practitioners and various commentators talked about the tsunami of insolvencies that was going to come when the warehousing was undone. I find it interesting that the commentary on warehousing has not quite dried up but the success of companies in paying the money back is really admirable.

Deputy Rose Conway-Walsh

That is why I really need to get to the bottom of where we are in terms of those who have not engaged. We do not have the figures for how many of those who have engaged have tax arrears below €20,000.

Mr. Niall Cody

I have the figures. There are approximately 2,000 between €500 and €1,000 and 5,198 between €1,000 and €5,000, so the number under €5,000 in total is 7,279 out of the 11,700. These figures are from two days ago and it is actually fewer now, but these are the most up-to-date figures I have. Between €5,000 and €50,000, there are another 3,617, and above €50,000, there are 775. Those 775 cases owed €130 million. I can provide the relevant figures.

Deputy Rose Conway-Walsh

Mr. Cody might give those figures to the committee.

Mr. Niall Cody

We will be publishing this in detail. This morning, I was looking at the figures from last night and I was tempted to give them, but I said “Stop”. We will be publishing detailed statistics with all the breakdown by the end of the month. Some of the 500 cases have put forward proposals to us for phased payment arrangements that we are still working through, although some of them may fall down.

Deputy Rose Conway-Walsh

What is the median amount for those who have not engaged so far?

Mr. Niall Cody

One of the problems is that we look at the averages when the averages can give a false tale. Some 7,000 cases have debt of less than €5,000.

Deputy Rose Conway-Walsh

That is of those who have not engaged.

Mr. Niall Cody

Some 60% of those who had not engaged up to two days ago have debt of less than €5,000. We will give comprehensive tables. It is very hard if I read out the figures and the Deputy has to write them down.

Deputy Rose Conway-Walsh

I just want to get the parameters of it. How many of those who have not engaged would be above €100,000?

Mr. Niall Cody

There are 775 above €50,000.

Deputy Rose Conway-Walsh

Is that of those who have not engaged?

Mr. Niall Cody

They had not engaged by two days ago. There is €130 million for those cases over €50,000 and there are fewer than 800 such cases. There will be a clear concentration to see what that figure is left at. It is interesting that since we issued the letters last week, there has been engagement by people agreeing and putting forward proposals for a PPA. The thing that surprised me is that probably about €12 million has actually been paid in cash in the last week by people who had not engaged by the deadline. This has always been a feature of tax collection. There is a category of businesses that really wait until they are asked. I think we are all familiar with the idea of those who shout loudest, and you will have a whole raft of people looking for money from you.

I would point out - the Collector General also talks about this - that we suspended enforcement action in March 2020. That meant that for nearly three years, Revenue was not asking anybody to pay their tax liability.

Deputy Rose Conway-Walsh

Were all the 11,700 issued this week?

Mr. Niall Cody

They would have received the demands last Thursday.

Deputy Rose Conway-Walsh

Is that the highest number of demands that were issued in a single week?

Mr. Niall Cody

I would not necessarily say that is the case over our history. There were various periods. In 2022, when the debt warehouse ceased, we would have recommenced enforcement action and there would have been a bit of pent-up demand at various stages. We were chatting ourselves about what the process is and what we do next. There were 55,000 cases in the warehouse six weeks ago and we were looking at what might be left. If there had not been the level of engagement, we were asking how we would cope and what we would be saying. When we looked at these figures and talked to the team in the Collector General's office, spread over the 19 or 20 debt management teams, these are not mad figures.

Deputy Rose Conway-Walsh

What Mr. Cody is saying is that the Revenue Commissioners can manage them, which is good. Mr. Cody said that people still have a final chance to engage with Revenue to avail of the 0% rate. How long will that flexibility last?

Mr. Niall Cody

Ten hours.

Deputy Rose Conway-Walsh

It is tonight and there is no flexibility after that. Anybody who contacts Revenue tomorrow morning will face a rate of between 8% and 10%.

Mr. Niall Cody

The 10% is the standard rate on VAT and employer’s PAYE and PRSI. The 8% applies to the small levels of income tax in the debt warehouse but, really, we are talking about 0% versus 10%.

Deputy Rose Conway-Walsh

Zero is off the table from tonight.

Mr. Niall Cody

Zero is off the table. People could put forward a proposal for a phased payment arrangement today and they will benefit from the 0% rate even if we vary the terms in our negotiation. We have 500 “in process”, as we call them. On 30 April, we had 2,066 in process, which is probably the highest ever.

Deputy Rose Conway-Walsh

Mr. Cody will understand the behaviour. If we have this 11,700 that have not engaged and many of them will not engage up to tonight, there is a reason they have not engaged, most possibly because they do not have the finances to be able to pay it now, so they are not going to be able to pay 8% or 10% on top of that as well. The danger is that people are going to be pushed out of business.

Mr. Niall Cody

There is a danger. There is also a strong probability that some of them have ceased trading anyway. Every year, we write off uncollectible debt and it is for all sorts of reasons - it could be liquidation, that they have ceased trading with no assets or that they have left the country. Last year, we wrote off €153 million in debt and, in 2019, we wrote off €143 million. That is very positive when we think of the increase in tax levels in the intervening period. In 2020, 2021 and 2022, because of the change in the pandemic, the level of write-off dropped because the level of enforcement dropped.

Deputy Rose Conway-Walsh

What was the spread of that write-off of €153 million in terms of large companies and small companies?

Mr. Niall Cody

I have figures on insolvency activity rather than the breakdown.

Deputy Rose Conway-Walsh

What I am trying to get at is the equity and fairness in this. The €153 million could be one company, two companies or 2,000 companies.

Mr. Niall Cody

There would be a range. The write-off in many cases would be for very small entities with very small liabilities.

Deputy Rose Conway-Walsh

Is the collection process the same for large companies and small companies?

Mr. Niall Cody

It is more immediate for large companies.

Deputy Rose Conway-Walsh

More immediate.

Mr. Niall Cody

Yes. It reflects the timeliness of compliance. The first thing is that there is a legal obligation on a taxpayer to submit their returns and pay their liabilities by the due date.

We carefully monitor large companies and the voluntary compliance rate for large companies is 99%. For medium it is 98% and for smaller entities in the annual report it is 90%. We had a plan in 2019 to get the small entities up to 95% because it is in everyone's interests that people submit their return on time and pay their liability on time. We introduced a new debt management system at the end of 2019, which we were rolling it out. It allows us to review cases quicker across the full range of cases. Then the pandemic came and we suspended our enforcement action. We had a plan to get to 95% or 96% and we are revisiting it and trying to get there.

Deputy Jim O'Callaghan

I welcome the Revenue Commissioners before the committee. I did not get an opportunity to congratulate them on their annual report. It was the centenary report and that is the reason it deserves to be recognised. The Revenue Commissioners are probably one of the few large institutions in Ireland which has not incurred any significant reputational damage since it was established. Hopefully, that will continue. I do not ask the witnesses to comment on that but it deserves to be recognised.

I ask Mr. Cody about the policy response to the pandemic in the form of the debt warehousing plan. I take it from his comments to the committee so far he thought that was an appropriate policy response by the Oireachtas to the uncertainty caused by the pandemic.

Mr. Niall Cody

The pandemic was a unique set of circumstances and it brought us into areas we are generally not involved in. I probably spent more time at meetings in the Department of Finance than normal. It started with the wage subsidy scheme.

When the economic crash came in 2008, we issued press releases about people contacting us early and engaging with us. My colleague Gerry Harrahill was Collector General at the time and went to every business engagement he could, getting people to engage with us and enter into instalment arrangements.

When the pandemic came, with the open-ended nature of it, we worried about what would happen around collection of debt. A big proportion of warehoused debt relates to November and December 2019 VAT, January and February 2020 VAT and payroll for December 2019 as well as January and February 2020. For a long time, that was the big chunk of the money. Many companies did not warehouse everything they could have warehoused. They paid off stuff they could pay.

I do not think the Government had any option. If something like the warehouse had not been introduced, I imagine I would have been brought into the Committee of Public Accounts and asked why I did not collect the money I should have collected, even though I could not have collected it. Here we had a statutory-based system and that relates to not knocking companies out of it if they are in it. It gave great certainty to business and was a great support to business.

One of my constant worries was how it would unfold at the end. The Minister for Finance was on the radio this morning. It is a huge testament to the work of taxpayers. There will always be a few who look to exploit the system. I know we have some of what I call strategic liquidations and phoenix operations but I worried about whether we would have a lot of them. Also, a momentum builds. People see this is a fair system. The 0% interest rate the Minister announced in February and that has yet to be legislated for became an added simplification of the scheme.

At the committee, I usually say these are policy matters for the Department. This one is a policy matter we had a big influence on developing but it needed legislation. It needed the Oireachtas to pass it and is something we should collectively be hugely proud of.

Deputy Jim O'Callaghan

The risk, if a scheme like this had not been introduced, would have been the development of a general feeling among taxpayers of being in a pandemic and the last thing to worry about is paying back taxes. Does Mr. Cody have any worries about its effectiveness if it was to be used again in the future? I presume he would hesitate to recommend debt warehousing every time we get to a bump in the road. When would it be appropriate, aside from a pandemic?

Mr. Niall Cody

I was just going to say "the next public health restrictions".

Deputy Jim O'Callaghan

During the last economic emergency, a phased scheme for payments was introduced. Is that right?

Mr. Niall Cody

Yes, but the normal interest rates applied. We do that engagement always. Businesses run into temporary difficulty and, when they do, our door is always open. Our interest is keeping viable businesses in place. The reality is businesses do not always remain viable. One of the key indicators of viability is ability to pay current taxes. If you run into difficulties and come to us with arrears, we try to agree an arrangements for those arrears, having regard to your assets, cash and business viability. Part of the arrears agreement is you pay your current liability as it falls due.

I remember years ago when I was in charge of the Dublin region and there was a business that was running into difficulties. It had, let us say, 25 employees. There was an assessment required for understatement of liability. The case worker was worried about whether it would put the company out of business. It came up to me and I decided we had to raise the assessment. The tax was due. Ultimately, its competitors who were doing it right would be put out of business if we did not pursue the debt. That is part of the process. It requires a level playing field. One of the good things about the warehouse is all the entities who entered arrangements to pay their liabilities in full cannot be in a worse position than those who did not engage. That is really important.

Deputy Jim O'Callaghan

So Mr. Cody agrees it could be used in a future pandemic but is not prepared-----

Mr. Niall Cody

I hope not to be in this job or any other job at that time because it would be a really bad sign.

Deputy Jim O'Callaghan

It is something that should be used infrequently to deal with emergencies.

Mr. Niall Cody

The Deputy mentioned we celebrated our centenary. It is the first debt warehouse scheme in 100 years and I hope there will not be one in the next 100.

Deputy Jim O'Callaghan

Another issue Mr. Cody raised in his statement was corporation tax payments and receipts, which are pretty extraordinary in terms of how successful they have been for this country. We took in €23.8 billion last year. Often the Minister for Finance and other politicians refer to the windfall nature of these taxes. According to Mr. Cody's assessment, how reliable will this source of income be in the coming years?

Mr. Niall Cody

We published what is now an annual report on corporation tax receipts. It is interesting and reflects the fact that, as the Deputy says, in 2023 we collected just under €24 billion in corporation tax.

In 2013, that was €4 billion. There has been a significant increase. I might get Ms Acheson to talk about some of the nature of what we do because it is her report. We do not forecast, rather we report on what has happened to the Department Finance. We feed in our information on what is happening on the ground. We do not get sucked into that policy debate. The reality is that corporation tax is now the second highest for a number of years. I said it in my opening statement. A significant 53% of CT last year was paid by ten companies and some 56% of CT was paid ten multinational groups that include those ten companies. That level of concentration is always a challenge. That has been a feature of CT. For a long number of years, it was about 40% by the top ten.

Deputy Jim O'Callaghan

Ms Acheson may want to come in. When looking at the €23.8 billion, €20 billion of it comes from what are referred to as foreign-owned multinationals. Is that correct?

Mr. Niall Cody

Some 85% of the CT.

Deputy Jim O'Callaghan

Are they all large corporates? Does the fact that they are foreign not necessarily mean they are large or are they all definitely large corporates?

Mr. Niall Cody

They are not all larger. Some of them would be relatively new, being established and growing. However, they are essentially all part of large multinational groups. The element in Ireland may be big or small, as the case may be.

Deputy Jim O'Callaghan

That does not take into account the amount of employment taxes paid by those large corporates, particularly the foreign-owned multinationals. Is there any assessment as to how much employment tax they are paying at present? I saw in one the reports that the combined employment taxes paid by large corporates was €28.9 billion.

Mr. Niall Cody

Yes. In a way, the concentration of the CT receipts also reflects the fact that they are significant payers. Our report deals with employment and payroll. One will see in our report from page 27 on, it shows the distribution of employment between the FDI sector. Some of the large foreign multinationals are selling in the Irish market. They are in the retail and wholesale trade. However, it also reflects the level of wages in some of those entities is higher on average. All that detail is in there. Does Ms Acheson wish to talk a little about the employment stuff?

Ms Jean Acheson

One of the reasons we add that detail is because month to month we just get the CT receipts, which are the latest picture of the tax. However, it is good to take a step back and look at the other contributions. Regarding employment by foreign-owned multinationals, it is just under €1 billion for the latest year of CT returns, so that is about 35% of all employment by companies. However, as the chairman mentioned, those are higher-earning jobs on average, so they are paying more than half of all employment taxes – income tax, USC, PRSI and so on. It is a disproportionate share, reflecting those higher wages. The report goes into detail because as well as foreign multinationals there are Irish multinationals and the domestic sector. It is worth noting the domestic sector too. Non-multinationals account for more than half of employment by companies.

Deputy Jim O'Callaghan

Is much default seen in the area of corporation tax? What is the obedience and compliance like in that sphere?

Mr. Niall Cody

In a way, a large number of the entities in the debt warehouse would be companies. Corporation tax would tend not to have been a big part of the liability of small companies - it is mostly VAT and payroll. CT was not covered by the warehouse. To have a corporation tax liability, you must have profits. In the period of the pandemic, the profits went down. One can see the level going down. I mentioned in the opening statement that we got an additional €385 million from CT from small and medium enterprises that are predominantly Irish entities. Corporation tax tends not to be a big default item. Most liabilities are VAT and payroll.

Deputy Jim O'Callaghan

Finally, I wish to ask Mr. Cody about a separate but equally important issue. As he will be aware, there is a concern on the part of farmers in Ireland about the extent to which they are entitled to qualify for a VAT 58 refund in respect of certain farm machinery. Is that an issue on which the Revenue Commissioners have been engaging with farmers or do they view it as that is provided for in the law, this is the interpretation of it and they cannot deviate from it?

Mr. Niall Cody

There is active engagement in that area. We have met the Irish Farmers' Association, IFA, and the Irish Creamery Milk Suppliers Association, ICMSA, in the past few months. I note the agriculture committee had a session about it last week. It would be useful to set out some of the challenges we have in respect of the VAT 58 process. The VAT 58 scheme is based on an order – a statutory instrument regulation, essentially – that effectively dates back to 1972. It is based on the typical farm arrangement in 1972. It provides that VAT will be repaid to unregistered farmers in respect of construction, extension, alternation or reconstruction of farm buildings or structures, fencing, draining and reclamation of farmland. The only real change was in 2012, for the construction and-or installation of qualifying equipment for the purpose of microgeneration of electricity for use in a farm business. We have a scheme that is essentially 50 years old. In the intervening period, farming has changed radically. It is not as labour intensive and there are not farm labourers. It is highly automated. The area where most of the challenges are - the dairy sector - has gone highly mechanised and highly robotic. The scheme is not legislating for practices. At the agriculture committee, we were asked about us standing in the way of the modernisation of farming and standing in the way of health and safety expenditure in farmer. We are not; we are implementing the legislation as we have it. There are challenges about amending the legislation because-----

Deputy Jim O'Callaghan

The legislation or the statutory instrument?

Mr. Niall Cody

The statutory instrument that gives effect to it. We have a VAT system based on EU law. Every farmer is entitled to register for VAT. If farmers register for VAT, they are entitled to deduct all farm expenditure. For unregistered farmers, there is what is known as a flat-rate scheme, where there is a flat-rate addition on sales by unregistered farmers. The purpose of the flat-rate scheme is to compensate farmers for VAT incurred in the course of their business. It is an aggregate amount across the full sector. The VAT 58 scheme was brought in in 1972 to reflect the fact that farmers at that stage were putting up hay barns or slatted sheds. I watched the agriculture committee with interest. It reminded me of when I was an outdoor officer in the Waterford tax office, when I went out and did checks on farm construction or fencing. There were no robotics and no automatic scrapers. The calf feeding process was somebody with a bucket.

The order and the legislation go back to that era. During the period of expansion of dairy farms, which involved the construction of milking parlours and the installation of milking machines and bulk tanks, all the expenditure that was entailed as part of the development of a dairy operation tended to be allowed. However, we see now that bulk tanks are being replaced with new ones. That does not come under construction or reconstruction.

Deputy Jim O'Callaghan

Is Mr. Cody saying that because of the VAT directive and how it is transposed into Irish law, it will not be possible to amend the statutory instrument to permit farmers to obtain VAT 58 refunds as we are discussing here?

Mr. Niall Cody

There is a real challenge about expanding the order. The challenges will be the European Commission and the possibility of State aid because the flat-rate scheme provides compensation for unregistered farmers and the facility exists for all farmers to register. I think it will be a real challenge.

An Cathaoirleach

Mr. Cody said that the bulk tank is being replaced by -----

Mr. Niall Cody

By a new bulk tank. The purchase of the new bulk tank-----

An Cathaoirleach

Is it a new item?

Mr. Niall Cody

It is classified as new equipment but not as construction. The purchase of the new bulk tank is not refundable under the VAT 58 scheme because it is not construction. In fact, some of the stuff we have seen would suggest that the original should never have been allowed. One can now see second-hand, reconditioned bulk tanks for sale. This calls into question whether they were ever fixtures in the first place. These are the challenges we have.

An Cathaoirleach

When did your policy or attitude change?

Mr. Niall Cody

It did not.

An Cathaoirleach

Were farmers never allowed expenditure in terms of the VAT 58 scheme?

Mr. Niall Cody

As I said, they were allowed to apply in respect of the necessary machinery that was installed as part of the original construction and development of the process.

An Cathaoirleach

I have listened to farmers argue about this. They say that the expectation regarding the cost of this was that the VAT would not be a burden on them. You describe the modernisation of farm buildings, machinery and methods of farming. I could take you to farms in north Kilkenny where they are way behind the curve in relation to this. They are disappointed that they are not going to benefit from the return of this VAT figure. What they were doing was constructing a new method of managing their dairy farms. Therefore, it was construction. The fact that they had to replace a tank with another tank is part of the new standard of construction. Those who are on the flat rate would argue that they should still be entitled to it. This is causing quite a lot of pressure within single-farm operations, particularly farming families. They understood by example from the past that they would get it back. The expectation was that the scheme or way was still in place. In some cases, they were advised by their farm advisers that this would be covered. Now they cannot understand why - in their minds - a new construction around the methodology or machinery of farming is not considered in the same way as the original. They are being encouraged to do this, and not just by the Department of Agriculture. They are also being pressed by Europe. If they take the option of doing nothing, they will end up with farms that are completely outdated. It causes a financial burden. On the farms I visit and see, there is still an awful lot of hardship and very little markup or profit when everything is factored in. I do not know how they manage the reporting, for example, because it is essentially secretarial work. Farming is heavily burdened by bureaucracy and reporting. If they are to develop their farms, this is essential for them. I can tell you that they are angry about what they see as a new decision or a departure from the old decision. That is how they see it. It has not been explained very well to them. Even when one is asking parliamentary questions or querying verbally why it is not covered, one gets very poor explanations not just from Revenue but also from the Department of Agriculture. Why they were led into this belief in the first place is just beyond me.

Mr. Niall Cody

I cannot be held to account for what farm advisers promote. I have seen cases where the suppliers of some of this machinery say it will be deductible. They are not in a position to give tax advice. We are implementing the scheme as it is provided for. We do not have the legislative authority to develop the scheme ourselves, having regard to advances. We can see that some of the increase is around the fact that the TAMS for agriculture provides greater grant aid for some of the necessary development. The Cathaoirleach knows where I am from and I know some of the farms he talks about. The challenge is that we have legislation which we have to implement. There is no doubt that the landscape for farming has fundamentally changed from when the legislation was introduced. The reality is that from the perspective of EU and Irish law, any farmer can register for VAT and get it back. I am not sure what the figure is but let us say 15% of farmers are registered for VAT. Traditionally the farmers who did so were tillage farmers because they had a highly capital-intensive operation, particularly the bigger ones who required combine harvesters and other machinery. These farmers tended to register for VAT. As dairy farming gets more intensive and capital intensive, there is a question about whether the flat-rate scheme is the perfect model for them but that is a decision for themselves. There is an implication for the flat-rate addition. If a farmer is registered for VAT, they do not receive the flat-rate addition

An Cathaoirleach

Is this an issue that the Revenue Commissioners would have seen bubbling up in the background? How did it emerge as an issue for so many farmers? How did the Revenue Commissioners advise the accountants and consultants to farmers? Was there an information pack for them to tell them that this was how it was being dealt with? What was the definition of "new construction" against what was there previously?

Mr. Niall Cody

Generally, the claims come in and we select a number of them. It is a self-assessment system. Some proportion of claims are allowed and a proportion of them are checked.

It is probably linked to TAMS, that there was more expenditure and that we would look at individual claims. If we identify something that is effectively equipment that is being claimed, probably perfectly innocently by the farmer, we would then see it and say it does not come within the scheme, and that would start a process where we would select those cases. Some of it happened coming out of the pandemic. Activity began to happen again and we started to look at claims. The Revenue Commissioners engaged with the farm organisations and is working on redrafting detailed guidelines to explain them to everybody. There is doubt that there is uncertainty. I have seen the parliamentary questions. I keep an eye on everything that comes through the office. There has been engagement. This week, some of my colleagues visited a farm at the invitation of the IFA to look at particular structures. We have taken a very liberal view of the regulation but we are constrained in what we can do.

An Cathaoirleach

Is the Revenue not as liberal now as it used to be?

Mr. Niall Cody

No, the Revenue is as liberal as it used to be. We have seen-----

An Cathaoirleach

The Revenue is only engaging now and issuing guidelines now.

Mr. Niall Cody

We have been engaged. We had our meeting and asked for submissions from the farming sector. What we want to do is to issue as comprehensive a set of guidelines as we can. For example, there have been submissions from the farming organisations setting out the nature of whatever products, such as slurry bags. Slurry bags became a subject of discussion. That day, I simply looked up slurry bags and found an article in the Irish Farmers' Journal which talked about how convenient slurry bags were in that they allow the farmer to move the slurry bag around within his or her farm. This is not a fixture. This is not a construction process. Part of the challenge is that modernisation involves huge convenience and flexibility. That does not fit in with the legislation the Revenue has to operate under.

An Cathaoirleach

Deputy Durkan, I apologise for the delay.

Deputy Bernard J. Durkan

The Chair was asking questions on an interesting subject. We have all read books about it at this stage.

Off that subject, a couple of things come to mind. In the case of allowances, I refer to those who rent out their home to a separate entity for a particular reason and then rent a house elsewhere because it is convenient or necessary to do so. Why is it not possible to allow a contra-situation to develop whereby one situation is set off against the other in order that these people do not have to pay the tax on both, as it were? Why does that not happen?

Mr. Niall Cody

I suppose the easiest answer I could give is that it is because that is what the legislation provides.

Deputy Bernard J. Durkan

I accept all that but I went to the coalface on this particular issue several times in the most demanding and sensitive of cases where a family had to split up for a particular reason - it was a real reason - and move to a different part of the country. The family rented a house there and rented their own house to somebody else. They did it for reasons of necessity. There was no other way to do it. They were out on two counts, however, and I do not think that should be the case. If the legislation dictates that, I believe that we, as legislators, need to revisit that. It is grossly unfair that people, very often women, should be penalised in that fashion. I can think of a couple of cases off the top of my head where the maximum hit took place against a person in a vulnerable situation and there was no comeback.

Another notable issue relates to people who make self-employed contributions. If they do not make a profit in each of the years in question, they are not allowed a pension or their alleged entitlement for that year is disallowed. I hope that is a correct summation. I know of a good few people who have been the victims of this. A person may have made contributions for ten years or 20 years or whatever the case may be, but if there were five years during that period in which the person made no profit, he or she would have no contributions for those five years.

Mr. Niall Cody

Pension entitlements and contributions are a matter for the Department of Social Protection, DSP. I know there is a basic payment - it used to be €250 per year - that some small self-assessed cases made to protect their pension entitlements but it really is a matter for the DSP. I am reluctant to say anything more about the issue because I may give the Deputy wrong information.

With regard to the first issue, I do not know whether the Deputy made a representation to the Revenue Commissioners about that example.

Deputy Bernard J. Durkan

I did.

Mr. Niall Cody

There was a recent case in which a person, in essence, rented a new house because it was necessary to move out of his or her other house. It was a difficult case, in human terms. Again, it comes back to the idea of the rental income being taxable. There is no methodology to claim rent paid against rental income.

Deputy Bernard J. Durkan

Rent received.

Mr. Niall Cody

Rent received. Should people renting be entitled to claim some of their rent? It gets into a whole range of issues around interest relief, mortgage interest relief and rental income but there is no basis in the legislation for that to be allowed. It would require a legislative change.

Deputy Bernard J. Durkan

I think Mr. Cody might be correct. I may write to him again on that issue.

Mr. Niall Cody

I suggest the Deputy would have to write to the Department of Finance.

Deputy Bernard J. Durkan

Another issue relates to business, and farming comes into that area, as well as other forms of business. It relates to the ability of individuals to write off against tax a major purchase to enhance their business and the degree to which that is or is not available. Is this equally available to everybody involved - big businesses, small businesses, big farmers and small farmers? How strict are the rules about write-offs and refunds? I know, for instance, that the bigger operators in business, such as in the construction sector or farming - I presume the same rules apply to them - can spend €100,000 or €200,000 on a machine that is an integral part of their business and they can write off a specific amount, a yearly amount or the whole amount in one year.

Mr. Niall Cody

Generally, plant and machinery is written off over a period in capital allowances. It is over a period. There are varying rules for varying types of plant and machinery and capital expenditure on equipment.

Deputy Bernard J. Durkan

The Chair and my colleague on my right referred to a change in farming practices. There has been an increase in very large enterprises covering a wide area and generally capitalising on the benefits of the size of the operation, which obviously cannot apply to smaller operators.

As a result, the small farming outfits are diminishing rapidly and will diminish to a greater extent in the time to come. Are there any ways or means we can consider at this stage to give the smaller operators some chance of competing with the bigger operators, given that their sites indicate that it is an uneven contest?

Mr. Niall Cody

I am slow to say this at a committee but they are really matters outside our area of responsibility and competence. I am conscious of matters ongoing. Going back to the whole situation with flat rate farming, one of the issues that is surprising when we look at some of the claims for farm expenditure is that some large corporate entities are unregistered farmers for VAT purposes and eligible for VAT 58 and the flat rate scheme. It probably reflects the fact that these schemes are 50 years in existence essentially and the world has changed fundamentally.

Deputy Bernard J. Durkan

There is a need for a re-evaluation that will in some way ensure, though not necessarily penalise people, there is a reasonably level playing field, so that the big club in football and hurling, as it were, does not gain everything. Recent events would indicate that there is a place for everybody in that particular area. However, it is essential that the system is seen to be fair, so that we do not go to a public meeting and get scarified next week or two months from now. We are in an uneven situation here and everyone is looking at it but doing nothing about it. We need to do something about it, and we will, in order to make it fair.

We take into account the point in relation to the evolution on the system and that maybe we are not always keeping up with it. That means some change. The Committee of Public Accounts was also mentioned. That committee has no function in relation to policy, even if it sometimes wanders into it. I have my eye on it. This committee has competence in relation to policy but the Committee of Public Accounts, on which I spent 15 years of my life, has no such function whatsoever, despite the fact that it tries to do it from time to time. It does not have any such function and when it does that it acts ultra vires, so we have to keep an eye on that.

Generally speaking, in regard to the warehoused taxes, the Revenue Commissioners know what is in the field, what is warehoused and the chances of collecting it in a specific time. Is Mr. Cody satisfied that, where arrangements have been made, they will, generally speaking, be delivered?

Mr. Niall Cody

As I said in my opening statement, the nature of phased payment arrangements is that some will fall down. A couple of weeks ago, I remember saying that whatever chance a phased-payment arrangement has of being honoured, if one is not entered into, there is no chance of it being honoured. The level of engagement is really positive. We had huge engagement with trade representative groups. We conducted webinars with businesses, engaged a good deal and wrote to all these entities. We made it as simple as possible. At the time, there was much discussion about really long instalment arrangements and phased payment arrangements. The vast majority of phased payment arrangements are for five years or less. As I said to Deputy Conway-Walsh, we will publish the detail of this in the next couple of weeks. More than a third of the phased payment arrangements are for less than three years. Probably less than 5% of them are for terms in excess of five years, which is really positive. I would be very confident that a significant proportion of those will be honoured.

The really positive aspect of phased payment arrangements, which we will be monitoring, is that the current liabilities are paid as they fall due. That will be the flag. If an entity is struggling to pay its current VAT or current payroll taxes, that will be the warning flag and we monitor that closely. If it is the case that there is some temporary arrangement which would mean if we suspended the phased payment arrangement for three months to allow the entity to pay its current liabilities, that flexibility will be there. While it may have entered into an arrangement for three years, it will be much better if it takes three and a half years to clear it and the business remains viable and employment is maintained. Our basic responsibility is to collect the tax that is due but ongoing viability of entities is in all our interests. I am positive that this actually is a measure that can improve the timeliness of compliance of small businesses and that we will get into a pattern where the dates laid down by the Oireachtas for people to meet will be treated not as something to start thinking about when they have passed but as dates they actually meet. We see the warehouse as one of the agents to drive that change for some businesses.

Deputy Bernard J. Durkan

The Revenue Commissioners are to be congratulated on the way they calculated the various segments that have been collected, the integral ones such as foreign direct investment, larger operations and so on. It is obvious that if a company is not able to meet its current taxes, the reason has to be identified and whether that reason can be addressed and remedied in sufficient time to enable the rest of the package to flow. The Revenue Commissioners are to be congratulated on that. It is a vast improvement on what used to happen generations ago. It allows everybody to get involved and make a contribution. I have many other questions. I will write to the Revenue Commissioners after the meeting.

Senator Aidan Davitt

I listened to the introduction. I was in the office for a while and in the Seanad with Senator Higgins. I have a couple of specific queries first. I have a good deal of experience of Mr. Cody's, the Collector General's and the team's dealings with small business, particularly warehoused tax. I commend them, as I did at our previous meeting with them. The Revenue Commissioners have taken a very practical approach. They have been very fair with people and did not disadvantage businesses engaged in favourable conduct as against others that have warehoused taxes. I have seen that at first hand and sincerely commend them on way they have dealt with people.

Deputy Durkan took the Chair.

Senator Aidan Davitt

From my experience a long time ago, going back through the years with the Revenue Commissioners, people were afraid to ring them and talk to them. Now if people have a problem or are not sure, they are more inclined to ring and find out, talk about it and get an answer and try to solve a problem. The work that has been done within the Revenue Commissioners to make them more approachable, which is good for everyone, has to be commended.

I have a couple of queries. When we consider the Government's proposed ban on the sale of tobacco by retailers to those aged under 21, how will the retail industry cope with the different age-related rules for two excisable products, alcohol and tobacco? Have the Revenue Commissioners any thoughts on how that will be implemented? Do they think it might cause a problem?

Mr. Niall Cody

Any proposal on age limits for retailers will not be a matter for us. We will have no role in enforcement. There are particular rules on the sale of tobacco to people who are under age. If the age changes, we have no role in that. Obviously, we are interested in the area of excisable products. We have a big role with tobacco, but it relates to the collection of excise and VAT.

Senator Aidan Davitt

It would be unusual changing the age at which somebody is entitled to buy an excisable product to 21. That is the point I am making. It is a bit-----

Mr. Niall Cody

It is a Department of Health policy initiative. We have no role in it.

Senator Aidan Davitt

I am just interested to hear Mr Cody's opinion.

There has been a change in how small businesses process their expenses which are now tied to their wages every week or every month. Many small businesses find it very onerous. What is the feedback from the Revenue Commissioners on this? I am not sure if people here are aware that if an employee went out and bought dinner with clients or whatever, the receipt must be handled differently. He makes a return and then it is expensed out to the company with the clients he has. It is causing considerable headaches and paperwork. Many small businesses find this extremely onerous. What is Mr. Cody's opinion on this? Can anything be done to streamline this? I regularly talk to many small business owners. They are finding this a headache to say the least.

Mr. Niall Cody

I will go back a little bit to 2019. In 2019 what we call PAYE modernisation came into effect. It was announced in the budget in 2016. The PAYE modernisation system involved real-time reporting of payroll data and the abolition of P30s, P35s and P45s. In the operation of payroll, all payslips are essentially reported in real time to Revenue. That came in in 2019. Two years ago, the reporting requirement of non-taxable expenses was introduced which is the other part of that. If someone gets taxable expenses, that is returned under the PAYE system because they are taxable. There are three categories of non-taxable expenses. What was introduced then was the requirement to report that in real time. The commencement order for that was signed at the end of last year and that came into effect from 1 January this year.

As they have always had to do as a condition of paying non-taxable benefits, employers had to determine if they were non-taxable or taxable. They had to do that before they paid them. The ERR requires the reporting of that to us. We had a lot of engagement, including webinars, with tax advisers, practitioners and business interests. Obviously, any change tends to be resisted. At the start of the year, we said that we would work with businesses up to 30 June on how they report on it, and take what we call a service-for-compliance approach. At this stage, at the end of April, 33,563 employers have reported non-taxable benefits through the payroll system covering €446 million.

Senator Aidan Davitt

Out of how many?

Mr. Niall Cody

We do not know how many employers-----

Senator Aidan Davitt

Revenue would know because they would be claiming them every year in general. Mr. Cody has mentioned 33,000; would there be 80,000?

Mr. Niall Cody

There are not 80,000 employers with active employee-----

Senator Aidan Davitt

Would it be 60,000?

Mr. Niall Cody

It would probably be about 70,000.

Senator Aidan Davitt

So, it is less than half.

Mr. Niall Cody

Not all of those would have multiple employments, but there definitely is under-reporting and we will continue engaging with businesses to support them doing that.

On the types of expenses involved, the big one is travel and subsistence. Part of the reason for the reporting is that it is clear to us from PAYE audit activity in recent years that non-taxable expenses were being paid incorrectly. This is really important and this is the way tax administration is going. We wanted to try to integrate tax reporting into the business activity so that it is right at the time it happens rather than looking at something a year later. This is an important part of that process. As can be imagined, next year we will be looking at some activity where it is clear that not enough wages are being returned and not enough non-taxable expenses are being returned and it will identify areas of risk. It will allow us to focus areas of concern rather than checking those with no problem. In a way, this is happening now.

We have started work on consideration of what a VAT real-time reporting system will be, which is really interesting and will represent huge change in how tax is administered. With the PAYE modernisation system, people had to fill out all sorts of annual returns after the event. In the run up to PAYE modernisation, I remember many business interests complaining about the burden. If we now announced we were going to go back to the pre-2019 system, people would look at us.

Senator Aidan Davitt

I know a business can go into its big red book and can change week 20 if a mistake was made or something else and it does it itself.

Mr. Niall Cody

When we have an administrative change, we usually allow the first year as a bedding-in period. It is in our interests for it to work.

Senator Aidan Davitt

Of course, yes.

Mr. Niall Cody

Then we will look at what the data suggests next year.

Senator Aidan Davitt

I agree with everything Mr. Cody is saying and it is the way forward. However, this is easier for bigger businesses and even medium-sized businesses which have somebody sitting at a desk preparing accounts. However, smaller businesses with two or three employees are finding it extremely onerous. The uptake has been 50% at best since this was implemented in January. By the end of the year if it was 70%, it would be a success and Revenue can cope with the others in future. I have no doubt that it is a good system, but-----

Mr. Niall Cody

Interestingly, some of these systems are actually easier for smaller businesses. If a smaller business is using a payroll package-----

Senator Aidan Davitt

As many of them are.

Mr. Niall Cody

As we found with PAYE modernisation, sometimes bigger entities struggle more with it because they have their own systems developed over years.

Senator Aidan Davitt

It is outdated and not tied into Big Red Cloud, Sage or whatever.

Mr. Niall Cody

Companies with a standard payroll package will have an expenses system in it.

Senator Aidan Davitt

Which all those ones have.

Mr. Niall Cody

In some of the representations made about it, part of the challenge is that some people were paying expenses-----

Senator Aidan Davitt

Which probably should not have been or whatever.

Mr. Niall Cody

They should have been taxing them. That is part of the problem.

Senator Aidan Davitt

It will bring them in under the net. I suppose it is something that will be adjusted in the future and whatever else.

I appreciate that. I was just curious to see how it is working because there has been a lot of talk about it in small business.

I am also curious about something else that was highlighted to me recently on the property side. Many larger farms are being bought by people who are not naturally farmers, for use of a better phrase. Anyone can buy a farm if they want to, I suppose, but there seems to be a diversification whereby people with big portfolios buy farms because of the relief from inheritance tax if they want to pass on the farm to some of their siblings. Has Revenue seen a change in this recently? I am curious to hear the thoughts and opinions of the witnesses on this. Many farmers complain to me that guys are coming in to buy farms and giving them to their children to avoid tax. They are using it as a tax avoidance scheme. What is Revenue seeing at the coalface?

Mr. Niall Cody

We were probably listening to the same slot on "Morning Ireland" or the agriculture show last Saturday because this discussion was going on.

Senator Aidan Davitt

I did not hear it.

Mr. Niall Cody

It was very interesting. One of the farmer representatives spoke about the challenge and the impact in particular in areas with good land. The challenge is that there is relief for agricultural land. In a way, it is not tax avoidance if they go on to farm it. There is also a challenge with regard to leasing. It was interesting that when the interviewer asked whether the tax rules should be changed to deal with it, there was silence due to what the implications would be for normal farmers.

Senator Aidan Davitt

They want to pass their farms onto their own kids, of course.

Mr. Niall Cody

The scheme is such that we look to see what activity is occurring. It did not strike me straight away that there is a particular solution that would not have an impact where unintended consequences arise.

Senator Aidan Davitt

I would suggest that if a purchaser wanted to pass on a farm, instead of a son or daughter applying over time to get a green certificate, the purchaser would need one as well in order to qualify for the tax exemption. I do not think this is the case at present. Perhaps something like this might be practical. At least the purchaser would have to make some effort to get a green certificate. I could be wrong about it not been the case at present.

I want to make another general point. Has Revenue run analysis on the impact the proposed change to corporation tax might have on our revenue flows? Has Revenue run any figures and does Mr. Cody have analysis on this specific issue?

Mr. Niall Cody

I presume what Senator Davitt is speaking about is the impact of the OECD international tax changes.

Senator Aidan Davitt

Yes, the change in percentage and what we are buying into.

Mr. Niall Cody

There is the issue about Pillar 1 and Pillar 2 and the implementation of these. As I said earlier, the area of forecasts is a matter for the Department of Finance. We support it by giving it details of what we know and what we have. The Department and the Minister set out in broad terms the impact of Pillar 1 and Pillar 2 and this figure has not been updated. There is still talk in general terms about an impact of a €2 billion loss, taking it all in the round. The reality is that it is very difficult to say what it will be. Pillar 2 was legislated for in the Finance Act and applies to accounting periods beginning on or after 1 January 2024. The first returns and payments are due 18 months after the end of the accounting year.

Senator Aidan Davitt

Yes.

Mr. Niall Cody

It will be June 2026 when there will be the first payments in respect of Pillar 2. Pillar 1 is still uncertain with regard to legislation or agreement at international level. There is great uncertainty about the impact. There is uncertainty about how they will interact with each other and how they will interact with what is happening now.

Senator Aidan Davitt

Does Mr. Cody have concerns about our tax intake?

Mr. Niall Cody

Again, in the division of duties we speak about and report on what has happened. It is very difficult to say what long-term impact there will be. Certainly there is no reason to doubt the 2024 forecasts. The end of this month will be very interesting in that it is the second month in which there are significant corporation tax payments. There is no reason to doubt the 2024 forecast or the position set out by the Department for 2025.

Senator Aidan Davitt

It could be conservative. It is hard to know.

Mr. Niall Cody

I am not going to say it is conservative.

Senator Aidan Davitt

I appreciate that. I think the further it is changed up along the line, the fewer companies we will have looking to come here. This is the reality of it, contrary to what others might think.

An Leas-Chathaoirleach

With regard to the equalisation of taxation all over the globe, which has been much pursued in some areas, as a nation we will not have too many friends. Whatever looks to be the most punitive is the one that will be foisted upon us. We have to be very tenacious in our pursuit. Our friends are ourselves. We will not have anybody else. I know some of the people pursuing the other option, such as Mo Ibrahim who spent a long time going around the world speaking about the tax haven that exists in this country and not for our benefit. He will be doing it again. There are several other people who have us in their sights. It will be down to the Revenue Commissioners and the Government to be very tenacious in this area. Otherwise we could suffer and it could happen very quickly.

Senator Alice-Mary Higgins

I thank the Revenue Commissioners. There are a number of areas I want to ask about. I will do so in several sets of questions. My first question is on farming incomes and PRSI. Since 2014 there has been the option for PRSI payments in respect of spouses working on family farms. Are there figures to indicate the level to which this has been taken up? Previous to this, PRSI stamps could only be paid to someone farming themselves. Since 2014 there has been the option for PRSI stamps to be paid for a spouse or family member working on a family farm. What is the level of take-up on this? The €5,000 independent income requirement is a bar for the self-employed. Is this acting as an obstacle to taking up the scheme?

My next question relates to some of the issues being discussed on effective tax rates from the OECD. Looking globally at minimum effective tax rates is important. On a national level, the most recent figures we have on the operation and analysis of the minimum effective tax rate for higher earners are from 2019. Are there plans for a renewed analysis on how Ireland's minimum effective tax rates for higher earners scheme is operating? I will come back with my next set of questions.

Mr. Niall Cody

I thank Senator Higgins. I think it would be better if we provide a note on the PRSI issue.

We collect on behalf of the Department of Social Protection. I had not expected an issue regarding PRSI. We will get a note from the Revenue perspective on PRSI and the farm issue, if that is okay.

An Leas-Chathaoirleach

I think that is acceptable because it is easier to set it out.

Mr. Niall Cody

As clearly as we can.

Senator Alice-Mary Higgins

A written note would be very useful.

Mr. Niall Cody

In respect of higher earners, when the Senator talked about effective tax rates, I was wondering whether it related to corporation tax, but then she went into higher earners. There is a higher earners restriction scheme. We produce a report on the higher earners scheme every year. I will send the latest version I have.

Senator Alice-Mary Higgins

I understand there was not a report in 2023. That is why I was wondering what the plans are for the next report.

Mr. Niall Cody

It is too early for the 2023 report. The higher earners restriction is all linked to filing dates. The 2023 returns are not due until October 2024. The 2022 returns would have been received in 2023. The data from 2022 has been compiled and a report will issue in the next couple of months.

Senator Alice-Mary Higgins

So the 2023 report will be on the data from 2022.

Mr. Niall Cody

It is due this summer.

Senator Alice-Mary Higgins

It would be useful if Revenue could perhaps include information of how effective that scheme has been or whether there are loopholes or areas which we believe have worked in favour of or against the success of that scheme. Are there plans for not just a report on the scheme but an analysis of its efficacy?

Mr. Niall Cody

Since the higher earners restriction was introduced, there have been some legislative amendments excluding certain reliefs from the calculations. That is set out in the report. When we have the report, if there are issues the Senator would like us to consider at that stage, we would be happy to engage with her.

Senator Alice-Mary Higgins

I will come to my other questions. Regarding bogus self-employment, there was a Supreme Court judgment last October about the misclassification of workers. Will Revenue be engaging with businesses which engage in widespread misclassification for a sustained period to ensure that there are supports for workers who were affected or indeed that adverse effects have been mitigated? For example, workers may have been misclassified in the past. It is not just the individuals who take the Supreme Court case but other workers who may be affected by similar practices. Has their misclassification been addressed? Has there been engagement with businesses or indeed the sectors to address those issues following that Supreme Court decision?

Somewhat linked to that, I would like if Mr. Cody could address questions on a specific issue that concerns PhD researchers in the State. We know that section 193 of the Taxes Consolidation Act 1997 provides that income arising from a scholarship is exempt from income tax, USC and PRSI where certain conditions are met. Among the conditions are that the scholarship is being held by a person who is in full-time instruction at the university, college, school or other establishment; and that the object of the scholarship is the promotion of the education of the holder rather than the promotion of research or other work through the holder. We have this ambiguity whereby PhD researchers and PhD workers who are not classified as workers but who, in some cases, are teaching or producing research for the university are not paying tax and, because they are not taxed or paying these PRSI contributions, they do not qualify for some key employment protections like the minimum wage, sick leave or maternity leave. I have read reports that when some researchers have engaged with the Revenue Commissioners to ask if they should be paying tax, the Revenue Commissioners have signalled that they might be required to pay tax on their stipends, especially in the circumstance where they are not receiving full-time education or if the work they are doing is not necessarily solely serving their education but is more like something they are doing in order to have the means to be able to afford to stay in education. Could that be addressed? There is a significant issue here. It builds from the issue of the misclassification of workers. Now there is a question where PhD workers find themselves in a limbo where they are not classified as employees, they are not required to or allowed to make PRSI contributions, and they are therefore not getting any of the social security entitlements that come with that. At the same time, those they are working for believe they should not be classified as employees, but the advice individuals are getting from the Revenue Commissioners is somewhat at odds with that.

Deputy John McGuinness resumed the Chair.

Mr. Niall Cody

The Senator covered a lot. On classification of employment, the Supreme Court decision in October 2023 was about the tax treatment of drivers for Karshan (Midlands) Limited. The Supreme Court decision was about the employment status for tax purposes. Despite what many people seem to think, Revenue took the case to determine that the drivers were employees. We were successful at the Tax Appeals Commission and at the High Court. We lost the case in the Court of Appeal. The Supreme Court was the final arbiter and came up with its judgment in a complicated area. It was a really useful judgment in which the court was clear that what it was considering was people's employment status for tax purposes. It said that issues relating to employment rights have other legislation as well. It provides a really important five-step framework to determine whether a worker is an employee or self-employed, and whether it is contract of service or contract for service.

After the Supreme Court decision was given, we issued a notice to employers to have regard to the judgment and to review the employment of workers, subcontractors, contractors or employees, having regard to the judgment. There is no doubt that the judgment did not change the law, because the judgment can never change the law, but it definitely changed the understanding across a range of sectors. We now have a process of finalising our detailed guidance giving effect to the judgment. We are often accused of having guidance that is too comprehensive and that will happen with our guidance on contracts of and contracts for services, at 40-odd pages. It has gone to the various interest groups. It has not been welcomed by everybody, but we are used to that. I bring the judgment in Karshan with me because it shows the complexity of the area.

It is 190 pages. The Court of Appeal judgment is about as big again and has contradictory views and contradictory decisions. We will finalise our tax and duty manual, as we call it, this month and issue it. We are currently engaging with some of the entities and companies that have sub-contractors and we are looking at the classification to see what the situation is. I believe that this is not the end of court judicial review of the areas. It is a really interesting judgment. It provides a welcome framework for us to do our work but we know from engagement with companies and advisers that they do not all share our views. In addition, we are only one of three State agencies involved in the area. The Department of Social Protection, as I said in my opening statement, is involved for social welfare purposes. The Workplace Relations Commission, WRC, is involved with regard to employment rights. It is very interesting that if we look at the WRC website we can see that the WRC is paying close attention to the court decision in the Karshan case and is applying the five-step framework to give its views.

It is a challenging area. We have always engaged in classification but I believe this changes the scale and scope. One of the big changes is that it recognised the idea that a person could be an employee to do one job and that there was not a continuity of service involved. That is probably a change in the understanding around when a person is employed or self-employed. I believe there will be a significant work programme over the next couple of years on this area. I have been at this committee before and I have been at other committees talking about this area.

The Department of Social Protection, the WRC and Revenue are also looking at the code of practice for classification. On a personal level - I rarely give a personal view on some of the issues - I am a little ambivalent about the code of practice. I believe that on occasion codes of practice provide the framework to construct an arrangement to prevent. It provides a template for one to draw up a contract that meets the terms in legalistic fashion but which may not fully reflect the factual arrangements. One of the really interesting parts of the judgment was the idea that although contracts are really important, they cannot override the actual factual representation. This is not easy, however. It is not black and white. I remember appearing before another committee where I was told by a member that this is very easy to sort out in the context of the construction sector but not for small builders. It is really complex and complicated.

We are engaging with entities and companies. We are looking at the sectors. The sectors are obvious. Traditionally, construction is probably where the whole industry started with subcontracting. The building contracts tax was introduced in 1970 to address subcontractors who were not employees. It did not make an employee a subcontractor but it tried to secure the tax liability on what was a mobile force. When we launched our annual report, we said that one of the areas we are looking at is whether the scope of relevant contracts tax should be broadened to address circumstances where somebody is subcontracting and not an employee.

On the Senator's question about PhD students, I have paid attention to the debates around the PhD issue. Essentially there is a non-taxable payment in the third level sector which is not actually driven by the tax arrangements. It was specifically provided. I saw it mentioned in the letter to us. I have read all the material and it really is a matter primarily for the Department of Further and Higher Education, Research, Innovation and Science, and probably the Department of Social Protection. If the PhD students are not covered by the specific exemption, they are taxable. In some cases third level students are supported by a firm, profession or job. The students get their or her wages and that is taxable. From the material I have read that has been prepared by the representatives of the PhD students in this area of the third level sector, the PhD students are saying they should get a kind of a decent wage or an appropriate wage. Certainly in that context they should come within the PAYE system like everybody else. There is specific legislation, however, which is not primarily tax legislation, that provides for it.

An Cathaoirleach

I thank the Senator. Deputy Doherty is next.

Senator Alice-Mary Higgins

I will just finish up. I thank Mr. Cody for those answers on the code of practice. I have a very last question. I might come back in again on the PhD workers as I believe that issue will arise again. Mr. Cody mentioned the actions that are coming following on from the October judgment. With regard to those who have been affected in the past by misclassification, many of them have already gone through processes within Revenue or the Department of Social Protection. Many of them have appealed their misclassification within the social welfare system and so forth. They have almost gone through that process. Is there discussion in Revenue's engagement with those other bodies around a mechanism that would allow those who have been misclassified - the Supreme Court has now ascertained that they were misclassified - to seek remedy or re-classification? They already went through the process. I know some people who fought really hard the whole way along around getting recognised before. Now that the judgment has changed the understanding of the facts, will they be able to have those facts re-examined again in respect of their individual cases? Is that being discussed?

Mr. Niall Cody

The area of employment rights and social welfare - I am reluctant to say this - is primarily a matter for the two other agencies involved. From a tax perspective, in the context of the tax treatment as self-employed or as employees it is marginally more advantageous for the subcontractor to be self-employed than an employee. The original motivation for misclassification was probably primarily driven by the employer's PRSI contribution but over the past ten to 15 years the motivation has been primarily driven by employment rights. Again, as the court said with regard to employment rights, there is other legislation that gives the employment rights that would have to be met. It is clear that this is an area that will be the subject of further judicial action in the next period.

Deputy Pearse Doherty

I welcome Mr. Cody and the officials from Revenue. I was at another meeting, so the witnesses may have already answered some of the questions I am going to ask. If they have, they can skip over the relevant questions and I will look at the transcript for what I missed. I have quite a number of questions. I will try to get through them as quickly as possible. I also have a couple of points I wish to tease out with the witnesses.

Regarding the nearly 12,000 businesses which have not entered into arrangements, €199 million remains to be recovered. How confident is Revenue in its ability to recover that money?

Mr. Niall Cody

Last Thursday, when we issued the letters. There were 11,700, I think, involving approximately €199 million. Two days ago, that figure was down to €175 million. I was surprised by this. I thought that once we had reached that level - some of it was not just put under an insolvency. Some - probably €12 million - was paid in full. It will be interesting to see what the figures are the day after tomorrow. The reality, as I said earlier, is that there are a core of businesses that traditionally nearly require a demand from the sheriff to respond. Overall, I am surprised that we are in such a strong position. I worried that we would not be. Ultimately, if €120 million of debt was warehoused from the very start and written off as uncollectable-----

Deputy Pearse Doherty

Is it entirely written off or can some of it come back via bankruptcy?

Mr. Niall Cody

Mostly, it is written off because there is a liquidation or whatever involved. Some of it is uneconomic to pursue. In some cases, the person has gone missing and there are no assets. Debt that is written off is never fully written off. If they win the lotto, we will ask them to pay us. The figure of €120 million is quite good. If the phased payment arrangements are honoured and we are left a figure of €150 million or whatever at the end of this week, that would be a very healthy position.

Deputy Pearse Doherty

It will be a small amount compared with what it was at first. I presume a risk analysis was carried out in the early days. You were looking at these type of numbers and you would be in a good position, given the pandemic and all the rest.

Mr. Niall Cody

When we were dealing with a situation and we had no idea what was going to happen, the risk analysis was, "I wonder what will happen".

Deputy Pearse Doherty

Tighten your belt and hope for the best.

Mr. Niall Cody

Breathe in and hope for the best.

Deputy Pearse Doherty

I appreciate that. Different interest rates are applied by Revenue. For income tax, capital gains and corporation tax, the rate is 8%. It is 10% for employers' tax and VAT. Has Revenue done any recent analysis on how those rates correspond with other advanced EU countries? In the North, for example, rates are not static. They change relative to the Bank of England's base rates. What are Mr. Cody's views on that?

Mr. Niall Cody

This is an area in which I have had a great deal of interest over the years because many representative groups keep saying to look at the ECB rate and that the rates are excessive. I say that people should look at overdraft, term loan and credit card rates. We cannot become - leaving debt warehousing aside - a bank. It is interesting to compare the situation with HMRC. It is not directly comparable with our rates because it has a late-filing surcharge for practically all of its payroll taxes and VAT. Its interest rate is linked, as the Deputy said, to the Bank of England. It is more linked to the financing rate. You have to add on its late-filing surcharge to get the effective rate. Last year, I started to worry as interest rates increased. Originally, our rates were higher. It was then reduced to 10% - it was 12%. We were starting to wonder, with the interest rate increasing, if we needed to look at it again. Indications are that it is stabilising again, so I am not as concerned. The debt warehouse has shown something really interesting. I asked the team to look at the possibility of further scope for flexibility in which there could be a once-off reduced rate. The model is there in the context of local property tax, where there is a deferred interest rate by agreement and eligibility. There is the non-filer rate. The warehouse has given some possibility to explore that. There is a challenge in working out how to influence behaviour. One does not want a change that encourages people who can pay not to pay. It is an interesting area.

Deputy Pearse Doherty

It gives an insight into real-time behaviours of businesses when they get that flexibility.

Mr. Niall Cody

It is a pilot scheme.

Deputy Pearse Doherty

Not everybody went for it. Not everyone went for the 0%, as Mr. Cody said. Some are paying up.

If we look at Irish real estate fund, IREFs, the assets they hold have increased dramatically. In 2022, assets held by IREFs stood at €28.1 billion. It was less than one third of that in 2018. It is a 14% increase on the previous year but a 209% increase on 2019. There has been an explosion in the value of the assets IREFs hold. We know their operating profits have also increased substantially, yet, IREFs' taxable amount in 2022 was the lowest of any of the years from 2018 to 2022. Does Revenue have an understanding of the reasons for this fall in tax paid with respect to IREFs?

Mr. Niall Cody

The Deputy has paid attention to our annual report since we began producing it. There was an increase in 2020 and a drop in the tax liability in the following two years. The Minister announced a review of the whole area, but it is a policy review. We are engaged in a review of individual funds and cases to see what happens in practice. It is not complete. It is very complex and complicated. If we see something contrary to the purpose or leads to an understanding that we did not have, we will report that to the Department of Finance. It is not complete yet.

Deputy Pearse Doherty

When does Mr. Cody think that will be completed?

Mr. Niall Cody

I hope we will be able to feed it into some of the review of the process towards the Finance Bill cycle time.

Deputy Pearse Doherty

This has been going on for a couple of years. I have been raising it with the Minister. I am glad he has finally asked for a formal review. The Revenue Commissioners looks at this all the time. We are not talking about small companies. Earlier, we were talking about SMEs which have tax warehoused. Some warehoused tax is just a couple of hundred euro. We are not talking about that - we are talking about billions. The growth since 2018 has been on the scale of more €20 billion of assets. Their operating profits have increased dramatically, yet the tax they pay has reduced. Something does not add up. Does Revenue have any indication as to how this is happening?

Mr. Niall Cody

The funds industry is designed not to have significant tax liability.

Deputy Pearse Doherty

We know all about that. That is where we brought in the dividend withholding tax.

Mr. Niall Cody

When we identified various issues with the whole funds industry that surprised us and that were never planned, we proposed to the Department of Finance various changes. Changes were introduced and that led to an increase in tax. We were then surprised at the reduction, and that is why we are examining the matter. We have been asked many times about how many audits we did of section 110 companies and the resources we devoted to such companies, funds and IREFs. If they are constructed not to have a tax liability, they are working as the policy intended, whether-----

Deputy Pearse Doherty

It is our job to ensure that does not happen. Whatever about the funds industry and the vehicles it uses to have no tax liability, when we are talking about IREFs we are talking about property in this State in respect of which we have the primary taxing right. It should never have been the case that they escaped tax. By introducing the dividend withholding tax, we have started to tax them, yet they clearly have found a way around this because their assets have increased dramatically. Their assets have increased by over 200%, yet their tax is dropping.

Mr. Niall Cody

It depends on distributions, how the funds are used, how the assets are realised, impairments and profit margins. This is what we are seeking to establish data on. We will be reporting to the Department of Finance on what we see and what we establish. We have dedicated resources to examining this area.

Deputy Pearse Doherty

Can Mr. Cody share the report with the committee when he has shared it with the Department?

Mr. Niall Cody

Subject to taxpayer confidentiality.

Deputy Pearse Doherty

Of course.

Mr. Niall Cody

We will share as much as we can. We started the corporation tax reporting and we have kept adding to it, often because of concerns of the Deputy and others. If there are data that we can provide that protect taxpayer confidentiality and that facilitate and enable policy analysis and policy decisions, which is what Ms Acheson and her team are in the organisation for-----

Deputy Pearse Doherty

The amount of data being provided to us is brilliant. We could always do with more to keep us up late at night.

Mr. Niall Cody

As Ms Acheson knows, I sometimes ask whether we could have A, B and C and she tells me our systems are not always designed to give us the analysis we would like. Ultimately, our systems are designed to administer the taxes and duties. You would see an angle and ask for such a thing. Ms Acheson would tell me she needs another €1 million worth of software in the budget to develop it. That is part of the challenge. Ms Acheson will probably make the case to the Deputy.

Deputy Pearse Doherty

I am sure Mr. Cody opens the purse strings and all the rest.

I saw a video on TikTok in the past couple of days on how to get money out of a company. Any company director will know about the problem of having money locked in a company that is going well. Under Irish tax law, somebody earning €18,000 does not pay income tax and they may pay USC. The point was made that, instead of giving €10,000 to a son or daughter to go to college – would it not be great to have a parent like that? – you can actually put them on the payroll of your company and give them a salary of €10,000. Obviously, it was suggested that the son or daughter would not really be working for the company. The point was that if a parent were giving €10,000 without doing what was suggested, it would cost €20,000, whereas the cost would be only €10,000 if the son or daughter were taken on as an employee. I am using that as an example because the issue of directors being able to draw money down from companies has always entailed a struggle, and Revenue has had to engage in cat-and-mouse activity.

Under current law, the challenge for a director is that if he or she draws down money from a company with millions of euro, it is taxable at the standard rate. Could a director employ his or her son and create a pension fund for him in one year worth €2 million tax free? Could the director then offset a portion of that against the company profits in the given year? Is that now permissible under tax law given the changes that happened in 2022? I am sure Mr. Cody is familiar with the issue. I have raised it a couple of times and we have received responses to parliamentary questions from the Department. I want clarity on the scenario. Can the director of an asset-rich company employ his or her son on the minimum wage, create a PRSA and put €2 million into it tax free? Would a person be able to claim €200,000 tax free and the other €300,000 at a rate of 20%, meaning that, of the €500,000, he would be paying €60,000 in tax, or tax at a rate of 12%.

Mr. Niall Cody

I have asked our pension team to examine the data on what has happened, rather than what could happen. I had a meeting in recent weeks with the team and I would be concerned about some practices. We have shared our concerns with the Department in this area.

Deputy Pearse Doherty

Is that because a director could do exactly what I said, given the change that has happened?

Mr. Niall Cody

I would be concerned; I am concerned.

Deputy Pearse Doherty

I have raised this with the Minister for Finance but no concern has been expressed on the floor of the Dáil. Tax advisers are telling companies to use the loophole. It was created in the Finance Act 2022 and the Society of Chartered Actuaries warned against it. It wrote to the Department of Finance in advance of the change with its recommendations and stated there were some concerns about the extent of the tax relief that might be claimed in respect of BIK-free employer contributions to a PRSA, given that PRSAs are not subject to benefit limits. We all know that, before the time I am talking about and with respect to a director who employed his son on a minimum wage, the amount that could be put into a pension that would be subject to a tax-free allowance would be on the basis of both his age and the income. What is happening now is crazy stuff. Not only could I create a €2 million pension pot for my son but I could also do it for my daughter and spouse. There is a massive loophole in our tax law at this point. I am surprised it has not been closed down. It has been raised for quite a while.

Mr. Niall Cody

With regard to the issue, I am reluctant to say again-----

Deputy Pearse Doherty

Okay. Mr. Cody has raised it with the Department.

Mr. Niall Cody

Yes. Concern has been shared. I hesitate to say anything because I do not want to encourage someone to do something this evening that they would not have done.

Deputy Pearse Doherty

I understand that, and that is always the trick. I put on the record of the Dáil the actual correspondence of the tax advisers to the companies. They cannot believe what has happened. When the loophole came into being in the Finance Bill in 2022, they thought it would be closed down. A year passed and it was still there. I started this conversation because company directors have always had the problem of how to take built-up wealth out of their companies in a tax-efficient way. The royal chariot has just arrived on their doorsteps and their only concern is to have enough sons, daughters or spouses to utilise the mechanism.

Mr. Niall Cody

The treatment of children and spouses as employees has forever been a feature of dealing with taxation. In this regard, I probably talked to representatives of various companies. When we carried out the medical contractors project, we saw significant evidence.

We publish cases about all sorts of relations being full-time employees per se when they are not. It has been a feature of business.

Deputy Pearse Doherty

Is there anything that could be done? For example, the guy who owns a corner shop in west Donegal and has approximately €2 million invested in the company knows that if he draws it down, he will have to pay a 40% tax rate. He may be thinking of retiring but his pension pot might be small. He has not put a huge amount of money into his pension and his pension pot may only be at €200,000 at that point, which is a decent pension pot for many people. However, today, that man can put €1.8 million into his pension pot and the effective tax rate he will pay on the first €500,000 of that when he retires will be 12%.

Mr. Niall Cody

Deputy, I think-----

Deputy Pearse Doherty

The point is-----

Mr. Niall Cody

-----it would be better if we stopped having this conversation.

Deputy Pearse Doherty

The point is that Revenue, and I will come to this shortly, is able to act very flexibly because much of our legislation is under the control and management of Revenue. We utilised that to the nth degree during the pandemic, when we did not change legislation, rather, we allowed Revenue to do a huge number of changes that were not legislated for-----

Mr. Niall Cody

They were always legislated for afterwards.

Deputy Pearse Doherty

They were legislated for afterwards. The point is why Revenue cannot do this now. Can it do this now and we will fix it in legislation with the Finance Bill?

An Cathaoirleach

I remind the Deputy of his time.

Mr. Niall Cody

Under care and management, we cannot impose a charge on anybody. What we could do under care and management in respect of wage subsidies or debt warehousing was where we were relieving. If we tried to do something ourselves, we would not get past the first hearing of any appeals process.

Deputy Pearse Doherty

That is fair enough.

Mr. Niall Cody

If-----

Deputy Pearse Doherty

That is fine. I am moving on from that issue.

Mr. Niall Cody

If we could do something like that under care and management, who knows what our powers would become?

Deputy Pearse Doherty

Yes, I understand that. On the same subject of care and management in respect of excise, do we need a legislative change to defer the August increase in excise?

Mr. Niall Cody

Yes.

Deputy Pearse Doherty

Revenue cannot legislate afterwards under care and management.

On mortgage interest tax relief, only 10% of the money has been drawn done so far. It is not deducted at source. Hundreds of people have applied for it, but they do not have a tax liability. They have not paid tax, maybe because they are looking after disabled children and do not have a tax liability. Is Revenue supposed to inform them that they can go to the Department of Social Protection for support? Has any engagement been done? The reason I say this relates to a response from the Minister for Social Protection, which states:

Where Revenue confirms that there is not a sufficient tax liability for a person to benefit from the relief, the person can apply to my Department for support. My Department is co-operating with the Department of Finance and the Revenue Commissioners on this matter.

Has Mr. Cody any information on that? People are applying and are not getting any information on where they should go.

Mr. Niall Cody

When the scheme was introduced, it was a tax credit. As the Deputy knows very well, if there is a tax credit, there has to be a tax liability. It was identified at the time that not everybody would have paid sufficient tax to benefit from the scheme. When the scheme was introduced, it was very clear we could not give tax back to someone who did not pay tax. We saw that the Department of Social Protection would deal with that. We engaged and had discussions with that Department about whether we could confirm to it that somebody did not get the relief through the tax system.

Deputy Pearse Doherty

Revenue is not informing somebody who does not have a tax liability to go to the Department. It does not have those mechanisms set up. Are people applying online anyway?

Mr. Niall Cody

Yes. In a way they apply-----

An Cathaoirleach

Deputy Doherty-----

Deputy Pearse Doherty

I have a very brief last question. We are dealing with the Gambling Regulation Bill, which is going through the Seanad at present. Under tax law, and Revenue has an updated opinion or guidance on this, VAT does not apply on the sale of tickets in local GAA club lotteries and so on. I will make a declaration, and it is in my declarations of interest, that I am involved in a not-for-profit music festival company, which operates a lottery licence through the High Court.

One of the issues is that commercial companies - I am sure Revenue is familiar with them - offer lotteries online. Some of them are based in this jurisdiction but many have moved their residence to the North. They provide a free entry to people if they send a postcard. Very few people ever do that but companies are allowed to offer it. These companies also ask people a question, such as how many days there are in the week, so they can say it is not a lottery but a game. On that basis, they believe they are able to sell tickets legally here. They register and pay corporation tax and all the rest. If they are not a lottery, however, are they excluded from the exemption on VAT? Has Revenue looked to see whether these companies that are using loopholes to not be a lottery or game, not to have a requirement to have a lottery or gaming licence under the legislation and to be exempt from that, then fall into the category of no longer being VAT exempt? Have the Revenue Commissioners looked at this area? We are talking about multimillion euro companies.

Mr. Niall Cody

Will the Deputy leave that question with me?

Deputy Pearse Doherty

I will. I will send Mr. Cody a note.

Mr. Niall Cody

I could give the Deputy a top-of-the-head response, but I would rather not.

Deputy Pearse Doherty

I appreciate that.

Deputy Richard Boyd Barrett

I have a query about the VAT treatment of holders of multiple taxi licences. It is a little uncertain, but there is concern among taxi drivers that there has been a change in the VAT treatment, which could result in drivers who hire taxi licences from those with multiple licences having to pay 23% more. That would be a huge hit for taxi drivers because it would mean having to earn 23% more in order for their earnings to stand still as regards the package they hire from holders of multiple licences. Does Mr. Cody know anything about this? Can he shed any light on it? Is there a reason for taxi drivers to be concerned?

Mr. Niall Cody

Again, there is a historical reason for the treatment of taxi drivers for VAT purposes. They are exempt from VAT. They do not charge VAT and are not entitled to deduct any. I will check the correct position for the Deputy but from my VAT knowledge, in respect of the changes taking place in industries, licences are generally regarded as a service for VAT purposes and are liable to 23% VAT. The supplier of a licence to do something would normally have to charge VAT to his or her customer. In most businesses, that is deductible because that business would pay VAT as well. An exempt business is not able to deduct that VAT and it would become a cost. I can look into the arrangements but from my historical knowledge of VAT, that has a ring of truth over it.

Deputy Richard Boyd Barrett

I would be very grateful if Mr. Cody could-----

Mr. Niall Cody

There were similar issues when the TETRA radio-type process was brought in years ago around the usual depot ringing - walkie-talkies are coming into my head but it is not that - and the sound system whereby people could have their booking. There were challenges in the taxi sector in that regard because some of those services became taxable, or had to pay VAT, whereas they did not exist previously. I will certainly look at the-----

Deputy Richard Boyd Barrett

I understood from the taxi drivers that in their renting of these licences, there was previously no question that the holders of multiple licences were required to charge VAT on that, but now something may be happening.

Mr. Niall Cody

I am reluctant to say what would have happened historically. It could be the case that something was being done but, when we review it, we find out it was properly vatable, potentially leading to a change in practice. At this stage, we would only be speculating on it, but I will examine the matter.

Deputy Richard Boyd Barrett

Do, please.

Mr. Niall Cody

There may well be a problem and a challenge here. We can examine the matter, but that does not necessarily mean-----

Deputy Richard Boyd Barrett

The outcome would be favourable.

Mr. Niall Cody

-----that the outcome would be what the Deputy wanted to hear.

Deputy Richard Boyd Barrett

A 23% hit in costs would be significant. How could it be that it would not have been vatable? I know Mr. Cody has to look into the matter, so maybe he cannot answer that question, but he might revert to me. If necessary, could taxi representatives get a point of contact with Revenue?

Mr. Niall Cody

Absolutely. We would engage with the sector on any issue. I will establish what the position is and we will let the Deputy know.

Deputy Richard Boyd Barrett

Great.

Mr. Niall Cody

Does the Deputy want that information sent directly to him or to-----

Deputy Richard Boyd Barrett

Certainly to me, but it is up to the committee as to whether it wants the information as well.

An Cathaoirleach

To the committee.

Mr. Niall Cody

We will do it as quickly as we can.

Deputy Richard Boyd Barrett

On the issue of employment status, there is a division of labour to some extent between Revenue and the WRC. Sometimes, I find getting my head around that division of labour complicated. I was not aware of the Supreme Court ruling that Mr. Cody referenced. I apologise for being delayed in getting to this meeting. He stated that the ruling had clarified the matter to some degree, and that is it.

Mr. Niall Cody

Yes.

Deputy Richard Boyd Barrett

Did Mr. Cody say that there would be a document to explain-----

Mr. Niall Cody

We will issue what we call a tax and duty manual setting out Revenue’s guidelines for determining employment status for taxation purposes.

Deputy Richard Boyd Barrett

Is that what more or less used to be called the control test? There is a certain set of criteria whereby, if someone ticks these boxes, he or she is an employee.

Mr. Niall Cody

Exactly. The court brought the issue up to date. There has been a series of court cases in the UK and Ireland. This judgment had to do with delivery drivers, whom we believed were employees but whom the company felt were subcontractors. It went through-----

Deputy Richard Boyd Barrett

Were they delivering all the time to the same company?

Mr. Niall Cody

They were delivering on behalf of the same company. We took the case. It went through the tax appeals system, where it was found that they were employees. It went to the High Court, which found that they were employees for tax purposes. It went to the Court of Appeal, which found that they were subcontractors and not employees. We took that to the Supreme Court, which-----

Deputy Richard Boyd Barrett

Decided they were employees.

Mr. Niall Cody

Yes. It came up with what was essentially a decision tree. There are five tests. First, is there a work-wage bargain? Second, is there an agreement to provide personal services with limited substitutions? For example, there could not just be anyone doing it. The substitute may be someone who was picked by the company or was on a list. Third, does the business control the worker? This gets into a more complicated area. The higher skilled the job is, the less formal control there is, as one cannot tell a specialist how he or she should do the specialist element, but one might be providing the framework in which to do it. Those are the first three tests and the answer to each must be “Yes”. If the answer to each is “Yes”, then there are two further tests. First, is there a factual matrix that points to a contract of service? This has regard to all of the circumstances. Second, is there any legislative regime that says it is not a contract of service? If the answer is “Yes” to all of these questions, then it is a contract of service or of employment and PAYE should be operated by the employer.

Deputy Richard Boyd Barrett

From the point of view of someone who has been involved in advocating on behalf of workers who felt that they were bogusly self-employed in a number of industries, the ruling and criteria sound like a move that would be favourable to them. Does the worker have to assert his or her employment status in order to have it vindicated or are there simple objective criteria and, if someone fits them, he or she is an employee regardless of what he or she wants to be? Could the person be told he or she had better want to be an employee, otherwise he or she will not get a job? That is a widespread phenomenon, let us put it that way. Does Mr. Cody know what I mean?

Mr. Niall Cody

I know exactly what the Deputy means. From a tax perspective, when the judgment happened, we issued a public notice to anyone who engaged workers, subcontractors or contractors and said that, under the self-assessment system, the onus was on the employer to operate PAYE if the person working for the employer was providing a contract of service and was an employee. It is not a question of “I will if I want to”. For tax purposes, there is an onus. The court was clear on the point that all that was in front of it was the tax treatment. Employment rights were not in front of the court. I expect that, over time, some of those rights will be. There is other legislation that gives rise to particular employment rights. Someone may need to have served nine months, a year or whatever the case may be.

This case was interesting because it effectively changed the understanding out there. For a one-off job, someone could be an employee if he or she met the five terms. That was probably not seen to be the case beforehand. I know that not all of the interested stakeholders fully agree with our interpretation of the case. This will lead to further challenges and dispute. I pay attention to some of the issues in which the Deputy has been involved. It is interesting to see what the WRC is doing. In adjudication cases, the WRC is using the decision tree to establish whether someone is an employee.

Deputy Richard Boyd Barrett

Is that arising out of the Supreme Court case?

Mr. Niall Cody

Yes. The WRC then has to consider statutory entitlements, for example, maternity leave and sick leave. It has to examine the relevant legislation.

Deputy Richard Boyd Barrett

A controversial issue in the film industry - Mr. Cody has probably followed this as well – is that of continuity of service and who the employer is. To what extent is that in Revenue’s remit, if at all? I wish to understand where the division lies. The producer companies are claiming a tax credit, making it relevant to Revenue, under section 481. They might set up ten, 15 or 20 DACs for individual film projects over a period, with the producer company claiming the credit each time.

The credit is then transferred into the DAC and they are saying the employees are the employees of the individual DAC and not of the company that claimed the credit, which is obviously the source of some grievance among them. The same group of workers have worked for all these DACs. One company is claiming all the tax credit and therefore they were actually its employees. To what extent does Revenue have a role given the tax side of that in establishing whether they are right? Are they in fact employees of the person claiming the tax credit?

Mr. Niall Cody

I paid great attention to the Deputy's debate with the Minister on the film credit. The film credit is structured in a way that this section provides for the DAC to be established. Each film credit scheme stands alone. Regarding employment, there has to be quality employment and that is a matter for the Department of Tourism, Culture, Arts, Gaeltacht, Sport and Media to sign off on. In this case they are employees from the point of view that PAYE and PRSI are applied to their wages. The issue of who their employer is has been before the WRC. This would not necessarily establish that. It establishes that they are employees and the legal structure. I understand that the WRC has made a kind of a ruling in individual cases. My understanding is that has been appealed further.

Deputy Richard Boyd Barrett

Indeed it has. Does the claiming of the tax credit draw Revenue into it?

Mr. Niall Cody

It will possibly draw us in at the end of it if the employment process is not being dealt with properly. As regards whether they are employees of the production company as opposed to the DAC under employment law, that is a matter for WRC.

Deputy Richard Boyd Barrett

It is complicated stuff as Mr. Cody knows. They claimed the tax credit for the production of a film. That DAC at some point is wound up, but that film is still potentially generating revenue which should be taxed. What is being taxed if there is no longer any company? Are we getting the revenue? Is that being chased? This is also of interest to the actors and performers in terms of the royalties because they are often asked to sign buyout contracts and feel they are deprived - I agree with them - of their share of the downstream revenues. Do we fully understand from a tax point of view what is happening to the downstream revenues from DACs that have been wound up?

Mr. Niall Cody

I know the budget oversight committee has looked at the whole area of film credit and has made proposals. The various Departments have appeared before the committee and we were in at one of the earlier hearings. We play close attention to the structure. Obviously at one level the film credit has been hugely successful and the film industry in Ireland has been hugely successful partly as a result of the film credit. That structure is set out. Our role is to ensure the proper taxation at the various levels and that is what we pay attention to.

Deputy Richard Boyd Barrett

I get that. This is a separate question from the question on continuity of service and who the employer is. The intellectual property rights are assigned to the DAC, if I understand it correctly. The revenue that may result from the distribution and broadcast of that film all over the world possibly for years goes back to the owner of that intellectual property now. If the DAC no longer exists, where is the revenue going?

Mr. Niall Cody

The intellectual property continues to exist.

Deputy Richard Boyd Barrett

Who has it? Do we know who has it?

Mr. Niall Cody

I cannot talk about that. There is a small number of cases. The Deputy can rest assured that if an entity that is being wound up has assets and assets are distributed - intellectual property is an asset and it returns to its parent - then the income that accrues to the parent as a result of the exploitation of that will be taxable.

Deputy Richard Boyd Barrett

I want to alert Mr. Cody to this. I am not sure we know what happens to those revenues. I am not sure where the intellectual property ends up. Does it go back to the parent company or not? If it is taxable, I do not know whether Revenue looks at particular sectors.

Mr. Niall Cody

We do.

Deputy Richard Boyd Barrett

How much paid tax, as opposed to credits given, has the film industry ever generated? I suspect it is almost nothing. Irish Equity suggested that the whole thing is designed to make sure it does not make a profit. However, some of these films actually are successful and are generating revenue for somebody. Where is this revenue going?

Mr. Niall Cody

It also has to be linked to losses that are made. Not every film makes a profit.

Deputy Richard Boyd Barrett

Indeed. Companies in one incarnation may say there is no relationship between all these DACs even though they set them all up. However, in another moment they may say there is a relationship and can play off losses against possible gains, and end up happily and conveniently from their point of view never paying any tax. Just as we have had to look at other interesting tax approaches, that is something we should look at. I do not know if Mr. Cody fully understands it. The budgetary scrutiny committee suggested we need to look at these things and I suggest we need to look at them unless Mr. Cody feels we really understand them.

Mr. Niall Cody

We have a dedicated team that looks at this industry and sector from a tax perspective. I am reluctant to get into specific details because a very small number of entities are involved and I am restricted in what I can say owing to taxpayer confidentiality. I can sense a paragraph on film tax credit coming on in some report that we do at some stage.

Deputy Richard Boyd Barrett

Mr. Cody said Revenue has collected €23.8 billion in corporation tax for 2023. I know there is a delay in getting all the figures in. Given that we have collected €23.8 billion, what is the figure for pre-tax gross trading profits projected for that year? That figure is not given. I know it is given later. When I look at the Revenue's CT tables, there seems to be a delay of a few years. It seems to have the revenue but does not have how much the pre-tax trading profits were before deductions and allowances.

Mr. Niall Cody

Page 13 of the report on corporation tax sets out the gross trading profits and taxable income in respect of 2022 because the 2022 returns are filed in 2023. The report we published a couple of weeks ago gives the summary data of the tax paid in 2023 and then analysis of the returns for 2022 filed in 2023.

Deputy Richard Boyd Barrett

I understand.

Mr. Niall Cody

That is the most up-to-date year for the figures. Gross trading profits were €317.45 billion.

Page 13 of our corporation tax report sets out the gross trading profits less the capital allowances. This sets out the figures that the Deputy has been quoting in various debates at various times.

Deputy Richard Boyd Barrett

That is in the report.

Mr. Niall Cody

It is in our corporation tax report. It was an appendix to our letter to the committee. It is on our website anyway.

Deputy Richard Boyd Barrett

I will have a look. Okay, great. I thank Mr. Cody.

An Cathaoirleach

I have a couple of questions but I am conscious we have not offered a break to Mr. Cody and his team. We are meant to do that. Does he wish to go on for ten minutes?

Mr. Niall Cody

I am happy to do that.

An Cathaoirleach

Okay, that is grand. People say that conversations around tax are not interesting but I must say that-----

Mr. Niall Cody

Depending on the question the Cathaoirleach asks, I might find that I need a break.

An Cathaoirleach

Well, Mr. Cody can just tell me.

Mr. Niall Cody

No, I am fine.

An Cathaoirleach

We will go through this quickly. In the context of the public offices of the Revenue, these are not all manned now, are they? In Kilkenny, I know they are not.

Mr. Niall Cody

Since probably about 2017, we rationalised some of our public offices. What we do is that we provide an appointment. People can call by appointment. They can phone us and make an appointment to call in.

An Cathaoirleach

Is that number widely available?

Mr. Niall Cody

Yes, it is.

An Cathaoirleach

I often get asked about this by people who want the information.

Mr. Niall Cody

We can certainly provide the committee with a note on the public offices. The public offices are still open in Dublin, Cork, Limerick, Waterford and Galway. I am nearly certain.

An Cathaoirleach

I am surprised Mr. Cody did not put Kilkenny in there. I am surprised at that decision.

Mr. Niall Cody

As the Cathaoirleach knows, I spent my first ten years working in Waterford and we were going to give everything over to Waterford.

An Cathaoirleach

Oh no.

Mr. Niall Cody

It will get me in trouble. I will not be able to go home again.

An Cathaoirleach

I just have some comments to relay from a business event I did a while back. Chatting with businesspeople and asking about things in general, they were asking why, sometimes, there are delays with the issuing of tax refunds in situations where people are due them. It was said that there is often a delay in this area. Since that meeting, things have improved a little but there are still some delays. Mr. Cody might give us some typical times in this context. I am sure he has an analysis of the Revenue response times.

Likewise, in terms of the phone lines, these are open from 9.30 a.m. to 1.30 p.m. This short span of time makes it very difficult to get through to the operators and there are long waiting times. This goes back to my original question about access for the public and businesses.

Mr. Niall Cody

VAT is the biggest tax head for repayments because it is inherent in the system. In 2023, some 84% of VAT repayments were paid within five days and 91% were paid within 20 days. The balance, then, would take longer than that time. Where it does take longer, this is happening because we have raised queries.

An Cathaoirleach

Okay.

Mr. Niall Cody

The vast majority of repayments are dealt with in a five-day period. Similarly, the Cathaoirleach talked about phone lines and public offices, but the great change has been in the way the PAYE system works since this modernisation came about. Before this modernisation, a relatively small proportion of PAYE taxpayers filed a tax return. Now, because it is all prepopulated and online, at the start of January every year we give people a preliminary end-of-year statement. These are available online. People can look them up and the statements show whether we think people owe us money or we owe them money. To finalise the process, people go online and do their online returns.

Already this year, we have received more than 1 million PAYE returns. Last year, I think it was 1.2 million returns. I remember when these returns amounted to less than 100,000. The statements are now prepopulated and the repayments, if they happen, are usually in people's bank accounts within five working days. A selection of these statements, though, are checked. The only reason, therefore, why there might be a delay is if a return were to be selected for checking. This might be for whatever reason.

Regarding the phone lines, in April 2024, those members of staff on our PAYE phones answered 65,000 calls. In April 2023, this figure was 43,000. There has been a big increase. The challenge around operating the phone lines for the full day is that if we try to do it for the whole day the knock-on impact would be on correspondence. In the year to date, we have received 469,272 items of correspondence on PAYE matters. This has been the number just in the first four months of the year. We closed 452,000 of those queries in that same period. What we have to try to do is to balance providing the phone service with dealing with correspondence. If we were not to deal with the correspondence, we would end up having phone calls asking where the reply was to the correspondence.

An Cathaoirleach

I know.

Mr. Niall Cody

The challenge, therefore, is to try to balance these services. The other challenge around services is that the first four months of the year are the peak period for PAYE queries. It is more stable for the rest of the year. This is the challenge we have.

An Cathaoirleach

I am just bringing this matter to Mr. Cody's attention because most of the people, 99% of those I spoke to, were very complimentary about the Revenue Online System, ROS. They were drawing my attention to these issues simply because a better response time for phone queries or longer opening hours would complement what is going on.

The other aspect raised with me, and with which I am not that familiar, concerned compliance-based issues right across the board. People were asking about the extra reporting burdens placed on taxpayers. They said these were costly and do not add much value. I was also told that many returns required are not directly tax-related. Are these surveys that are being carried out or enhanced reporting requirements? I am referring to VAT returns, trading details and Intrastat and VAT Information Exchange System, VIES, information.

Mr. Niall Cody

I can talk about any of these aspects. The enhanced reporting requirements were what I was talking to the Senator about earlier. This is a reporting of non-taxable benefits in which businesses are supposed to establish that they are properly non-taxable. They are supposed to have records and to keep them. As part of digital reporting and the PAYE modernisation system, we now require these to be reported to us. They are very important and have a purpose in relation to tax.

A VIES return has to do with intra-community supplies. It is part of the EU's VAT system that was introduced in 1993. Intrastat is the statistical return on intra-community supplies that dates back to 1993 and is part of the rules and regulations of the Single Market. These are obligatory.

An Cathaoirleach

Yes. The suggestion was put regarding having the ability to return the information required with each VAT return rather than there being a separate annual return.

Mr. Niall Cody

The VAT system came into being on 1 November 1972. Basically, it has had the same structure for 50 years. The EU rules were introduced in 1993. In the last budget, the Minister announced a consultation process on VAT modernisation. Over the next few years, there will be big changes. We have had our first consultation about the VAT system. It does not reflect what would happen in the modern environment of digital records and it will be a big transformational change in which we will engage fully with business software developers to try to integrate VAT reporting with the business process.

As the Chairman will know very well, VAT is based on the supply of goods or services, and the inputs based on that. I hope that when the new VAT system is in place and the first two years have passed that we will all say it is a terrible pity this was not done years ago. It will be a definite challenge transform the system.

Every year Ms Acheson's team conducts a voluntary survey on PAYE customers in a statistically sound way. The survey informs us about what people think about us. The survey is totally anonymous so people can say what they like. We have published the survey and it is in the material we provided to the committee. It is a real positive view. When Ms Acheson and her team presented findings of the survey to us, we thought that we needed to insert some negative stuff in the survey as people would not believe us and we wondered whether people were just telling us this because we would audit them if they did not but that is not the case.

An Cathaoirleach

Is it a simple process to reach a phased payment arrangement?

Mr. Niall Cody

It is tiered. We have talked a lot about the people who have a liability of €5,000 or less. They just go online and complete their proposal with which we agree. If it is a case of a company with a liability in excess of €50,000 then we seek information and usually in the form of bank statements from the last six months. We may look for business projections. We will have regard to what the current return shows us. It is like if a person is going for any finance arrangement.

An Cathaoirleach

Yes, but it is not over complicated.

Mr. Niall Cody

It is not over complicated at all. The aim is to get people into the system and to have things right. There is an online facility that allows people to adjust the terms through the life of the arrangement.

An Cathaoirleach

If a self-employed person is behind in paying their local property tax then their income tax return is a surcharge but that is not the case for a PAYE employee. Is that an equitable tax system?

Mr. Niall Cody

The biggest difference between the self-employed and the PAYE taxpayer is that Revenue makes a mandatory deduction at source for a PAYE taxpayer. We have gone through a process for last year's property tax. The cycle of payments is as follows. In January, there is the annual deduction. On 21 March there is the single debit authorities. In February, most years, apart from the pandemic, we would start a compliance campaign for those who have not replied to us, so that is the self-employed or employees. In March, for the people who have PAYE income and have ignored us, we will write to them and say that if they do not pay their property tax or agree it within the next whatever period, then we will issue a notice to their employer to deduct it at source and collect it through the PAYE system. We do not have that facility for the self-employed.

An Cathaoirleach

That is the reason.

Mr. Niall Cody

That is the reason. In fact, one of my concerns, and we have chatted about it, is that lower-income self-employed who are quite happy to ignore their self-employment and surcharge requirements have built up a bit of a property tax liability. I think that is an area we are concerned about.

An Cathaoirleach

Is the Tax Appeals Commission completely independent?

Mr. Niall Cody

The Tax Appeals Commission is completely independent.

An Cathaoirleach

Does Revenue not refer cases?

Mr. Niall Cody

In the normal case, we will raise an assessment. The taxpayer usually has 30 days to appeal that assessment to the Tax Appeals Commission, which is independent of us. We are involved in all of the cases of the Tax Appeals Commission because obviously it is a Tax Appeals Commission but it is statutorily independent. As I have said every time I attend a committee, the reform of the Tax Appeals Commission however many years ago has been one of the most positive developments because it has reached the stage that when we raise an assessment the appeal happens very quickly in a matter of months, and that is the time it should happen.

An Cathaoirleach

What about the cases that end up in the High Court?

Mr. Niall Cody

That takes time.

An Cathaoirleach

Yes. What about the taxpayer who has had an assessment raised against him or her? Why must he or she carry the burden of his or her case against the might of the appeals commission?

Mr. Niall Cody

Not against the appeals commission.

An Cathaoirleach

Or the appeal commission against them.

Mr. Niall Cody

No, the case is against us. Let us start again. We raise an assessment, the taxpayers appeal it, they go to the Tax Appeals Commission, they put their case and we will put our case, and the Tax Appeals Commission will issue a determination either for them or us, or the determination may well be partly for them and partly for us. However, it will make a final determination and the assessment will either be confirmed, unconfirmed or amended. At that stage both the taxpayer and ourselves have a right to appeal the decision handed down by the Tax Appeals Commission to the High Court. In that case, regarding the Tax Appeals Commission, there is a case stated to the High Court setting out that these were its findings of fact and this is what it determined, and then the case is appealed to the High Court on a point of law.

An Cathaoirleach

Who lodges the appeal in the High Court? Is it the Revenue Commissioners?

Mr. Niall Cody

It depends on who loses. If we lose then we will look and see whether we are unhappy with the decision and we will look to lodge an appeal. Alternatively, if we win then the taxpayer and their agent may determine that they will appeal it and they will appeal it to the High Court.

An Cathaoirleach

What if the Revenue Commissioners lodge an appeal in High Court then Revenue is casting the Revenue Commissioners' estate against that individual?

Mr. Niall Cody

Yes.

An Cathaoirleach

What about the circumstances of that individual?

Mr. Niall Cody

It could be a multinational with far more resources that we have.

An Cathaoirleach

Yes, or it could be an individual with no resources.

Mr. Niall Cody

It could be, yes.

An Cathaoirleach

That is what I am focusing on.

Mr. Niall Cody

Usually, we will only go to the High Court on a point of law.

An Cathaoirleach

Yes.

Mr. Niall Cody

It is a point of law that requires to be determined but that is all a precedent.

An Cathaoirleach

The case could be classified as a test case.

Mr. Niall Cody

It could be classified as that.

An Cathaoirleach

It seems unfair that the Revenue Commissioners, who want to establish their point of law over the individual's point of law or view of, have the resources but hand he or she does.

Mr. Niall Cody

I can probably get the Chairman a report on the number of cases that go to the High Court. It is a relatively small number. They tend not to reflect the picture of a person of little resources, in general.

An Cathaoirleach

The case that I read about does.

Mr. Niall Cody

Today, there was a Court of Appeal decision in an anti-avoidance case in which the Revenue Commissioners were successful. It was a significant tax avoidance scheme of significant resources.

If we win our case at the High Court, we will look to have our costs paid except if we feel that it is a case involving somebody of limited means or that it is setting a precedent. For example, in Karshan-----

An Cathaoirleach

Revenue's winning of this case would be a setting of a precedent, so it can rely on it.

Mr. Niall Cody

In this case that went to the Supreme Court, we won. If you want to use sporting terminology, we won 5-0. The five judges were unanimous. We did not look for our costs because this was a matter of significant importance. That did not mean that bringing the case did not have costs, but we did not look for our costs to be paid.

An Cathaoirleach

An individual with no means has to pay his or her costs. He or she is not assisting Revenue but is the guinea pig in this High Court case and Revenue is the one that is testing it. If Revenue wins, the precedent is set and the law has been tested, but the man is broken and his family is broken. With the amount of money involved, it was not fraud or anything like that. In fact, the commentary was that the man was good at what he was doing. It was a point of law. That individual now stands the risk of having to pay, if not part of Revenue's costs, then all of the costs. There must be a fairer way of doing that.

Mr. Niall Cody

It is very difficult to have a conversation in the context of circumstances that we are not familiar with. Generally, we do not go to the High Court lightly. It is always considered at a senior level. There will be instances where it will turn out that that is the nature of it. From the last number of hours here, it is clear that we are dealing with a whole range of complexity and an evolving environment, including legal, economic and business. That will present challenges at various times. It is like with the farm building. There is a facility where we do not allow a person to appeal it.

An Cathaoirleach

I read the particular case and it struck me that I would hate to be picked on by Revenue just so it can clarify its position and I would end up in court.

Mr. Niall Cody

If the Cathaoirleach wants to share the information with me, I will read it. We can have a chat about it in that north Kilkenny farm sometime.

An Cathaoirleach

That is true. That is it from me. I thank the witnesses for bearing with us. I had to leave and I did not realise they had not received a break. The clerk here cautioned me. I thank the witnesses for sticking with us. I thank the officials for attending. It has been very informative.

The joint committee adjourned at 4.53 p.m. until 1.30 p.m. on Wednesday, 22 May 2024.