May I have clarification of this section?
SECTION 166.
Question proposed: "That section 166 stand part of the Bill".
The section introduces a new section 23 (a) into the VAT Act to provide that the Revenue Commissioners may require security from a trader for any VAT which may become due. The security may be in the form of an assurance bond, bank guarantee or any similar instrument that gives adequate security and this provision will be used in selected cases where the Commissioners consider that there is a particular risk of fraud, evasion or loss of tax, for example, because of a traders' position or previous tax payment record. A decision of the Revenue Commissioners to require security may be appealed to the Appeals Commissioners and this section will have effect from the date of the passing of the Act.
Would this be used for lessees of licensed premises? I am sure the Minister is aware of difficulties there.
The leased pubs saga.
It could be.
Would the insurance industry be in a position to give the bond or is the Minister looking for a capital sum?
It could be an insurance or bank bond.
Is that facility available?
Yes. This covers the Phoenix companies syndrome. Abuses by such companies cost the Exchequer approximately £8 million and this provision is aimed primarily at preventing further abuse.
In this country over recent years many companies have gone bust and within a short space of time have set up again in business. These companies tend to owe the State substantial revenue and nine times out of ten that revenue is written off because the company does not have the assets necessary to repay the State. I wonder if the new power of security under this section will help to combat that phenomenon and I would like to hear the Minister's comments on the matter.
I think that was the Phoenix syndrome——
One of the more common type of abuse Deputies have talked about is the so called "Phoenix syndrome" where traders deliberately allow companies to go into voluntary liquidation owing large sums of VAT and often other taxes as well. As Deputy Noonan pointed out last week the "Phoenix Syndrome" is now emerging in the leasing business. It is the same phenomenon in a slightly different form. The trader, after liquidating one company, sets up a new one with a new VAT registration number and re-commences trading only to put the new company into liquidation when arrears of tax mount up and, as we know, the cycle can be repeated and repeated. Phoenix type abuses have cost the State up to £8 million. The security provision which Deputy Hilliard asked about is part of a comprehensive package of measures to ensure that the VAT regime in the Single Market can be effectively policed in relation to zero rated goods moving from one member state to another. This is the Single Market dimensions to this section. It is anticipated that some tax evaders will attempt to obtain VAT registration numbers in the State with no intention of following up with proper VAT returns and payment of tax due. Where a trader is required to provide security in accordance with the section and fails to do so, any subsequent supplies of goods by the trader will, in accordance with the new subsection, be liable to a penalty of £1,200 in respect of such VAT.
I compliment the Minister on introducing that because in small provincial towns I have seen people go out of business and reappear a week later with a new company. This strains the credibility of the system for PAYE people who feel upset and annoyed when this happens and it is good to highlight this abuse.
I thank Deputy Finucane for his remark. One individual in the oil business has been the principal director of a number of limited companies, three of which are in liquidation. One has an outstanding tax liability of about £600,000 and the other two have VAT liabilities in excess of £500,000. Another individual involved in the leisure industry was principal director of six companies, all now in liquidation leaving a total VAT liability in excess of £200,000. There are many examples of companies going into liquidation and reopening under a slightly changed name. One such company in the transport business went into liquidation leaving VAT of £208,000 unpaid and another aluminium company left VAT of £422,000 unpaid. This is a problem area where many people have been affected.
Would it be fair to say that the man in the oil business was a slick operator?
The question I asked is relevant in the light of the information the Minister has given. These liabilities do not accrue within a period of one or two months. I get the impression that they accrue over a period of six to nine months before they are identified and by then the company has gone into liquidation. Will these new measures help identify potential abusers at an earlier stage?
The intention is to choke them off.
Ordinary creditors are still going to carry the can. Have we anything to cover that?
It doesn't affect liquidation law.
I have been involved in service companies, as company secretary and as financial controller and I have some hands on experience though perhaps of a limited kind. I have seen the scrutiny that VAT inspection and VAT complaince imposes on the average company. It has always been a source of amazement to me and to commercial people with whom I have spoken to read judgments in various papers, whether in the Business Post, the Tribune or Stubbs Gazzette where companies have run up as Deputy Hilliard said, not just two monthly arrears but a deficit extending over a period of 18 months. In my experience VAT was lodged in a separate account and put on deposit and ringfenced and the trader was comforted by seeing it in the bank statement. Some deposit income possibly came back into the main account but the temptation to put one’s hand into the VAT account was always real especially when one read that somebody has been able to keep their hand in it for 18 months before getting caught.
It may be an administrative problem or an internal procedure problem; I do not for one moment purport to be knowledgable about tax collection. It is an area in which I have no expertise whatsoever but citizens' perception of the equity of tax laws is undermined when they discover that some traders can abuse the VAT account and get away with it for a long time before being finally caught and read only about those who are caught. I do not know if it is an information or a perceptual problem but in my limited experience, taxpayers believe that there are two tax collection laws, one for those who know how to get around the system and one for those who do not.
I agree with much of what Deputy Quinn says. There are cases also of business people who lodge money in a VAT special account but will allow it to remain there unpaid to the Revenue Commissioners for 15 months perhaps and then attempt to bargain with the Commissioners for a reduction. The total owed remains in the special account earning interest which goes back into a current account. This is another form of fraud and there are many different forms.
I do not disagree with what Deputy Quinn says; he described what has been happening and cannot be denied. This new provision aims to choke fraud off at source. If a defaulter tries to open a second company — I mentioned a trader with six companies in liquidation — the bond will have to be taken out and if they default again they are caught. It promises to be an effective safeguard and I hope it removes present frustrations with tax collection procedures.
Question put and agreed to.
Section 167 agreed to.