Select Committee on Finance and General Affairs debate -
Wednesday, 10 May 1995

Submissions by Professional Groups.

Chairman

Is it agreed that the committee will allow television cameras in for the commencement of the meeting? Agreed.

As Members know, this is the Committee Stage of the Finance Bill, 1995. What we are doing today is unprecedented. We are bringing in representatives of outside groups to contribute to this Committee Stage. Because there is no precedent for this, we are setting new procedures. I remind those who will come before us that they are not covered by the absolute privilege that Deputies enjoy, so they have to be quite clear that what they say has to be able to stand up in court. However, it is an important precedent in participative democracy: to allow interest groups who have serious concerns about any aspect of legislation to come before us. When I proposed that we invite these groups in, there was a ready agreement, not only from the spokesmen for the Opposition parties but also from the Minister for Finance. It has been agreed that the Minister should not be here during the presence of the witnesses, so that the Committee can question them rather than allowing any quarrel to develop between them and the Minister. The witnesses may take it that their presence here indicates that there is a realisation that they have a point to make and that point will be given consideration. I welcome each of the witnesses. We are glad of the opportunity of having you before us. Before we start, would you introduce yourselves and the group you represent?

Mr. Des Rooney

I am vice-chairman of the Incorporated Law Society of Ireland taxation committee.

Mr. John Fish

I am chairman of the taxation committee of the Incorporated Law Society of Ireland.

Mr. Ken Murphy

I am director-general of the Incorporated Law Society of Ireland.

Mr. Brian Bohan

I am a member of the taxation committee of the Incorporated Law Society of Ireland.

Chairman

We have less than one hour, so I would like witnesses to confine their comments to a maximum of ten minutes because we have two other groups to hear. We will hear your submissions without interruption and will then allow Deputies put questions to one spokesman from each of the groups.

Mr. Murphy

We understand that this is the first occasion on which a Dáil committee has invited interested parties to appear before it, to make submissions in relation to draft legislation. This is, therefore, a significant event in the history of the Oireachtas. It is an honour for the Law Society to be the first such interested party to be invited to make a submission to a Dáil committee and, on behalf of the society, we wish to thank the Chairman and the committee for the invitation to address you. The Minister for Finance, in his Second Stage speech, indicated that there were quite detailed discussions with the accountancy bodies prior to the announcement of the measures under consideration today. We wish to place on record that the Law Society was not consulted in advance about section 153 of the Finance Bill, 1995, nor have we been afforded an opportunity to make representations since its publication, other than by writing to the Minister. In those circumstances this invitation is particularly welcome. The Law Society was established by Charter in 1888 and under statute by the Oireachtas in 1954, which legislation has subsequently been amended as recently as 1994. It is charged by the Oireachtas with being the representative and regulatory body for solicitors in Ireland. The solicitors profession has a long and proud history of service to the people of Ireland. Perhaps the most important role that lawyers can play is to stand between the State and its citizens when the rights of the latter are under threat. It is a role which rarely endears lawyers to the State, but is one which the profession has never shirked and which it will not shirk on this occasion.

One of the most disturbing aspects of section 153 is what we would term its "slippery slope" dimension whereby the undermining of certain constitutional rights connected with lawyer client confidentiality, once established, could be expanded on in years to come. Although the current proposal is confined to the tax affairs of companies, if the principle were established here it is not difficult to envisage it being extended to the tax affairs of individuals and, indeed, beyond tax matters to other matters of issue between the individual and the State. It is because of this that the Law Society views section 153 as it applies to lawyers as a civil liberties issue of genuine significance.

Section 153 is a measure intended to assist the State to curb tax evasion. We wish to make it utterly clear at the outset that the society and the solicitors' profession whom we represent in no way condone tax evasion. We would condemn without hesitation any solicitor engaged or assisting clients in relation to tax evasion. Apart from the criminal penalties which such activity would attract, to be so engaged would be a matter of the most serious professional misconduct for a solicitor. It would be dealt with as such with the utmost severity by the society and would be likely to lead to the ultimate sanction of the solicitor being struck off the roll of solicitors by the President of the High Court.

There have been some suggestions that the society's opposition to section 153 indicates an ambivalence towards tax evasion and a desire to protect clients who may be guilty of it from being brought to justice. This is most emphatically not the case. Any such suggestion is a defamatory misrepresentation of the society's position and we deeply resent it. A lawyer's duty to defend an accused person must not be confused with sympathy for the crimes of which his client has been accused. The society is indeed opposed to the application of section 153 to lawyers but we have excellent grounds for being so opposed.

We believe that it is profoundly wrong in principle to create an obligation on lawyers to report their clients to the Revenue Commissioners in violation of the confidentiality which has historically attached to information disclosed by a client to a solicitor. In its ultimate application it can be envisaged that solicitors would be compelled to give evidence in court against their own clients concerning information which had been revealed to the solicitor in confidence. In so far as the society can determine, such a law would be without precedent anywhere in the free world. Colleagues in other countries have been both amazed and shocked to hear from us that it was proposed to impose such an obligation on lawyers in Ireland.

The society considers that section 153 is not merely wrong in principle but that it would create enormous difficulties in practical terms. Given that tax law is exceedingly complex and contains many grey areas, even experts may profoundly disagree on what constitutes evasion. The application of this provision would create impossible practical dilemmas for lawyers. In addition, there is a real risk that clients would seek tax advice abroad rather than from advisers in this country and that the measure would discourage foreign investment in Ireland. In order for anyone to obtain proper legal advice it is necessary to make a full disclosure to the legal adviser. Accordingly, we submit that it is wrong in principle to create a risk of undermining in a general way the public's trust and confidence in its lawyers.

The members of this committee have received a six page submission from the society setting out the grounds of many of the objections in principle and problems in practice which the society's taxation committee sees in section 153. All of the points made today and in the said document are considered by the society to be important, but are subsidiary to the primary point. The society's fundamental objection is that section 153, as it applies to lawyers, constitutes a serious erosion of the protection of citizens' rights in dealing with State authorities and violates rights protected by the Constitution.

This view of section 153, as it applies to lawyers, occurred to the Law Society on first sight of the Bill on 12 May 1995. The society subsequently saw it and obtained a fully argued opinion from two barristers who are recognised as unquestionably among the foremost experts in Irish constitutional law. This opinion unequivocally expressed the view that, in so far as it would apply to lawyers, section 153 trenches deeply and disproportionally on established constitutional rights and would be struck down by the courts as unconstitutional.

Their grounds for reaching this conclusion in relation to section 153 are, in outline, as follows: (1) Section 153 undermines the constitutional right against self-incrimination. The centuries old Common Law right against self-incrimination has been explicitly recognised by the courts as a right protected by Article 38.1 of the Constitution. In addition, the right against self-incrimination has been deemed by the European Court of Human Rights to be an essential feature of the right to a fair trial under Article 6.1 of the European Convention on Human Rights.

This right, which finds a classic expression in the Fifth Amendment to the Constitution of the United States and which is also recognised in European Union law, has been held by the courts in Ireland to be fundamental to the rules under which criminal trials are conducted and to come within the terms of the guarantee of a fair trial contained in Article 38.1.

There has been a considerable body of case law on the application of the test of proportionality to the overriding of a constitutionally protected right. Following examination of this case law, the opinion concludes that, linked to the judicially established constitutional right of access to a legal adviser, it must be seriously doubted whether the Oireachtas could ever trench upon the right against self-incrimination in the manner suggested in section 153.

(2) Section 153 undermines a client's right to legal professional privilege. A client's right to legal professional privilege, like the rule against self-incrimination, is a necessary aspect of the constitutional right of access to a lawyer. It is an essential feature of the rule of law and the proper administration of justice. A classic formulation of this appears in a judgment of the United States Supreme Court, which our advisers believe would be followed by the Supreme Court in Ireland in the following terms:

If a person cannot consult his legal adviser without being liable to have the interview being made public the next day by an examination enforced by the courts, the law would be little short of despotic. It would be a prohibition upon professional advice and assistance.

Some of the potential objections to section 153 in relation to the client's right to legal professional privilege are mitigated by the "in preparation for litigation" savour in section 153(8). Even allowing for this, and for the legal assistance/legal advice distinction drawn by the Supreme Court in the Smurfit Paribas case, however, section 153 trenches deeply into client's legal professional privilege to such an extent as to fail to respect a fundamental feature of the constitutional right of access to a lawyer.

These are not technical meritless lawyers' points by which legalistic special pleading is being invoked to frustrate a legitimate measure. An independent legal profession plays a crucial role in the administration of justice. If a citizen cannot have the existence and means of exercise of a right explained to him, he effectively loses that right. The right against self-incrimination and a client's right to legal professional privilege are badges of a free democratic society. It is the rights of citizens, not simply of lawyers, which are under attack from this provision. It is a threat to the constitutional rights of every citizen if lawyers are to be made agents of the State rather than of their clients.

That this indeed is a civil liberties issue would probably be much more clearly identifiable if it was a measure proposed in the general area of criminal law rather than the Revenue area. However, the principles at stake remain the same. One must not lose sight of the fact that we are dealing here with potentially very serious criminal offences. If constitutional rights are to be impugned, there should be minimal restraint of the exercise of the protective right in the exigencies of the common good. The objective must be of sufficient importance to warrant overriding the constitutionally protected rights. On the legal advice to the society that is not the case here.

It was on the basis of this very strong legal opinion from constitutional law experts to the effect that section 153 as it applies to lawyers is unconstitutional — an opinion which, according to newspaper reports, has now been given to the Government by the Attorney General — that the council of the Law Society, at its meeting on 4 May 1995, decided to recommend to its members that they should not comply with section 153 if it is enacted. This was not a decision taken lightly by the Law Society council. It is obviously a major step for the society to issue to its members a recommendation that they ignore statute law passed by the Oireachtas. It has done so only based on a compellingly argued expert opinion, the conclusion of which is that it would, in fact, be the Oireachtas which would be failing in its duty to respect the Constitution by enacting section 153 as it would apply to lawyers. If section 153 were to be enacted, then the society would in all likelihood launch a constitutional law action immediately to have the provision as applied to lawyers struck down by the courts.

The society accepts that the motivation of the Minister for Finance and of the Government in introducing this measure is entirely honourable. Their objective is laudable. The society in no way condones tax evasion and would support any reasonable measure introduced by the Government to help curb it. However, it will not support measures which unreasonably and disproportionately undermine important constitutional rights of citizens. If the Minister had restricted section 153 to auditors, as recommended by Mr. Justice Hamilton in the beef tribunal report, then the constitutional problems arising from the special role played by legal advisers in the administration of justice would probably not have arisen.

As the Government clearly cannot proceed with legislation which is likely to be struck down by the courts as unconstitutional, the society now calls on the Minister to either amend section 153, so that it will no longer apply to legal advisers, or else to drop the section completely.

Chairman

We will now take the submission from the Institute of Taxation in Ireland whose representatives are welcome.

Mr. Andrew Clarke

I am president of the Institute of Taxation in Ireland.

Mr. Tadhg Lombard

I am deputy president of the Institute of Taxation in Ireland.

Mr. Pat Costello

I am chief executive of the Institute of Taxation in Ireland.

Chairman

You have ten minutes and I would appreciate it if you could keep to the schedule otherwise the time for cross-examination will be reduced.

Mr. Clarke

Mr. Chairman, Deputies, I thank you for inviting the Institute of Taxation to speak to your committee this morning. On a number of occasions we have suggested that there should be more consultation with the profession in the drafting and introduction of taxation legislation and we are, therefore, happy to be here. We hope that we will have annual meetings with this committee in connection with Finance Bills.

In relation to section 153, it goes without saying that the Institute of Taxation will fully support any effective provision which will combat evasion. However, we need to get away from the popular misconception that has been apparent in recent days, that anyone opposing section 153 must support or at least condone evasion. Although the Institute of Taxation strongly condemns tax evasion we do not believe that section 153 is the way to deal with it.

Tax practitioners in Ireland undertake all the compliance work in respect of the administration of direct taxes. I am sure Deputies will remember that the tax system had fallen into disarray in the 1980s and at that time the tax profession co-operated with the Revenue in the introduction and implementation of self-assessment which has seen the yield in relation to direct taxes increase enormously over the past few years.

The Institute of Taxation takes the gravest exception to this attempt on the part of the State to introduce, by way of section 153, an element of illegality into our work and create a public perception of criminality on our part. Without our co-operation the collection of direct taxes would be extremely difficult. We are carrying out the work of the State effectively and efficiently and this has been recognised by successive Ministers for Finance. We cannot overstate our sense of betrayal at this proposal and our fear that this legislation will sabotage the work we have done and the co-operation we have built up over the last seven years.

Deputies will be aware that the Institute of Taxation has been totally opposed to this section since the Finance Bill was published. It is important to remind the committee of the reasons for our opposition. The underlying principle — obligating tax advisers to inform on their clients — is repugnant in a democratic society and establishes an alarming precedent. The section undermines the relationship between the taxpayer and his adviser and does away with the constitutional entitlement of a taxpayer to confidentiality in dealing with his adviser.

It criminalises tax advisers in that it provides for a fine of up to £5,000 and two years imprisonment — not for tax evaders but for tax advisers. It undermines the mutual respect between tax advisers and the Revenue Commissioners which has been built up over a number of years and which has helped in the development and successful operation of the self-assessment system. It may well discourage tax evaders from seeking tax advice to regularise their affairs so it may be counter productive.

It may act as a disincentive to foreign investors locating here as it may well label Ireland as a tax evading society with consequent laws, unparalleled elsewhere, reflecting an anti-business bias. In no other country is there a law of this nature. It provides for a vast increase in bureaucracy because minor misdemeanours which have nothing to do with evasion must also be reported to the Revenue Commissioners.

The section targets comliant taxpayers and leaves outside its scope major evaders who are not in the tax net. Surely it is those rather than compliant taxpayers we should be targeting. A comment has been made about additional costs. The institute is concerned that because of the extra work tax advisers must do to satisfy themselves that there is no reportable offence about which they must notify the Revenue Commissioners, inevitably compliance costs for client companies must increase. The section may drive taxpayers to seek audit and other advice abroad — in London, Belfast, or the Isle of Man particularly — because, being outside the jurisdiction, overseas advisers will not be required to operate the section. Accountants qualified in the UK are recognised as auditors of Irish companies under the Companies Act.

It is the opinion of the Institute of Taxation that the Revenue Commissioners already have sufficient powers, including mandatory prison sentences for tax evaders. These powers were introduced since the period in which the Chief Justice, Mr. Justice Hamilton, was reporting. Many of these powers have been unused, yet there is now a proposal to add another layer on to powers which could well be effective if used. Revenue has also instituted an effective programme of revenue audit. Our understanding from dealing with the Revenue Commissioners on a day to day basis is that they did not ask for this provision and do not appear to want it — so neither tax advisers on one side nor Revenue on the other want this legislation. Why then is it being proposed?

Deputies may be aware that the Institute of Taxation has received a legal opinion this week which indicates that section 153 is unconstitutional on the grounds that it effectively infringes the guarantee for citizens against selfincrimination and fair procedures in the Constitution.

Our advice is that this principle would apply to all our members who are tax advisers and not just to solicitors. We have given a commitment that following this advice if section 153 is passed into law in its present form the Institute of Taxation will have no option but to initiate a constitutional challenge to the offending section.

Whatever view you, as politicians, take of this section I do not think it will have escaped the notice of Deputies that this provision has been unanimously condemned by the people who will be expected to operate it. This, of itself, surely suggests that it is bad law. To operate effectively such a section must be accepted as fair and equitable by tax advisers — we might not like it but if it is fair and equitable we will support it and will operate it, but this is clearly not the case.

In conclusion, Deputies may be surprised to learn, and following on from what the Law Society has said, we, in the Institute of Taxation, who represent tax advisers all over the country were not consulted prior to the inclusion of this provision in the Finance Bill and we have not received an opportunity to make a detailed submission in respect of this section.

We urge that this section be dropped and that time be given for further consultation with all interested parties, including the Institute of Taxation, so that we can devote the required time to it, outside the constraints associated with the passing of the Finance Bill. This is an issue on which I have spoken twice in the last 12 months and on both occasions have recommended — and this section 153 has emphasised the need for this requirement — that consideration be given to two Finance Bills each year, one to deal with budgetary matters that would be treated as a money Bill and would be passed within the normal four month requirement, and the other dealing with more fundamental changes in the tax system, like section 153, which would not be a money Bill and which would require and receive more time for appropriate consideration and consultation.

To return to section 153, we urge Deputies that the section be dropped in order to give an opportunity to discuss the various options available to the Government which will be effective against tax evasion and which will have the support, not only of ourselves but of all professionals who must make the system work.

Chairman

Thank you, Mr. Clarke. We will now have the submission from the Consultative Committee of Accountancy Bodies.

Mr. Joe Gannon

I am President of the Institute of Chartered Accountants in Ireland, and current chairman of the CCABI - the Consultative Committee of Accountancy Bodies. I am accompanied by Tom Keane, President of the Institute of Certified Public Accountants in Ireland; Clive Brownlee, Chairman of the Chartered Institute of Management Accountants; Michael O'Neill, council member of the Institute of Chartered Accountants in Ireland; Vincent Clarke, the incoming president of the Chartered Association of Certified Accountants, and Roger Hussey, Director of the Institute of Chartered Accountants and secretary to CCABI.

We are glad to have the opportunity to appear before the committee. We notice that the Law Society got in first but we are not too worried about that. The committee is establishing an important precedent today and we welcome the opportunity to put our views to it.

As I mentioned, we represent the accountancy profession in Ireland. It is worth noting that the four bodies here today represent more than 10,000 members, a significant group of professionals. It is also interesting to note that, just like the constituency of this committee, we are drawn from all parts of this country. We represent large, small and medium sized accountancy firms and are drawn from industry, commerce, the city and the country. It is important to state at the outset that, like our colleagues in the Institute of Taxation and the Incorporated Law Society, the accountancy profession supports any constitutional, fair, practical and effective means to improve the tax system and tax compliance. However, we do not believe that section 153 meets these requirements and, therefore, we too are calling for its withdrawal.

Since the Hamilton recommendations were published last autumn, the accountancy bodies have consistently argued against a legal duty for accountants, solicitors and tax advisers to report tax evasion. We acknowledge the serious case which gave rise to the proposals in section 153. Evasion, whether on the scale reported or otherwise, simply cannot be justified. However, a serious single case should be set against the thousands of cases of compliant companies with which everybody is familiar. The imposition of a legal requirement must be judged, not against a single case but, on the working and compliant system we have at present.

The accountancy profession has argued that the recommendations related to events that took place a considerable time ago, almost ten years. It is important to reiterate what has already been said. There have been significant changes since that time. The Revenue Commissioners have increased powers that are working very well for them. There are also changes and increases in company law and, it is fair to say, in professional standards. There has been a transformation in the compliant systems and the legal and regulatory procedures in the area of tax and tax matters.

The goal posts have changed dramatically. All is changed, as Yeats would say, and the new child has been born. It is worth putting on record that the current taxation system is working well. The Revenue Commissioners, the State and the legislators have to take credit for that and we have to recognise why it is taking place and why it is working well. Self assessment has been introduced. The system is the envy of many other states and is working well. Year after year, the Revenue Commissioners' reports indicate, particularly over the past five or six years, continuous improvements in the tax system.

As accountancy bodies we have had virtually no complaints from the Revenue Commissioners regarding the activities of our members. As has already been mentioned, we believe that there has been no request or demand from the Revenue Commissioners for the section 153 proposals. It is not a time for modesty. The accountancy profession has played a vital role in the taxation system here. It is, of course, in our interest and in our clients' interest to maintain that role but section 153 will fundamentally change its nature. It will lead to a subculture of shady advice, back room consultations, services from outside of the State and, much more significantly, the gains and co-operation of the past few years will be put at serious risk and lost.

Speaking personally, and as a member of this delegation, I am only too well aware how section 153 will impinge particularly on small businesses. The Government can take pride in its efforts to encourage enterprise. Enterprise comes from many different shades, particularly from small businesses. Deputies will know how difficult it is for small businesses to get off the ground. In this situation the accountancy profession plays a dramatic role. The small business will come to the accountant looking a broad range of services, including accounting, auditing, tax and personnel advice, etc. From the outset, a bond or a relationship of a confidential nature is built up. We believe the growth of small businesses and the development of enterprise, the business culture of this country, is on the basis of contact between the accountant and the client.

However, we recognise our professional duties. We have a duty to ensure that our clients' affairs are in order. We recognise that if we lose confidence in the integrity of our client in tax matters that we must consider withdrawal. In extreme cases, as our regulatory bodies develop, we may in certain situations have to report to the Revenue Commissioners.

It is also worth noting that the four bodies are totally committed to improving standards of professional conduct and competence among their members. The development of this standard is ongoing in matters relating to audit, accounting and professional ethics. It is worth bringing to the committee's attention the fact that in the bodies who have public duties or a public practices system a situation has been developing voluntarily called practice review. It has been the experience of those of us in the professional for the man from head-quarters to call at our doors on a regular basis, at least once every five years, to review and monitor how our practices are being developed and run. This has developed within the past ten years.

It is also worth putting on the record that the four bodies we represent today have a system of investigation of complaints when matters are reported regarding the conduct or competence of our members. Sanctions can be imposed which range from a fine to a reprimand to exclusion for membership. In line with modern thinking we have lay members on our investigation and disciplinary committees.

To return to section 153, like our other friends we also believe this section infringes the basis constitutional rights of members and clients. We believe it is totally unnecessary because the Revenue Commissioners now have full and adequate powers which work. We believe it is simply impractical and not workable. It is fair to say that unlike our other two friends who spoke we have consulted with the Minister for Finance and his predecessor to try to bring in sensible working arrangements. We constantly argued that there was no need for a legal duty to be imposed. That view was based on constitutional considerations and the necessity and practicality of it. We stressed that if a legal requirement was imposed it must be fair, practical and focus exclusively on certain cases.

It might speak volumes for the accountancy profession that our views were not shared in the final drafting of the legislation. The current provisions come nowhere near our points of view and our arguments. We emphasised the view that no legal duty should be imposed, but if in the final analysis it had to be imposed, then it must be fair, even-handed and apply to all groups which provide tax advice and services. If for some constitutional reason that was not possible, then it would be highly discriminatory and the provision would therefore have to be withdrawn.

We believe the tax adviser plays a pivotal role in the tax system. If the relationship with the client is prejudiced, we submit that the operation of the tax system will also be prejudiced. As we all know, tax is a complex and difficult matter and the right of the individual company to take professional independent advice, free from a duty to report matters arising from such advice, should be maintained. We have got, as announced this morning, legal advice that a legal duty to report, if applied to our members, infringes the constitutional rights of both client and members. We call for the withdrawal of section 153, not in our self-interest but in line with many other bodies, as was mentioned earlier.

Chairman

I will call Deputy McCreevy, Deputy Nealon, Deputy M. McDowell and Deputy Broughan in that order. I will then rotate between Government and Opposition Deputies. I ask Deputies to bear in mind when asking witnesses questions that they do not have the same privilege as Deputies. Before I call Deputy McCreevy, I want to put on the record the following quotation from the report on the Beef Tribunal which gave rise to this section. It states:

While the Tribunal is satisfied that the Companies' Auditors acted in accordance with their responsibilities as set out in Paragraph 14 of the Miscellaneous Legal, Ethical and Practical Guidance issued by the Institute of Chartered Accountants in Ireland which provided that:—

"If an auditor discovers an act he believes to be illegal or questionable, he must report to, and obtain consideration of that act from the appropriate level of authority within the entity. In certain cases, this may necessitate his reporting in such a manner as to bring the matter to the notice of the shareholders".

The Tribunal considers that in the case of tax evasion the obligations placed on an auditor should not be limited to reporting such tax evasion to the "appropriate level of authority within the entity" or bringing the matter to the notice of the shareholders, but should be extended to oblige them to report such evasion to the Revenue Commissioners and recommends that a provision which would have that effect be included in the next Finance Bill to be placed before the Houses of the Oireachtas.

Deputy McCreevy

I welcome the professional bodies to this meeting of the committee. It is the first occasion we have had such representation during a Finance Bill. In the interests of openness, transparency and accountability, I declare a personal interest in the proceedings because as President of the Institute of Chartered Accountants in Ireland Mr. Gannon is my immediate boss. I am a practising chartered accountant who would be adversely affected by section 153. One must do this now, although most people know that fact, but one could be accused of all types of offences.

I will not ask too many questions because this matter has already been debated and my colleagues' views are well known. My party will oppose this provision. I will ask the Institute of Chartered Accountants in Ireland questions to show that I am fair and even-handed. People would like to know if, in the light of the evidence given at the Beef Tribunal, action will be taken in that regard. The Institute of Chartered Accountants in Ireland undertakes practice review and it imposes severe penalties. My own practice has been subject to this review as has every chartered accountancy firm in the country. In my view, one company out of thousands of complying ones would make bad law, which is a pity. This question would be asked by people and I may as well ask the hard questions since I am a practising accountant.

Mr. Gannon

It is good to see there are friends with us.

Chairman

I will have to be strict in relation to answers and questions because we have run over time and we have will have to keep to our time schedule. We are obliged to do so by order of the House.

Mr. R. Hussey

I am director of the Institute of Chartered Accountants. As stated before, the institute has a system whereby investigation and disciplinary committees deal with matters where complaints are put. Where a matter as serious as the report of the Beef Tribunal was put, it was, as normal, referred to the investigation committee of the institute. The role of that body was to review the report to see if there were any members mentioned in it who might be subject to disciplinary action. That process was initiated and is in progress at the moment. Following the investigation, correspondence has been entered into between the institute's investigation committee and a number of members. The correspondence is still going on. I cannot go beyond saying that because of the warning you gave at the start of this session.

Deputy Nealon

I also welcome the professional bodies and thank them for their concise and clear presentation of their cases. Leaving aside the constitutional issues, which are very serious, my questions are directly mainly at Mr. Gannon. If the majority of companies are above board, what is the problem about? Are we not in danger of suggesting that there is a great deal of tax evasion? Might this not be the net result of the submissions today? Two speakers made the point that the Revenue Commissioners do not favour this. Do we have any knowledge that they do not favour this? Mr. Gannon has a large practice and great experience in the Border counties. Does he think that if this provision is introduced there might be a perception that accountants in the North would be freer agents and that there would be movement by clients and a major distortion?

Mr. Gannon

There is no evidence of serious tax evasion. The point we must get across is that we should not fix something which is not broken. The system is working well and with co-operation between the professionals and the Revenue Commissioners. We do not believe that section 153 will make progress in improving the system. With regard to the Revenue Commissioners and their knowledge, it is fair to say that all of us have close contact with them. On a formal level, they have made absolutely no complaints to us. Informally they have said the system is working properly. They are not in favour, as far as we can see, of a legislative imposition as proposed in section 153. There is a great danger that business will go across the border. I may have to consider myself whether I should open another office in Enniskillen. The situation is as real as this.

Deputy M. McDowell

I welcome the three bodies. I fully agree with the views expressed by Mr. Clarke on behalf of the Institute of Taxation in Ireland. It is a terrible pity that the legislative process should first meet with the accounting bodies on an occasion such as this and that we have never before sought their opinions or advice on a formal basis on the other features of the Finance Bill, in respect of which we would greatly appreciate the assistance of the professional bodies. I agree entirely with what Mr. Murphy said.

I agree with Mr. Clarke in relation to legal professional privilege and the privilege which extends not merely, in my view, to lawyers but to people tendering legal advice. I want to stress that now accountants and members of Mr. Clarke's institute are given the right to appear before the appeals commissioners and, under this Bill, before the Circuit Court as advocates for their clients in relation to tax appeals. We are now in a position that advisers have the effective status of giving legal advice and, in my view, attract the same privilege.

I agree with Mr. Gannon that there is no need for this measure. However, I wish to concentrate on one or two points, Mr. Gannon, and I am sorry if you seem to be taking all the heat today. Am I not right in saying that under section 194 of the Companies Act, 1990 an auditor is obliged to report to the Registrar of Companies if any company whose books he is auditing is not keeping proper books of account and does it not follow that if circumstances such as those discovered in chapter 9 of the Beef Tribunal Report came to light an auditor would have to report those to the Registrar of Companies? Am I not right in saying — and I do not want you to comment retrospectively on the behaviour of some of your members — that it is certainly the case now that no auditor could professionally sign off the accounts of the Goodman company without noting, in a way which would be available to anybody who examined the accounts, the existence of the matters which were discovered?

Mr. Gannon

The simple answer to both questions is "yes". The system has changed dramatically since the mid-1980s. Section 194 of the Companies Act is absolute and there could not be a repeat of what we saw happening or reported by the chairman of the tribunal since 1987.

Mr. Clarke

I am incoming president of the Chartered Association of Certified Accountants. The real issue here is the effective administration of the tax system. Within the last four years the take from corporation tax has increased from £0.5 billion to £1.1 billion. That is indicative of the successful operation of the current taxation system.

Deputy Broughan

I welcome the professional bodies to the committee. I also congratulate the Chairman on taking this initiative, in his typical way, in order to expand the role of our key committees.

I wish to put some questions to Mr. Clarke and Mr. Gannon. Some members of this committee also sit on the premier committee of the House, the Committee of Public Accounts — the Chairman of this committee was its previous chairman — and year after year on reading the Revenue Commissioners' reports we see huge amounts of tax outstanding. At times we see what appears to be prima facie evidence of significant, if not massive, tax evasion. We see figures in relation to two tax amnesties which appear to confirm all the worst fears of the PAYE sector. That being the case, I would like to hear your comments on the phrase used by one representative that “we in no way condone tax evasion”. When one looks at the operation of the Revenue Commissioners, is it not a fact that there is about a one in ten chance of the Revenue Commissioners having sufficient manpower to have an audit and a 7 per cent chance or less of having a random audit?

There is a real problem and your reaction to this section recognises that there is a real problem. The PAYE sector, which most of us represent, is totally outraged. According to Department of Finance figures, for example, 84 pence out of every £ contributed by the taxpayer last year came from the PAYE sector. Most PAYE taxpayers would see that as prima facie evidence of significant tax evasion in our society. In your special pleading today you are basically saying that this situation should continue, against the wishes of the majority of people.

I think it was Mr. Gannon who mentioned the Goodman case and said that it was a single example. The Committee of Public Accounts has seen several examples of cases where it appeared that the auditors and accountants responsible for these companies did not discharge their duties as professionals. Goodman is not a single case, there are many more examples.

Is it not a fact, Mr. Clarke and Mr. Gannon, that your professions cannot be trusted? That is the record — you cannot be trusted. In effect, unfortunately, some members of your profession have almost made methods of tax evasion a business and it is, therefore, necessary for us politicians, representing the bulk of the Irish people who pay their taxes, to ensure that everybody who has more scope will also pay.

With regard to Mr. Murphy's contribution, is it not a fact that his profession is increasingly engaged in financial advice and that, in effect, as matters are developing, there is a contest between the accountancy and auditing professions and the legal profession, and that it is because of this that Mr. Murphy is attending the committee today to lecture us on constitutional rights and privileges?

Deputy M. McDowell

On a point of order, is that a rant or a threat?

Chairman

That is not a point of order. I call on Mr. Clark and Mr. Murphy to answer the points raised by Deputy Broughan.

Mr. Clark

The point made by the Deputy with regard to the PAYE tax payer is one which is frequently made. All of us as tax payers are concerned with tax evasion. If one considers the reports of the Revenue Commissioners over the past few years, one will see that the PAYE tax take is, of course, higher because there are more PAYE tax payers than anybody else. In addition, if one considers the reports of the Revenue Commissioners over the past three years, one will see that the amount of tax payable by the self employed, per head, is higher than the PAYE tax payers. The whole issue of PAYE tax, and focusing on that issue, deflects from the main problem which is that tax rates for all of us are too high here. It is not, therefore, only the concern of PAYE tax payers, but of all tax payers if there is evasion.

I have indicated that the Institute of Taxation will support any effective measure to combat evasion, but the indications, even from the Revenue Commissioners, are that evasion is not as rife as may be believed and that the fight against evasion has become much more successful. Since the introduction of the self assessment system and the revenue audit programme, for example, there has been an increasing level of compliance. There is also a quite staggering figure with regard to the tax appeal process. Before the tax appeal process was introduced, when we all know inflated estimated assessments were issued, everybody jumped up and down because they thought there was an enormous amount of unpaid tax. This was, of course, totally over stated. There were approximately 40,000 tax appeals a year leading to the clogging up of the whole system. Since the self assessment system was introduced — and I have confirmed these figures with the Revenue Commissioners in respect of another question asked of me outside the committee — the annual number of tax appeals is 800.

A reduction from 40,000 to 800 is a major improvement in the operation of the tax system and it has arisen largely as a result of the co-operation between tax practitioners and the Revenue Commissioners.

We have achieved so much in that area that it would be a great shame to see the successful level of the operation of the tax system undermined. We are concerned about tax evasion as compliant tax payers ourselves, but we believe that the powers the Revenue Commissioners have, which, by their own admission are working very effectively, are doing the job for us without resort to section 153.

Mr. Murphy

Deputy Broughan referred to the fact, which we acknowledge, that there is competition between solicitors and accountants with regard to seeking tax advise work. However, the implication of his question appeared to be that in taking this position, the Law Society was in some way seeking to gain an advantage over the accountancy profession in that the measure may still apply to accountants but not to lawyers. We believe that the position of lawyers is distinguishable, but that is not our objective. Our position is based on principle.

In the course of a vary length discussion of this matter at a meeting last week of the Law Society Council, never once did a single speaker suggest that an objective we should have would be to gain a competitive advantage over accountants. That is not our objective. As it was never discussed I cannot say what is our official position on the matter. However, as far as I am concerned, if the result of this was that the measure in respect of section 153 was dropped with regard to everybody we would be equally happy.

Deputy Cullen

I, too, join in welcoming representatives of the three professions——

Chairman

Can we dispense with the welcomes? We take that as read.

Deputy Cullen

Is there some significance in that, Chairman?

Chairman

No.

Deputy Cullen

I was going to make the point that while it is significant that we are discussing section 153 — indeed, it is important — I think today may be of wider significance in the context of the way we conduct our affairs as politicians. I certainly welcome this and everybody here should bear that in mind.

I have been aware of this impending section in the Bill for some time and I have had contact with all the professions here. I concur with my colleagues on this side of the House in that I think it is a draconian measure and one that will make no contribution to the development of tax law in this country. Do the various bodies agree the other danger is that those in the black economy would now find a situation where it would be almost impossible to connect, both from your point of view and their own, and enter the legitimate economy if section 153 became part of the Finance Bill, 1995? Second, there is a whole blurring or overlapping of relationships now in the whole business community. Has the Law Society conducted any analysis as to what proportion of your companies would be employing specific tax advisers or tax consultants throughout the country at present?

Mr. Murphy

Briefly, we have no figures or statistics on that. In fact, so much of the business, commercial or even the personal affairs of individuals is pervaded and shot through with tax consideration that is very difficult to distinguish tax advice from general advice to clients.

Mr. Clarke

Might I add in relation to the self-assessment system, the accountancy bodies and, I am sure, the Institute of Taxation have been highly involved over the last six or seven years in getting non-compliant taxpayers into the self-assessment system. We have spent a lot of time doing that and now we have to turn around, having engaged ourselves with those clients, and inform on them. Surely as a result of that, this is not a pro-business measure. It is an anti-business measure and should be seen as that.

Deputy Connor

It appears to me, having listened to everything that has been said, that the difficulties all three bodies here have are in relation to reportable offences. Reportable offences are described in the Bill as "... knowingly or wilfully delivering any incorrect return, statement or accounts or knowingly or wilfully furnishing or causing to be furnished any incorrect information in connection with any tax, ...". That phrase "knowingly and wilfully" is returned to on several occasions in different sections of the Bill.

We all agree tax evasion is a crime. If I, as an ordinary citizen, observe a crime being committed knowing and wilfully, I have a duty, as all of us here do, to report it. What exactly is the difficulty the three bodies present have with this because it is quite clear in the law? You must be satisfied that a client is knowingly and wilfully trying to commit a crime.

Mr. Clarke

One of the problems with this section, and it is quite interesting, is that the words "tax evasion" are not mentioned in it. There is a difficulty with the definition of tax evasion. It is all very well to say "Surely we are all in favour of reporting tax evasion", but what is it. If we go back to the Beef Tribunal, tax evasion means major evasion or on a scale involving millions of pounds. That is one view of evasion. The view this section seems to be taking is that if you happen to be a month late with your VAT return or if you have overlooked sending in Form 46 G, which is a return of payments made to certain people in connection with your business, then that has to be reported as well. That cannot be regarded as tax evasion by any stretch of the imagination. We believe that this is such a bureaucratic monstrosity that it is not achieving what it set out to achieve.

I would be in favour of major evasion being reported, but that is not what we are discussing here. We are talking about far smaller amounts and misdemeanours which could in no way be regarded as evasion. The problem we have not mentioned until now — it is the problem that the parliamentary draftsman faced — is the definition of tax evasion. What does tax evasion mean? It is a problem that has not been properly addressed. The way it is addressed in the section means that various minor misdemeanours are drawn into the net. These misdemeanours are not evasion by any stretch of the imagination.

Deputy Connaughton

I met four accountants in the past week and I thought they were on the register. Can section 153 be changed or modified to ensure — this might be termed "belling the cat"— that the major evasions spoken about would have to be notified but the lesser misdemeanours would not? From your professional point of view will this section of the Bill have to be withdrawn completely or can it be amended or modified? Mr. Murphy made a statement that should the Bill become law members of his organisation should not comply with it. Could Mr. Murphy comment on that statement?

Mr. Murphy

In the course of the paper I did make reference to that. In 11 years involvement with the council of the Law Society I cannot recall an occasion when that was done. I am not aware of it being done on any previous occasion. It is an indication of the depth of feeling and belief that this legislation is unconstitutional. It would mean that the Oireachtas was misdirecting itself to introduce this legislation in this manner, as it would apply to legal advisers. We find it difficult to see how this could be amended so as not to be unconstitutional, but we would consider any draft or proposed amendments that were put forward. The Deputy's suggestion was that it might be amended so that it would somehow capture only serious offences and not minor ones. Again that does not alter the principle. Those who are accused of, suspected of or prosecuted for serious offences are equally entitled to a defence and equally entitled to the right against self-incrimination as those who might face charges for minor offences.

Deputy McCormack

At the outset it was indicated that the inclusion of section 153 was one of the recommendations on page 336 of the Beef Tribunal report, which cost the State £25 million and has often been discussed at the Committee of Public Accounts.

Chairman

Nearer £40 million.

Deputy McCormack

It has gone up since my time. Precedent is clearly being established by having three high-powered, professionally prepared and excellently delivered submissions delivered at this committee today. My first question is to you, Chairman. Will the bodies that are strongly in favour of section 153 get an equal opportunity to make representations to this committee? I ask because I welcome the opportunity to meet the three bodies present today.

Mr. Gannon said that the tax system is working very well and we should not fix something that is not broken. That is completely contradictory to paragraph 4 of his statement, which says:

We acknowledge the serious case which gave rise to the proposals in section 153. Evasion, whether on the scale reported or otherwise, simply cannot be justified.

Is the system working well? The general public tell us that it is not working well. From the many cases which we had during my three or four years on the Committee of Public Accounts, it was obvious from what came before us that the system was not working that well. Is the system working as well as we are saying here this morning?

Mr. Gannon

The system is currently working very well, in our opinion. There has been a transformation since the late 1980s. I do not want to repeat the points which have made around the table but, in our opinion, it is working dramatically well. There is self-assessment and revenue audits, and Mr. Clark referred to the reduction in appeals, etc. The system is so good that the Revenue Commissioners, quite rightly, take pride in it. They invite people from other jurisdictions to meet them and the practitioners to show how it is working. In paragraph 4 of my presentation I was drawing a distinction between what was then and what is now. I hope that answers the Deputy's question.

Deputy Penrose

From the legal viewpoint, I accept most of the arguments put forward in relation to the constitutional right against self-incrimination. That right has stood the test of time and is enshrined in Article 38 and the impact of this section seems to lessen that right. With regard to the hierarchy of constitutional rights, I think that Article 38.1 is supreme in this regard.

Communications between clients and legal advisers were set in stone as far back as 1833 in the Greenhaugh v. Gaskell case. In that case, privilege attached to any communication between a client and his legal adviser, even where no litigation was contemplated. We have now got into the niceties of whether it is in anticipation of a legal action or contemplation of a legal action. The way in which the section is framed would place solicitors and other legal advisers - Deputy McDowell is right that this has been extended under the current Finance Bill - in an invidious position of determining matters which are not appropriate. I see problems ahead. It would impinge upon rights which have been sacrosanct and would place the legal professional bodies in a position where there would be a curtailment of right.

Chairman

The tribunal, which was presided over by the eminent President of the High Court, now the pre-eminent Chief Justice, recommended this provision, at least in respect of auditors. Are the Institute of Taxation and the accountancy bodies asking this committee of the Oireachtas to ignore that recommendation of that very expensive tribunal, the main beneficiaries from which were lawyers? Are you asking us to ignore that recommendation totally?

Mr. O'Neill

I am a member of the Institute of Chartered Accountants. We believe, for all the reasons we have given, that there have been substantial changes in the way that the auditing profession does its business and the way in which the Revenue Commissioners regulate this country, which supersede this recommendation. To introduce this legislation for auditors only would present us with a very serious competitive disadvantage in the very competitive world of providing financial services. It would be grossly unfair and very discriminatory to introduce it for auditors only.

Chairman

So the answer is "yes"; you are asking us not do what the tribunal recommended.

Mr. O'Neill

For a good reason, we believe.

Mr. Clark

We should have regard to the Hamilton recommendations. This section, however, does not represent what Mr. Justice Hamilton recommended which was that a provision should be introduced in respect of auditors and only in respect of evasion. What do we mean by evasion? Probably, in the context of the beef tribunal, major evasion. We should, of course, have regard to what Mr. Justice Hamilton recommended, but this provision has been introduced in such an ill-considered manner that it would be advisable to defer it for further consultation, particularly with the Incorporated Law Society of Ireland and ourselves who have not been consulted, so that a more effective way, if that is thought necessary, can then evolve which has the backing and support of all professionals in the tax profession.

Chairman

The Law Society's submission contended that the section was unconstitutional in so far as it affected legal advisers. Is it implicit in your contention that the rest of the section would be constitutional if legal advisers were exempt from it?

Mr. Murphy

The opinion which we sought and on which we are relying was on the application of section 153 to lawyers and legal advisers. In respect of that, we have been very strongly advised that the provision would be struck down by the courts. As to whether the section is capable of being amended so as to exclude that risk of unconstitutionality, we are not at all clear how it could be done.

Chairman

We are running over time. I will ask one Member from each party to briefly make their final points.

Deputy McCreevy

In lieu of a proposal that I put forward last weekend, would the three professional bodies be willing to participate in a working group with the Department of Finance to see if it could be possible to implement the thrust of Mr. Justice Hamilton's recommendations vis-�-vis the possible changing of section 153? Would the professional bodies also agree that there is a need for a public relations exercise on behalf of all of them to counter the points made by some of the Members, which are widely held by the public at large? In that regard, it is not of great benefit to politicians working to meet a deadline on a Finance Bill when certain professions make strident speeches stating that they will not obey the law of the land, irrespective of the strength of their legal opinion.

Deputy McCormack

I would follow along those lines. I do not know if we are closing the stable door after the horse has bolted because I do not know in which direction the horse is bolting. This discussion would have been useful two months ago. Although it is educational now, we are not gaining the benefits of the effort that was put into it because we are not able to go back — most of the Members of this committee are backbenchers — to the officials who drafted this provision. I am also interested in hearing the other side of the story from those who have views that are equally as strong as the bodies represented here. I would like the opportunity to hear these views presented to this forum or to me in the same manner that these bodies have done over the past two weeks.

Deputy M. McDowell

I fully accept the Incorporated Law Society of Ireland's position in this matter. The first day I saw this provision reported in the newspapers, a representative from the press called me to tell me that it was being extended to cover legal advisers and lawyers and I said that was unconstitutional. I am satisfied that if the Minister proceeds with this provision, he will find that it is unconstitutional. The Law Society members are correct in saying that they are standing on their constitutional rights. We, as a group of legislators, must respect the Constitution. If I, as a Minister, were at some stage to introduce a Bill proscribing strikes, Deputy Broughan would be the first to say, on behalf the members of his former union: "Ignore that law, it is unconstitutional and we will have it struck down." The Law Society is equally entitled on this occasion to tell us, as legislators, to obey the Constitution, to look to the Constitution, to inform ourselves of what it requires us to do and not dare to breach the Constitution knowingly.

I fully support the Law Society's position on this matter. I find it offensive that reputable professions here should be upbraided in the way they were earlier. I look to the particular facts of the Goodman scandal and I know that thousands of people were receiving tax free payments. I reject completely the suggestion that their unions were unaware of it. I find it strange that the same unions that are now shouting abuse at professions were turning a blind eye to the members receiving tax free payments. The law has changed dramatically since the circumstances with which Mr. Justice Hamilton was dealing. There is now self-assessment. There is now section 194 of the Companies Act. Any auditor who fails to report a company that is keeping improper books of account — and that would cover what we are dealing with here today — not only commits a criminal offence but also becomes liable for the debts of the company. That is the law. The Minister for Finance should come before this committee, if we are hearing from the people who actually proposed this matter, and brief us as to why this measure is now necessary in view of the radical changes of the law in the time since Mr. Justice Hamilton was dealing with what were very serious crimes of evasion.

Chairman

Deputy Broughan will be the final speaker, before I sum up.

Deputy Broughan

I do not apologise to Deputy McDowell, or anybody else who is a spokesman for special interests, for speaking up for the majority of taxpayers in this country, the PAYE sector, whom I am proud to represent. They have genuinely felt for 20 years that there has been significant problem and that professional bodies have not discharged their duties. I accept the comments that my colleague, Deputy Penrose, made and yield to his legal expertise. Looking at history — and both the Chairman and I have served on the Committee of Public Accounts — there is prima facie evidence that there is ongoing substantial tax evasion which is outrageously unfair to the PAYE sector, who have no choice about it. We Deputies are mostly PAYE workers also and we have no choice. We pay our income taxes. We are not able to consult advisers to see if we will pay in a particular week or month. We have to pay on the button; that is the way it is. We are pretty uncomfortable and annoyed to find that there is still a situation where tax evasion pertains. The Minister has tried in this regard to copperfasten the reforms of recent years and to ensure in the future that tax evasion will be a thing of the past in this society, which it is clearly not at the moment.

Chairman

We are half an hour over our scheduled time and we are obliged by order of the House to move to the next section of the Bill, section 20. The committee is grateful to the three groups for finding time to come before it and giving us the benefit of their views. I take on board the view expressed by Deputy McCormack that we have not had time to hear the counter view. Unfortunately, the Finance Bill was only published two or three weeks ago and, by the nature of things, it takes time to study it. However, no committee of the Oireachtas would knowingly enact a piece of legislation which it believed to be unconstitutional. At the same time, the committee cannot knowingly ignore the recommendation of the Beef Tribunal on page 336 of its report.

You can take it that the Minister for Finance is a reasonable man and I have not doubt that he will work with this committee in addressing the important issues which have been discussed here this morning. This is a useful new precedent in legislating in this country and perhaps this method of consultation will be followed more extensively in the future in different committees. In relation to future Finance Bills, this committee was constituted only two months ago so we are still finding our feet, but I have no doubt that we will take up the suggestion in the future to have discussions before the budget with the institutions concerned to look at the taxation issue. Perhaps we will approach them for a discussion later in a more relaxed atmosphere. I thank you all for coming.

Mr. Cullen

On a point of information, I wish to ask a question. I wish to clarify something.

Chairman

Order, please. I now ask the delegations to leave and I wish to thank them very much.

The witnesses withdrew.

Finance Bill, 1995: Committee Stage (Resumed).

Chairman

By order of the House, the select committee will now take sections 20 to 45, which shall be concluded by 1.30 p.m. I ask Deputies to be aware of the time factor.

Before we proceed, I draw the attention of Members to some typographical errors in the list of additional and substitute amendments. A copy of these will be circulated. In the eighth and ninth last line of page one of the green list of amendments, dated 10 May 1995, the word "companies" should read "company's". In the fifth last line of page six of the green list of amendments, dated 10 May 1995, the date referred to in amendment No. 58a should read "the 10th day of May, 1995".

Mr. M. McDowell

Obviously, section 57, amendment No. 58(a) is very interesting. Is it possible that before we get to it, some sort of explanatory memorandum could be furnished?

Chairman

Are these ministerial amendments?

Mr. M. McDowell

Yes.

Chairman

When the Minister comes to move those amendments we will get the explanation. We are now moving on to section 20.