The Waiver of Certain Tax, Interest and Penalties Bill, 1993, which is before the House today provides the legal basis for the tax amnesty. This amnesty has two objectives: first, to give those who failed to meet their tax obligations in the past one last chance to put their tax affairs in order, in advance of the introduction of more stringent penalties for tax fraud and the continuing strengthening of Revenue's compliance programmes; and secondly, to obtain the best possible yield from undisclosed tax liabilities for the period up to 5 April 1991, given that such evasion is difficult to detect now. In addition, where funds relating to tax evasion have up to now been held dormant, the scheme is designed to facilitate their use for the purposes of general economic activity and employment.
There is a fundamental difference between the type of amnesty for which this Bill legislates and the interest and penalties waiver arrangement operated in 1988. While in its own terms the 1988 scheme was an unqualified success most of the yield from it related to the clearance of known arrears. Very few new cases came on record and, therefore, the amount of previously unknown income on which tax was paid was quite limited.
The present amnesty is aimed at the taxation liabilities from the pre-1991 era which are not on the Revenue Commissioners' records, either because the people concerned had only partially disclosed their income or because they had escaped the tax net altogether. The experience of the 1988 amnesty strongly suggests that simply offering an interest and penalty waiver to such people would not induce them to bring their affairs up to date. Although the Revenue Commissioners have put more resources into compliance work in recent years, and although a more stringent legal framework has been put in place, it would nevertheless be unrealistic to expect that those who in the past successfully evaded taxes, and have escaped full detection for a lengthy period, would be prepared to pay up in full now under an interest and penalties amnesty.
To insist now on the full payment of the tax liabilities on such undisclosed income, especially given that the tax rates applying until the mid-1980s were very high, would mean that very little of such tax would be paid. It is in recognition of this reality that the Government decided that a lesser charge was an essential feature of any scheme aimed at bringing these people into the tax net. The special confidential application procedure responds to the view that, unless those availing of the scheme to bring their tax affairs up to date are assured that this will not expose them to special attention, the uptake would be very limited.
I will, first, give a broad outline of the scheme. I will then deal with some particular features of it as set out in the Bill. The overall amnesty scheme covers the generality of undischarged tax liabilities in respect of the period up to 5 April 1991. There are certain exceptions designed to protect as far as possible the yield from ongoing Revenue enforcement activities. Otherwise, the scheme covers all arrears of tax, including both liabilities in respect of previously undisclosed amounts and liabilities in respect of certain other amounts unpaid. The scheme does not cover liabilities for social insurance contributions; these will be dealt with under the parallel amnesty for social welfare already announced by my colleague, the Minister for Social Welfare.
I must emphasise that the benefits of the amnesty scheme are only available to those who regularise all their pre-1991 tax affairs. A basic condition of the scheme is that applicants must discharge, under the scheme or otherwise, their outstanding liabilities for the relevant period under all of the various tax headings covered by the overall scheme. There is a further requirement, which is that the taxpayer must make a timely return with full disclosure in respect of the latest tax year. Accordingly, an individual must deliver by 31 January 1994 a correct return of income for 1992-93. An equivalent condition applies in the case of a company.
This requirement of the scheme is designed to ensure that those seeking to regularise their past tax affairs must be prepared to submit a timely and accurate return on the next occasion. Failure to fulfil this requirement will lead to a withdrawal of the benefits of the scheme. Accordingly, unless persons availing of the amnesty come fully within the tax net and keep their affairs in order, they will be exposed to very severe sanctions.
The scheme has two distinct tiers. The innovative features are in the first tier to which I will refer as the incentive amnesty. The core provisions for this tier are set out in section 2 of the Bill. This incentive amnesty relates to outstanding tax, levy and health contribution liabilities on income or capital gains and it only applies to individuals. Individuals seeking to avail of this tier must state the total amount of the relevant income and gains, pay 15 per cent of that amount and make certain declarations. Subject to the validity of these declarations, including full disclosure of such income and gains, the applicants' tax liabilities in this respect will be considered to be fully met. Also, any penalties or interest which might otherwise arise will be waived. Applicants who fully comply with these requirements can be assured that their pre-6 April 1991 tax affairs will not be the subject of further Revenue pursuit or investigation.
The second tier closely resembles the amnesty scheme operated in 1988 and I will refer to this as the general amnesty. The main provisions for this scheme are in section 3. As in 1988, this tier of the scheme also extends to companies. Under this general amnesty, where the relevant tax liabilities are paid in full by a specified date, all related interest and penalties are waived. The general scheme covers income tax, capital gains tax, levy and health contributions, capital acquisitions tax, residential property tax, stamp duties, value-added tax, corporation tax and corporation profits tax and liabilities of employers in respect of PAYE.
Applicants under this tier, unlike the incentive scheme, will have to provide the normal returns required in respect of the various tax headings, giving a year by year breakdown of the relevant amounts. This general amnesty will apply to individuals availing of the incentive scheme who have relevant liabilities for the other taxes covered by the general amnesty. It will also apply to persons without outstanding liabilities on income or gains.
Special confidentiality procedures apply in relation to the first tier. The Government has decided that these are necessary in order to give maximum assurance to those availing of the incentive amnesty scheme. Accordingly, applicants for this tier will be required to reveal their identity only to a special collection office within the Office of the Revenue Commissioners. The staff of this special collection office will be obliged under section 7 of the Bill not to disclose to anyone, including other staff of the Revenue Commissioners, any information obtained in the course of administering the amnesty.
The staff of the special collection office may, however, confirm the validity of certificates of moneys received under the amnesty which will be issued to an individual by the special collection office. This will only arise where the individual concerned has already acknowledged to the Revenue Commissioners he or she has availed of the incentive scheme. Furthermore, as there is likely to be a close connection in practice between non-disclosure of VAT liabilities and evasion of income tax, an individual who avails of the first tier can apply to the special collection office in respect of his VAT liabilities also. However, the requirement that there be a full discharge of those VAT liabilities applies as in the general scheme. Alternatively, VAT can be discharged to Revenue in the ordinary way under the general amnesty.
A person seeking to avail of the general amnesty must, as in 1988, apply to the Revenue Commissioners in the normal way. The full tax due must be paid but any interest or penalties arising, except those resulting from court proceedings, will be waived. Where such a person has reached agreement with the Revenue Commissioners in respect of these liabilities, the question of further pursuit will not arise. Full declaration must, of course, be made under this amnesty.
Section 4 provides that the full benefits for both tiers of the amnesty will be withdrawn in certain circumstances. Such withdrawal will be made where, in the case of an individual, a correct return of income for 1992-93 is not delivered on time; in the case of a company, a correct return for any accounting period ending in the year to 31 December 1993 is not delivered on time; any declaration given by a taxpayer to the chief special collector under section 2 or 3 is proven to be false; or the amount paid by the taxpayer, under any tax heading under the general amnesty was less than the full amount of arrears due by him or her.
The legislation provides for clear deadlines for application for both tiers of the amnesty and the making of the payments required. In framing these deadlines I have recognised that where tax arrears over a number of years have to be brought to account, a reasonable time period is appropriate.
For the incentive scheme, all applications must be submitted not later than 30 November 1993. Every such application must be accompanied by the prescribed declarations and in particular must specify the relevant amount of income and gains for which amnesty is sought. The deadline for the associated payments is 14 January 1994. This period of grace for payments as distinct from declarations is intended to facilitate those needing to liquidate assets.
For the general scheme, the requirement is that outstanding tax liabilities in respect of the relevant period be brought fully up to date by 14 January next. Any applicant for the incentive scheme with other undischarged tax liabilities must avail of this general scheme to clear these liabilities.
Senators will understand that those availing of the scheme must, if the need arises, be able to prove they have done so and must also be able to show what amount they paid. Accordingly an individual who by the appropriate date makes the declarations required for the incentive amnesty and makes the necessary payment will be given a certification showing that he or she has availed of the scheme and the amount paid. The form of certificate will be prescribed by the Revenue Commissioners with my consent after the Bill has been enacted.
In order to protect Revenue's ongoing enforcement and collection programmes, there are a number of exclusions from the scope of the 15 per cent amnesty. The incentive amnesty is not available to individuals who, on 25 May 1993, the date of announcement of the amnesty, were the subject of investigation or inquiry by Revenue in respect of tax liability for the period to 5 April 1991 and had been notified in writing of the position.
The following amounts of tax are also excluded from the scope of the incentive scheme: tax already at enforcement stage on 25 May last. This covers cases with the sheriffs, cases where court proceedings have been initiated and cases which are the subject of a notice of attachment; tax which, on that date, was under appeal; tax which, on that date, had been agreed with a tax inspector but had yet to be paid; and tax not paid by virtue of an avoidance scheme which would otherwise have been payable on or before 25 May. Neither is the incentive scheme available to individuals with undisclosed or undischarged liabilities deriving from an illegal source of activity. For this purpose, evasion of taxes and non-compliance with the exchange control provisions will be disregarded.
However, the general amnesty, under which interest and penalties will be waived on full payment of the tax due, will apply to these excluded amounts of tax. Individuals excluded from the incentive scheme are also covered by this general amnesty.
The Bill provides for specific declarations to be made to the special collector by applicants for the incentive amnesty. The applicants must first make a full and true declaration of the amounts of income and chargeable gains coming within the terms of the scheme. This declaration must also be made where VAT arrears are remitted to the special collection office. Secondly, they must make a declaration none of these amounts arises from any illegal source or activity, with the exception of tax evasion or non-compliance with the exchange control provisions. Where either of these declarations is proven to be false, the benefits of the scheme will be withdrawn. However, credit will be given against the full tax then due for payment made under the scheme.
It is clear that certain assurances in relation to Revenue investigation into tax affairs of the relevant period are essential to the uptake of the scheme. Section 5 accordingly provides that a tax inspector or other Revenue official will, in certain circumstances, be precluded from commencing an investigation in respect of tax which has been paid by an individual to the chief special collector for any period covered by the amnesty.
Because of the special confidentiality rules applying to the 15 per cent amnesty, Revenue officials outside the special collection office will have no way of knowing who avails of the amnesty. The legislation, therefore, provides that if in the course of their normal audit and inquiry activities the Revenue Commissioners seek to inquire into the pre-April 1991 affairs of an individual who has availed of the incentive amnesty, this individual may challenge the commissioners' right to pursue such an investigation. To do so, he must produce within 30 days a certificate of receipt from the chief special collector in respect of the liability to tax to be investigated. The Revenue Commissioners will be prohibited from pursuing such an investigation further unless they can show to the satisfaction of the appeal commissioners that any declaration made by the individual to the chief special collector under section 2 or 3 was not a full and true declaration of the amounts of his or her undisclosed income or chargeable gains, or of the amount of value-added tax contained in the arrears of tax paid, as appropriate.
Section 6 provides for the situation where an individual receives a demand for an amount of tax which has been discharged under the amnesty to the chief special collector, including VAT remitted to the chief special collector. The demand will be withdrawn where the taxpayer produces evidence he or she has availed of the amnesty. The evidence must be produced within 30 days of receipt of the demand or, if later, of the date of receipt of the certificate from the chief special collector.
Section 7 contains the special confidentiality provisions which the Government consider to be necessary to the success of the scheme. These ensure that persons who avail of the amnesty can do so in the assurance that the special collectors who will administer the incentive amnesty, will be bound by stringent confidentiality requirements over and above the rules which bind all Revenue staff to respect the privacy of taxpayers. Revenue officers assigned as special collectors will give a permanently binding undertaking, in the form of a declaration of confidentiality, that they will not disclose any information obtained in the course of administering the amnesty. Special collectors will be under the control of a chief special collector who will be responsible for the confidential administration of the incentive amnesty.
Section 7 provides for only the most limited and necessary exceptions to the prohibition of any disclosure of information by special collectors. Special collectors may, if requested to do so by a Revenue officer, confirm or deny, without any elaboration, the validity of a certificate, or evidence of a certificate, produced to the officer by a person availing of the amnesty. Also, the Comptroller and Auditor General and the Accounting Officer of the Revenue Commissioners are to be given such information as they may reasonably require to check that the amnesty has been correctly administered. However, the Comptroller and Auditor General and the Accounting Officer may use any information they receive from special collectors only for the purpose of ensuring that the amnesty is administered correctly. The results of the amnesty may only be communicated to the Minister for Finance or the Revenue Commissioners in the form of aggregate results.
The Bill as published provided for a penalty of £500 for a breach of confidentiality by a special collector. However, I am glad to tell the House that, on reflection, I decided to remove this provision and I introduced a Report Stage amendment in the Dáil to this effect.
Section 8 ensures any payments made to the chief special collector will be payable to the Revenue Commissioners and lodged confidentially, along with all other payments to the commissioners, in their general account in the Central Bank.
Before I leave the provisions of the incentive amnesty, I want to deal briefly with two areas. The first relates to close companies. Where a director, who is also a main shareholder of a close company, has evaded tax in the past through not declaring income received through the company, it could be argued that this situation is similar to that of a sole trader who can benefit from the incentive amnesty in respect of previously undeclared income relating to his trade.
The Government has considered this point carefully and has concluded that it would not be appropriate to extend the amnesty to such close company situations for two main reasons. To begin with, the analogy with sole traders is only a superficial one because individuals who incorporate their business have voluntarily entered into a regime which confers considerable legal and commercial advantages on them as compared to a sole trader. Secondly, where a director-shareholder of a close company diverts the company's money to his own use, he is breaching the legal obligations which result from incorporation.
Although the Government recognises that the exclusion of such close company situations is likely to reduce the potential take-up of the incentive amnesty, we are not prepared to apply this amnesty to individuals who have broken company law in this way. Such breaches of company law can have adverse effects on trade creditors, lending institutions, company employees and others.
I should, however, point out that the general amnesty does apply to companies in regard to their outstanding tax liabilities. Therefore, the opportunity does exist for any company to regularise its taxation affairs in respect of the period prior to 6 April 1991 without incurring interest or penalty charges.
The second area whose inclusion has been argued for is funds covered by tax avoidance schemes. The argument has been made that if tax evasion is to receive the benefit of the incentive amnesty, then tax avoidance should be included in it as well. However, this argument ignores the purpose of the incentive amnesty scheme.
The purpose of the incentive amnesty is to ensure that some tax is paid in funds which to date have escaped the tax net and which seem very likely otherwise to continue to do so. Funds covered by avoidance arrangements are not in this category. Substantial funds covered by tax avoidance arrangements are already on the record for tax purposes. Whether any liability arises on these funds will, in practice, depend on whether the tax avoidance scheme stands up or not. This is a matter which will be dealt with under existing tax law. However, by using a tax avoidance scheme the taxpayer is in effect declaring, or is prepared to declare, that he or she has income or capital gains which would otherwise be taxable. These funds are, therefore, in a different category from funds which have never been declared for tax purposes and which, but for the incentive amnesty, almost certainly never would be so declared.
The granting of the two amnesties I have outlined represents the last chance for tax evaders to bring their tax affairs up to date. It is only right and proper that this Bill should also contain penalties both for those who abuse or ignore the amnesty scheme and for future non-compliance. Thus severe penalties are provided for persons who, having failed to meet their obligations for the period covered by the amnesty, then ignore the incentive amnesty or abuse it by making less than full disclosure under it.
Section 9 provides that an individual who abuses or ignores the amnesty by failure to make or by falsely making the appropriate declarations and who, in respect of any years covered by the amnesty, has either failed to make returns or has submitted false returns, will be guilty of an offence and liable to penalties.
In the Bill as published it was provided that the penalties would be either on summary conviction, imprisonment for a period not exceeding 12 months or on conviction on indictment, imprisonment for a period not exceeding eight years.
In response to representations made in the Dáil and elsewhere I reconsidered the matter and concluded that a modified scale of penalties commensurate with the gravity of the offence would be more appropriate. Section 9 of the Bill was amended accordingly on Report Stage in the Dáil. The revised penalties, while still substantial, are graduated to take account of the difference in the amount of tax paid by a person and the amount he would have paid if he had made a correct return of income, profits or gains, etc.
The new range of penalties will be as follows. In the case of summary conviction where the amount of the difference is less than £1,200, a fine will be imposed not exceeding 25 per cent of the difference or, at the discretion of the court, a term of imprisonment not exceeding 12 months, or both fine and imprisonment. Where the amount of the difference is £1,200 or more, a fine will be imposed not exceeding £1,200 or, at the discretion of the court, a term of imprisonment not exceeding 12 months, or both fine and imprisonment.
In the case of conviction on indictment a similar approach will apply. Where the amount of the difference is less than £5,000, a fine will be imposed not greater than 25 per cent of the difference or at the discretion of the court, imprisonment for not more than two years, of both fine and imprisonment. The amount of the fine and/or imprisonment will increase in a tiered manner as the amount of the difference increases up to £100,000. Where the difference is £100,000 or more, the fine will be not greater than twice the difference and there will be mandatory imprisonment for not more than eight years.
These modified penalties, coupled with the discretionary element which will apply in all but the most serious cases of abuse, represent a reasonable response to the anxieties which had been expressed in this regard.
Section 10 limits the possibility of mitigation of certain fines and penalties under the existing legislation which governs such mitigation. At present, the Revenue Commissioners or the Minister for Finance can, after a court has made a judgment, remit the level of a fine or penalty to any extent, including remitting the fine or penalty entirely. From now on, in such circumstances these authorities will be able to remit only to the extent of 50 per cent of the amount of the fine or penalty. Moreover, in cases where the amnesty has been abused or ignored, no mitigation will be allowed.
Section 11 provides that, as respects tax offences committed after the passing of this Bill, a taxpayer who files a false return, or makes a false claim for an allowance or a relief, or a person who assists a taxpayer to file a false return or to suppress sources of income will be liable to the same range of penalties as described in relation to section 9.
Section 12 brings the appropriate declaration under section 2 or 3 within the scope of sections 500 and 501 of the Income Tax Act, 1967, which relate, respectively, to failure to make a return and the making of an incorrect return for the purposes of civil proceedings for penalties. The penalties are £750 for failure to give the appropriate declaration and, in respect of an incorrect declaration, £100 plus an amount equal to the sum of the unpaid taxes.
The last area dealt with by the Bill concerns easier access by the Revenue Commissioners, where tax evasion is suspected, to information in financial institutions, including particulars of accounts. These appertain only to a person who is a resident of the State. No change is proposed in the present position regarding the accounts of non-residents of the State. Section 13 contains the relevant provisions and specifies particular penalties for non-compliance. Whereas at present Revenue must make application to the High Court, such access may in future be authorised by the appeal commissioners in certain circumstances. The circumstances are that the taxpayer has filed a return of income or statement of profits or gains which his or her tax inspector feels is unsatisfactory; the officer has reasonable grounds to believe that the taxpayer has an undisclosed account or accounts with the financial institution or that the financial institution concerned has information which would establish that the taxpayer's return or statement is materially false; and the officer, on application to the appeal commissioners, secures a determination from them that he is justified in seeking details of accounts held by the taxpayer with the financial institution and certain ancillary financial information.
Where the appeal commissioners give such a determination, there is provision for appeal on a point of law to the High Court. The penalty for failure by a financial institution to comply with a request for information, made in accordance with the provisions of the section, is £15,000. That penalty can be increased by an amount of £2,000 per day in certain circumstances.
In response to representations made in the Dáil and elsewhere, I introduced three amendments to section 13 on Report Stage in the Dáil. First, it is now explicitly provided that both the financial institution and the taxpayer will have all those rights which are available to a person who appeals against an ordinary assessment to income tax. In other words, the financial institution and the taxpayer will have the right to be given notice of the application, to be present at the hearing and to be represented by an accountant, a solicitor, a barrister or a member of the Institute of Taxation at the hearing which will be held in camera.
Secondly, the period within which an authorised officer of the Revenue Commissioners is obliged to inform a financial institution of a determination of the appeal commissioners has been reduced from 30 days to 14 days. This caters for the position where a financial institution is dissatisfied with the determination of the appeal commissioners as being erroneous in law. Where this occurs the financial institution is entitled to declare its dissatisfaction and, within 21 days of the determination, require the appeal commissioners to state and sign a case for the opinion of the High Court. This arrangement is of particular importance where the institution does not attend the hearing of the appeal commissioners, and, consequently, is unaware of the determination until so informed by the authorised officer which he must do within 14 days of the determination. The institution will now have a minimum period of seven days within which to express dissatisfaction and request a case stated for the High Court.
Thirdly, the taxpayer as well as the financial institution will be entitled to receive notification of the determination of the appeal commissioners, and, where appropriate, to be made aware whether particulars are to be furnished by the financial institution within the period specified.
Section 14 places all matters relating to the Bill under the care and management of the Revenue Commissioners, subject to the chief special collector's managerial control of the arrangements for the amnesty. Section 15 contains the provisions for the Short Title and Construction.
This Bill represents an imaginative attempt to induce persons who have undeclared pre-1991 tax liabilities to come forward, make a payment and become fully compliant for the 1992-93 tax year onwards. The Bill does this by offering, where certain conditions are met, a 15 per cent tax rate for individuals with undeclared or under-declared income tax or capital gains tax liabilities, and by offering a waiver of interest and penalties on other tax undischarged. It combines these carrots with the stick of severe penalties for ignoring or abusing the amnesty and for future non-compliance. It also offers the potential for a significant inflow of badly needed funds into the Exchequer, and for bringing hitherto dormant funds into action in the economy. The Government are hopeful that the outcome will be an improved Exchequer position in 1994 and thereafter an increase in the numbers of compliant taxpayers and a more dynamic economy.
I commend this Bill to the House.