COMMITTEE OF PUBLIC ACCOUNTS díospóireacht -
Thursday, 16 Oct 2003

Vol. 1 No. 29

2002 Annual Report of Comptroller and Auditor General and Appropriation Accounts.

Vote 9 - Office of the Revenue Commissioners.

Chapters 2.1 - 2.6.

Mr. F. Daly (Chairman of the Revenue Commissioners) called and examined.

Chairman

We are dealing with the 2002 annual report of the Comptroller and Auditor General and Appropriation Accounts, Vote 9 - Office of the Revenue Commissioners, chapters 2.1 to 2.6. Witnesses should be aware that they do not enjoy absolute privilege and be apprised as follows. As and from 2 August 1998, section 10 of the Committees of the Houses of the Oireachtas (Compellability, Privileges and Immunities of Witnesses) Act 1997 grants certain rights to persons identified in the course of the committee's proceedings. These include the right to give evidence; the right to produce or send documents to the committee; the right to appear before the committee, either in person or through a representative; the right to make a written and oral submission; the right to request the committee to direct the attendance of witnesses and the production of documents; and the right to cross-examine witnesses. For the most part, these rights may only be exercised with the consent of the committee. Persons invited to appear before the committee are made aware of these rights and any persons identified in the course of proceedings who are not present may have to be made aware of them and provided with the transcript of the relevant part of the proceedings that the committee considers appropriate in the interests of justice.

Notwithstanding this provision in legislation, I remind members of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House, or an official, either by name, or in such a way as to make him or her identifiable. They are also reminded that under Standing Order 156, the committee should refrain from inquiring into the merits of a policy or policies of the Government, or a Minister of the Government, or the merits of the objectives of such policy or policies.

I ask Mr. Daly, Chairman of the Revenue Commissioners, to introduce his officials.

Mr. Frank Daly

I am accompanied by Mr. Christy Clayton, Accountant General of the Revenue Commissioners who is also director general of Revenue strategy; Mr. Paddy O'Shaughnessy, head of the administrative budget unit; Mr. Tom Dowling, also of the administrative budget unit, and Mr. Paddy Molloy, head of the forecasting and statistics branch.

Chairman

I also welcome the official from the Department of Finance.

Mr. David Hurley

I am a principal officer in the organisation management and training division dealing with the Revenue administrative budget.

Chairman

Initially it is intended to discuss chapters 2.1 to 2.6 which I invite the Comptroller and Auditor General to introduce.

Mr. John Purcell

Paragraph 2.1 to 2.6 of the Comptroller and Auditor General's report reads:

Chapter 2 Office of the Revenue Commissioners

2.1 Revenue Account

Basis for Audit

An account showing all revenue received and paid over to the Exchequer by the Revenue Commissioners is furnished to me annually. I am required under Section 3 of the Comptroller and Auditor General (Amendment) Act, 1993 to carry out such examinations of this account as I consider appropriate in order to satisfy myself as to its completeness and accuracy and to report to Dáil Éireann on the results of my examinations. The results of my examinations have been generally satisfactory.

I am also required under Section 3 of the Comptroller and Auditor General (Amendment) Act, 1993 to carry out such examinations as I consider appropriate in order to ascertain whether systems, procedures and practices have been established that are adequate to secure an effective check on the assessment, collection and proper allocation of the revenue of the State and to satisfy myself that the manner in which they are being employed and applied is adequate. Sections 2.4, 2.5 and 2.8 to 2.10 refer to matters arising from this examination.

Revenue Collected

Revenue collected under its main headings in 2002 is shown in Table 2.1.

Table 2.1 Revenue Collected

	Gross Receipts €m	Repayments €m	Net Receipts €m	2001 Net Receipts €m
Income Tax	10,983	2,004	8,979	9,318
Value Added Tax	11,375	2,531	8,844	7,907
Excise	4,734	139	4,595	4,213
Corporation Tax	5,129	325	4,804	4,144
Stamps	1,177	38	1,139	1,223
Customs	154	20	134	165
Capital Acquisitions Tax	157	7	150	168
Capital Gains Tax	636	17	619	876
Residential Property Tax	1	-	1	1
Total	34,346	5,081	29,265	28,015

Of the net receipts of €29,265m, a total of €167m was paid during 2002 under Section 3 of the Appropriation Act, 1999 from the proceeds of tobacco excise to the Vote for Health and Children. €29,283m was paid into the Exchequer which represented a prepayment of €316m. The amount prepaid at the end of 2001 was €131m. Most of the prepayment is due to the transfer into the Exchequer of moneys received from taxpayers as deposits and payments on account pending final settlement of tax liability. Such amounts are rarely repaid to the taxpayer and will subsequently be included in the relevant tax receipts figures as and when liability is finalised. From 2004, payments on account will be recorded and processed as tax receipts.

2.2 Tax Written Off

The Revenue Commissioners have furnished me with details of taxes written off during the year ended 31 December 2002. Details of the total amount written off and the distribution according to the grounds of write-off are shown in Table 2.2 and Table 2.3.

Table 2.2 Taxes Written Off

Tax	2002	2001
	€’000	€’000
Value Added Tax	80,197	29,476
PAYE	42,657	12,790
Corporation Tax	6,094	11,270
Income Tax	23,707	68,092
Other Taxes	2,600	6,401
PRSI	22,843	12,263
Total	178,098	140,292

Table 2.3 Grounds of Write Off

Grounds of write-off	2002 No. of Cases	2002 €000	2001 No. of Cases	2001 €000
Liquidation/Receivership/Bankruptcy	360	31,137	382	26,942
Ceased trading - no assets	2,236	42,765	578	16,945
Deceased and Estate Insolvent	251	2,813	52	1,631
Uneconomic to pursue	152,543	75,047	35,173	82,552
Unfounded Liability	167	2,547	37	830
Cannot be traced/Outside Jurisdiction	510	7,427	117	4,096
Compassionate Grounds	234	2,185	70	1,545
Uncollectible due to financial circumstances of taxpayer	954	14,177	43	5,660
Examinership	-	-	2	91
Totals	157,255	178,098	36,654	140,292

The write off in 2002 included the write off on an automated basis of 145,797 cases totalling €51m in respect of VAT, PAYE, PRSI, Income Tax, Corporation Tax and Capital Gains Tax. 117,000 of these cases were from periods back to 1966 and the amounts involved were less than €100. The remaining cases were pre-1993 and no amount was greater than €32,000. Cases under general investigation, potential Ansbacher cases, and cases under the control of the Criminal Assets Bureau are excluded from all write off procedures.

The Internal Audit Branch in Revenue undertakes an annual examination of tax write offs. Its 2002 audit examined file papers and computer records for a sample of 153 cases, representing approximately 17% of the value of non-automated write offs. In addition, the computer files relating to each of the sixteen automated write off runs were examined to confirm that the authorised selection criteria were applied. The internal audit found no instance where tax was improperly written off under the current instructions, procedures and guidelines.

2.3 Outstanding Taxes and PRSI

Table 2.4 was prepared on the basis of information furnished by the Revenue Commissioners and reflects the activities and transactions in the twelve month period ended 31 May 2003 - the latest date for which data was available at the time of finalising my Report. Table 2.5 sets out an aged analysis of the balance outstanding at 31 May 2003.

Table 2.4 Outstanding Taxes and Levies

Balance at 31 May 2002	Tax Levy	Charges/Estimates Raised	Paid	Balance at 31 May 2003	Estimate of amount likely to be collected
€m		€m	€m	€m	€m
119	VAT (Declared Liabilities Net of Repayments)	8,322	8,315	126	101
207	VAT (Estimates)	53	54	206	166
169	PAYE (Declared Liabilities)	7,159	7,182	146	117
27	PAYE (Estimates)	747	759	15	12
198	PRSI (Declared Liabilities)	5,259	5,292	165	133
19	PRSI (Estimates)	464	472	11	8
443	Income Tax (Excluding PAYE)	1,511	1,627	327	263
-	DIRT	199	199	-	-
189	Corporation Tax	3,765	3,807	147	118
111	Capital Gains Tax	674	633	152	123
18	Capital Acquisitions Tax	158	157	19	13
8	Abolished Taxes	1	1	8	-
1,508	Total	28,312	28,498	1,322	1,054

Table 2.5 Aged Analysis of Debt at 31 May 2003

Tax	Total tax outstanding at 31 May 2003	Amounts outstanding for 2002	Amounts outstanding period for 30/4/01-31/12/01	Due for periods 1990/91 to 2000/01	Due for earlier periods
	€m	€m	€m	€m	€m
Vat	332	122	68	140	2
PAYE	161	67	23	65	6
PRSI	176	82	25	64	5
Income Tax	327	10	53	246	18
Corporation Tax	147	31	10	86	20
Capital Gains Tax	152	11	14	125	2
Capital Acquisitions Tax	19	1	1	17	-
Abolished Taxes	8	-	-	17	-
Total	1,322	324	194	751	53

The balance outstanding at 31 May 2003 of €1,322m is €186m less than at the same point in 2002. It is estimated by Revenue that €1,054m or 80 % of the total outstanding is likely to be eventually collected. This compares with an estimated collection ratio of 71% at May 2002. The estimation of the amount likely to be collected takes into account such factors as anticipated reductions of estimated amounts brought forward, the level of liquidations and business closures and historical business patterns.

2.4 DIRT Investigations

There are two distinct aspects to Revenue activity in the area of DIRT investigations. The first relates to the Look-Back Audits of the operation of non-resident accounts by financial institutions which were completed in 2000. Following on from that investigation of the institutions, Revenue commenced a further investigation in 2001 that focused on the issue of the underlying tax which may be due by individuals in respect of the funds deposited in the bogus non-resident accounts.

Office of the Revenue Commissioners

DIRT 'Look-Back Audit' of Financial Institutions

As a result of the original DIRT look-back audit of 37 financial institutions completed in October 2000, a total of €220m was collected in tax, interest and penalties for the years of assessment 1986/87 to 1998/99. Further audits were finalised in 2002 at 10 of those financial institutions in respect of the later tax years of1999/00 and 2000/01 which resulted in an overall yield of just over €1m.10 In 2001, DIRT 'look-back audits resulting in an overall 'nil' yield were carried out on 47 other financial institutions, none of which had a retail branch network.

Underlying Tax on Bogus Non-Resident Accounts

The approach adopted by Revenue to the issue of moneys deposited in bogus non-resident accounts which may not have been declared for tax purposes involved setting a deadline of 15 November 2001 for depositors to make a voluntary disclosure and pay tax, interest and penalties. Under the 'voluntary disclosure' scheme, interest and penalty charges were capped at 100% of the tax due, a credit was allowed for DIRT paid by the depositors bank, prosecutions would not be taken and settlement details would not be published. 3,675 bogus account holders availed of voluntary disclosure and paid €227m in respect of 8,380 accounts. Of these, 599 account holders declared a nil liability. All returns were checked by tax districts for basic eligibility. 30 cases were deemed ineligible as they were already under enquiry or came within the scope of the Ansbacher enquiry or other tribunals of investigation. The underlying tax project team selected 140 cases randomly for liability review by tax districts. Tax districts selected a further 115 cases based on risk. A nationwide report of the eligibility assessment and liability review has not yet been completed. I have carried out some audit work on the voluntary disclosure phase and my examination will be completed when the overall Revenue check on this first phase of the DIRT underlying tax project is finalised.

In February 2002, investigations commenced into the bogus non-resident account holders that had been identified in the look-back audits of financial institutions and who had failed to avail of the voluntary disclosure scheme. Details on 1,800 cases were passed to tax districts for investigation in March and August 2002. Information on non-resident account holders was sought from 26 deposit takers on foot of High Court orders11. The information received under the orders was examined and enquiry letters were issued to 30,000 individuals in October 2002. Those who cooperated were liable to full penalties and interest and publication of the settlement but would not be prosecuted. Those who failed to respond to the enquiry letter are being examined for follow up and some are under investigation with a view to prosecution. A further 90,000 enquiry letters (see Table 2.6) have issued as information under the court orders is received and examined.

Table 2.6 Underlying Tax Enquiry - Letters Issued

Date	Number of Account Holders	Number of Accounts
October 2002	30,000	13,500
January 2003	40,000	21,500
May 2003	10,000	6,000
July 2003	40,000	20,000

€220m has been received to-date from bogus non-resident account holders who failed to avail of the voluntary disclosure scheme. Information is continuing to be received as a result of the court orders and it is expected that investigations will continue for several years.

2.5 Understatement of DIRT Liability

Arising from an examination by my staff in September 2001 of Revenues DIRT Look-Back audits of financial institutions, I enquired at the time about the nature and extent of the Revenue audit carried out in a particular financial institution. In reply, the then Accounting Officer outlined the justification for the type of audit undertaken and affirmed that Revenue staff were fully satisfied that the 400 non-resident accounts examined were authentic and belonged to genuine non-residents. He stated that the financial institution in question had produced evidence in relation to the genuine non-resident status of the sampled cases to the Revenue team, including those accounts where there were declaration deficiencies. As a result of that Revenue audit, the Revenue report on the DIRT Look-Back audits to the Committee of Public Accounts had concluded that no amount of tax was due from the financial institution in question.

It was subsequently noted in June 2003 during a review by my staff of the pre-15 November 2001 "voluntary disclosure" phase of Revenue's pursuit of the underlying tax due in respect of funds deposited in bogus non-resident accounts that declarations were received from 62 persons which admitted to a total of 230 bogus non-resident accounts of which 102 were stated to be held in the financial institution in question. The payments to Revenue which accompanied the 62 declarations totalled €8.7m.

In regard to the reconciliation of Look-Back Audit information with the bogus non-resident declarations received, it was also noted that:

· The 62 voluntary disclosures included five individuals who had their accounts examined during the Look-Back Audit

· A listing of all non-resident accounts held with the financial institution as at October 1998 was supplied by the financial institution to Revenue at the time of the Look-Back Audit. The audit sample was selected from this list. Excluding the five selected in the sample, the list only included a further eight of the 62 individuals who subsequently made voluntary disclosures.

As this information raised renewed concerns about the quality of the Revenue look-back audit in the financial institution in question and the possible implications for the look-back audits generally I sought the views of the Accounting Officer.

He informed me that officers from the Underlying Tax Project office met with representatives from financial institution on 12 February 2002 to discuss the implications for the institution and its customers, of the application for a High Court Order under section 908 Taxes Consolidation Act, 1997. The fact that some of its customers had come forward during the 15 November 2001 incentive scheme and disclosed bogus non-resident accounts, which they held with the financial institution was also made known to them. The Order was obtained in March 2003 and the financial institution is supplying information on foot of it on a phased basis over the period 30 June 2003 to 31 October 2003.

Until all of this information is received and reviewed, it will not be possible to form a clear view on the reliability of the DIRT look back audit findings for the financial institution in regard to DIRT and the related interest and penalties.

As regards the wider implications for the Look-Back audits he stated that the methodology used in the course of the particular audit was based on the special circumstances encountered in the financial institution - no previous reclassification or redesignation exercise, no internal or external auditor evidence of bogusness, an October 1998 sample date and post 1994 growth in retail banking involvement. He also stated that there was no evidence at this point to suggest that the issues that arise in relation to the financial institution have implications in relation to any other DIRT Look Back audit settlements.

2.6 Special Investigations

Offshore Investments via National Irish Bank

The investigation into individuals who invested in an offshore investment scheme operated by National Irish Bank is continuing. By June 2003, settlements were reached in 373 cases totalling €40m including interest and penalties of €22m. Of these cases, 97 were settled with no liability. In addition, payments on account totalling €5m have been received in respect of other unresolved cases. Payments totalling €1m in respect of Capital Gains Tax have been received in 52 cases where National Irish Bank paid compensation to the investor.

Three cases have been prosecuted. In two of these the defendants pleaded guilty, one was fined €1,750 in the District Court and the other was fined €6,000 in the Circuit Court. Both cases settled their tax liabilities for €882,610 and €804,592 respectively, these figures are included in the overall settlement figures. In the case of the defendant who settled his liability for €882,610 an additional €767,898 settlement was received from his company as a result of the same investigation. In the third case the defendant also pleaded guilty and received a suspended sentence subject to the taxpayer being fully compliant for the next five years. The taxpayer settled his liability for €448,827. One other case is being investigated with a view to prosecution.

In 2001, National Irish Bank submitted to Revenue a list of 22 new cases. Of these, 15 involve relatively small sums and are thought unlikely to involve substantial tax evasion. None of these cases have been finalised to date.

Ansbacher (Cayman) Limited

A special project team is investigating the Ansbacher accounts. The team is investigating cases directly involving Ansbacher type arrangements as well as other cases involving offshore funds and deposits. There are 289 cases comprising 179 cases on the High Court Inspectors Report and 110 similar cases discovered by Revenue or listed on the Authorised Officers Report. Taking account of spouses and connected companies, these cases consist of 300 names. The number of connected entities in relation to cases under investigation is nearly 700.

To date, 44 cases have been settled including 25 cases named in the High Court Inspectors' report which are non-resident and covered by the provisions of Double Taxation Agreements and are regarded as closed. Settlements of €2.8m, including interest and penalties of €1.7m have been agreed in the other 19 cases settled. These 19 cases include five cases with no additional liability and two cases covered by the 1993 amnesty provisions. In addition, payments on account totalling €22m have been received to date in 64 cases as follows:

· €15m from 56 cases involving Ansbacher-type arrangements

· €7m from 8 cases involving offshore funds and deposits.

Revenue's application to the High Court to obtain unpublished documents gathered by the Inspectors was heard in November 2002. Judgment is expected shortly.

Pick-Me-Up schemes

Pick-Me-Up schemes involved expenses for goods or services incurred by a political party being invoiced by the supplier to another trader who paid the supplier as a means of supporting the party. Such payments were not deductible for tax purposes, the VAT was not reclaimable and the invoices issued were not in accordance with legal requirements. The investigation found a total of 71 cases that apparently avoided tax by engaging in picking up expenses which were proper to political parties. 42 cases have been settled for a total of €470,724 including interest and penalties. Revenue has decided not to settle 15 cases that have been mentioned at the Flood (now Mahon) and Moriarty Tribunals until those bodies have reported. €158,157 has been received on account from 6 of those cases. 14 cases are still under investigation some of which relate to payments in the eighties or early nineties and for which records are no longer available. As a result it is proving difficult to confirm liability. Payments on account of €90,340 have been received in 5 of the cases still under investigation.

Tribunals

Matters disclosed at the Moriarity and Flood (now Mahon) Tribunals that suggest that tax evasion may have occurred are being investigated as they come to notice and a considerable number have been looked at to date. Currently 17 cases are being investigated as a result of the Moriarity Tribunal. One case has been settled for €6,292,506 and a payment on account of €14,876 has been received in respect of one other case. Currently 22 cases are being investigated as a result of the Flood (now Mahon) Tribunal and payments on account of €17,572,640 have been received in respect of eight cases.

I will, accordingly, confine my remarks to those chapters. The first three sections of my report bring together, in summary form, information on the tax outturn for 2002, the amount of tax written off by the Revenue Commissioners and the amount of tax outstanding under the various tax heads. Net tax receipts for the year were up by €1.25 billion but that increase masks a fall of €339 in the return from income tax. This reduction mirrors the recent trend of the income tax take falling short of forecasts, a subject to which I referred in my 2001 report and which was considered by the committee.

Moving on to the write-offs, the committee will note a big clear-out by Revenue of old arrears cases where the amount of tax outstanding was small and uneconomic to pursue. This is part of Revenue's ongoing strategy to concentrate collection resources where the best return will be obtained. Outstanding taxes have shown a welcome reduction and, at 31 May 2003, stood at €1.32 billion. It is also good to see that Revenue estimates it will eventually collect 80% of this. It is a measure of its improved performance that five years ago it would have expected to collect only 40% of the amount then outstanding.

Section 2.4 provides information on the DIRT look-back audits of financial institutions and Revenue's campaign to collect underlying tax arising from undeclared income on bogus non-resident accounts. As the committee will be aware, the DIRT investigations have been highly successful in identifying and collecting previously undeclared tax due. A sum of €221 million has been collected from the financial institutions in DIRT arrears, interest and penalties as a result of the look-back audits. The first phase of the campaign to collect underlying tax by way of voluntary disclosure yielded an additional amount of €227 million. As at the last date I looked, Revenue has collected about €230 million from those defaulters who did not avail of the voluntary disclosure scheme. This amounts to a figure approaching €700 million so far, with the prospect of more to come as Revenue gets to grips with more recalcitrant holders of bogus non-resident accounts.

Section 2.5 represents a possible hitch in the success story which has been the outcome of the DIRT investigations. When Revenue carried out its look-back audit in one particular bank, it concluded that there were no bogus non-resident accounts and, therefore, no DIRT liability attaching to the bank. Having reviewed Revenue's papers on the look-back audit in question, I had concerns about the nature and extent of the audit carried out which I communicated to the Accounting Officer in September 2001. In response, the then Accounting Officer outlined the justification for the audit approach adopted and affirmed that Revenue staff were fully satisfied that the 400 accounts examined were authentic. Subsequently, however, it emerged during the voluntary disclosure phase of Revenue's pursuit of underlying tax that 62 persons had disclosed 230 bogus non-resident accounts, of which 102 were stated to be held in the particular bank concerned. The payments to Revenue on foot of these disclosures totalled €8.7 million. Moreover, five of the 62 had been among those accounts examined by Revenue during the look-back audit in the bank and found to be in order, while all but eight of the remainder - 49 - were not on the list provided by the bank, from which Revenue drew its audit sample. On the face of it, this raises questions about the quality of the Revenue look-back audit in the particular bank and, perhaps, the bank's bona fides in the matter.

The matter is being followed up by Revenue which has obtained a High Court order for the provision of information by the bank. As the Accounting Officer stated in the report, it is not possible to obtain a clear view of the possible liability until all of the information is received and reviewed. He has also stated there is no evidence, at this point, to suggest that the issues which arise in this case have implications for the other DIRT look-back audit settlements.

Section 2.6 provides some up-to-date information on the progress being made by the Revenue Commissioners in respect of a number of special investigations such as the NIB offshore investment scheme, the Ansbacher and similar arrangements, the so-called "pick-me-up" schemes and matters arising from the proceedings of the Moriarty and Flood tribunals. Solid progress has been made on all fronts. Substantial amounts of back tax have been collected, either as final settlements or payments on account. It is likely that it will be some time before all of these matters are finally resolved. It is fair to say, however, that the resolve of the Revenue Commissioners to pursue the outstanding taxes to the bitter end cannot be questioned.

Chairman

I invite Mr. Daly to make a statement on paragraphs 2.1 to 2.6.

Mr. Daly

I thank the Chairman and members of the committee for this opportunity to make an opening statement. I will confine my remarks to paragraphs 2.1 to 2.6, initially.

Paragraph 2.1 shows net receipts at €29.265 billion. This represents an increase of €1.25 billion, or 4.5%, on the figure for 2001 but it was short of the target by €1.22 billion, or 4%. This shortfall is attributable in the main to a weaker economy, unfavourable labour market conditions and lower than expected profits in the base year of 2001 - a particularly difficult year with the events of 11 September and the foot and mouth disease crisis.

Collection continues at high levels in 2003, although with less buoyancy than in recent years due to the changed economic circumstances. The sheer scale of Revenue's collection activity continues to be enormous. Daily payments to the Office of the Collector General during 2002, for example, averaged €130 million. The largest amount lodged on a single day amounted to €1.23 billion.

Paragraphs 2.2 and 2.3 deal with write-offs and outstanding taxes, which come under the general heading of debt management. I said last year that the Revenue Commissioners, in the same way as any other tax administration or large financial operation, would inevitably experience some bad debt. Our objective remains to minimise this in every way possible. The amount written off in 2002 represented an increase of about €38 million on the 2001 figure. This reflects our continuing determination to eliminate uncollectible debt more than six years old and ensure 75% of debt is under three years old. The figure for written-off bad debts should be considered in the context of gross collection, including PRSI, of close to €40 billion in 2002. The amount writen off represents less than 0.45% of the total.

The Revenue Commissioners continue to tackle outstanding debt in an effective manner. Outstanding debt as a percentage of gross receipts, including PRSI, stands at just 3%, a record low. It is worthwhile to recall from where we have come in this regard. In 1988 the debt figure stood at 37% of gross receipts, at a time when they were only one third of what they are now. As well as reducing the outstanding debt, we are also collecting more of it. We estimate that we will collect 80% of the current debt this year, an increase from the figure of 71% at this time last year. This represents an improvement of 9%. We were collecting only 17% just ten years ago but now the figure is a respectable 80%. However, we want to do even better.

Paragraphs 2.4, 2.5 and 2.6 refer to a number of special investigations being undertaken by the Revenue Commissioners. The big three names - DIRT, the NIB and Ansbacher - are very familiar to all of us. The committee may be aware that the Revenue Commissioners have established an offshore assets group, the role of which is to examine the placing of assets - money and property - abroad by Irish residents for the purposes of evading tax. The group is conducting a number of investigations into offshore accounts and trust arrangements. The investigations have yielded a sum of €111 million so far. An inquiry has yielded a sum of €100 million in tax interest and penalties from 254 individuals who disclosed funds held in trusts with Bank of Ireland Trust Company Jersey Limited, a subsidiary of Bank of Ireland. A further €11 million has been collected this year from taxpayers who disclosed offshore funds in Jersey and the Isle of Man with subsidiaries of other Irish financial institutions. We have turned our attention to two other financial institutions with offshore subsidiaries and fully intend to extend our inquiries further in the coming months using all of our available powers, where necessary.

It may be useful to summarise the details of the recovery of €892 million to date from the special investigations. Some €47 million was recovered from the NIB-CMI scheme; some €26 million from the Ansbacher scheme; some €684 million from DIRT and bogus non-resident accounts; some €24 million from tribunal related inquiries, and some €111 million from the offshore assets group.

Paragraph 2.5 relates to the understatement of DIRT liability. The investigation into the financial institution concerned is a live one and it would not be appropriate for me to draw conclusions before it is finished. When our auditors became aware of the problem shortly after the November 2001 voluntary disclosure deadline, the situation was promptly brought to the attention of the bank. A High Court order was obtained under section 908 of the Taxes Consolidation Act. When all of the information required to be delivered under the order has been received by the Revenue Commissioners - the final tranche is not due for delivery until 31 October - and the facts have been established, we will be in a position to draw conclusions. The Revenue Commissioners reported to the committee on 31 October 2000 on the outcome of the DIRT audit of the financial institutions. I assure it that if anything is found that requires a change to the report, we will report to it as soon as we have the facts.

Chairman

I acknowledge the fact that €111 million has been retrieved from the Bank of Ireland and another associated bank. How could it happen that such a large amount could accrue?

Mr. Daly

There has been concern for some time about Irish residents using the facilities of offshore subsidiaries of Irish financial institutions in order to hide money in trusts or deposits. The Revenue Commissioners have been monitoring events in this area since we established the offshore assets group. We have been doing some analysis and research. We examined articles in the financial press and the type of advertising engaged in by some of the institutions during the years and concluded that there was something worthy of investigation in this area.

Our initial focus was on the Bank of Ireland trusts in Jersey. When the bank became aware that we were interested in the trusts, it wrote to its customers to advise them that the Revenue Commissioners were on their trail. It reminded its customers of the standard voluntary disclosure arrangements available to anybody who had a tax problem. The immediate consequence of these developments is that we have had a significant disclosure from 254 individuals who have paid us €100 million. Another 30 individuals, approximately, who became aware that we were starting this inquiry coughed up another €11 million.

This is the start of the investigation. I have mentioned that the Revenue Commissioners have placed two other financial institutions under investigation. It would be wrong of me to name them. The commissioners intend to pursue the conduct of the two institutions because our view is that there are more details to be discovered. It is possible that other institutions were involved but we have to establish a certain degree of evidence or backup material before we can start an investigation.

Chairman

How much money does the Revenue Commissioners expect is involved? Can Mr. Daly speculate in that regard?

Mr. Daly

As the Chairman knows from my previous appearances at the committee, I am loath to start speculating in such a way. It is not unreasonable to speculate that the final figure will be a multiple of the €111 million that has come in to date. This will be a difficult investigation. I am not holding a candle for any particular bank but the fact that the Bank of Ireland drew its customers' attention to the voluntary disclosure arrangements was good from its point of view. In general, it is not bad advice to be aware of the fact that a voluntary disclosure regime is in place. It is available to anybody and can relate to any tax matter. I encourage others with this problem to make a full disclosure, as I am very confident that we will get to them. We might not find them this week or next but we will locate them eventually. We will chase them for tax, interest and penalties.

Chairman

A bank which is hiding residents' money is engaging in tax evasion.

Mr. Daly

We have to be careful because responsibility always lies with the individual. It is the individual who hides the money and makes the arrangements. I am not in a position to say how actively these arrangements were facilitated by any bank. A high standard of proof is required before we can take any action. We all hear anecdotal evidence of people being advised to place their funds in the Isle of Man or Jersey but, in so far as we have been able to establish anything to date, it is merely anecdotal. Such evidence is not good for us if we are to be in a position to take action against any institution. We need strong evidence and people who are prepared to go through the process of siding with the Revenue Commissioners in any action we might take against banks. The bogus non-resident process has shown us that it is very difficult.

Chairman

I congratulate the Revenue Commissioners on their establishment of the offshore assets group. Did its establishment result from the fact that the commissioners had been given new powers to trace funds?

Mr. Daly

Almost all of the developments I have mentioned can be attributed to the 1999 powers which allow the Revenue Commissioners to examine financial institutions in a way that was not possible previously. That was the power base. The decision to establish the offshore assets group was a response to the fact that we had the new powers, certain analysis that we had conducted and some concerns that had been expressed. The general philosophy of the Revenue Commissioners is that we will not back away from inquiries into matters such as Ansbacher, bogus non-resident accounts or offshore accounts. The commissioners will pursue them.

These investigations involve large amounts of money. We have collected almost €900 million to date from the inquiries mentioned. It is not unrealistic to speculate that the figure will reach €1 billion before we finish our work. That money is great and very welcome to the Exchequer at any time but a bigger strategic issue for the Revenue Commissioners is the creation of a culture of tax compliance. There are many dimensions such as education to the creation of such a culture. People have to realise that tax is what pays for services but there is another dimension. They have to realise that the tax authority will not go away. It needs to be made clear that if one hides money or evades tax, one will be pursued by the Revenue Commissioners. It is very important that we create a greater culture of tax compliance. The culture of compliance is improving but a great deal of work remains to be done. Part of this process involves demonstrating that the Revenue Commissioners will persist with their investigations.

Chairman

Was this scheme similar to the NIB scheme?

Mr. Daly

There were elements of the NIB scheme but it was not quite the same. The arrangements in respect of the Bank of Ireland largely involved the placing of money in so-called discretionary trusts where the settlers of the trusts had not distanced themselves from it. It was that type of scheme. I have said these are early days. Most of the money in question has been collected in recent months. We will do a great deal of analysis of the types of schemes and operations.

Deputy Curran

I thank Mr. Daly for his report. Before I ask any specific questions, I would like to mention the fact that there have been significant improvements in terms of collection and efficiency since this time last year. The percentages have improved significantly. The purpose of the committee, however, is to consider areas of particular concern to it. Having listened to some of Mr. Daly's comments, I would like to ask about paragraph 2.5 which relates to the understatement of DIRT liability. As I know some of my colleagues will wish to mention this area, I might as well commence the process.

Mr. Daly referred to creating "a greater culture of tax compliance" and specifically stated "the tax authority will not go away." However, the tax authority did go away from the specific financial institution mentioned. I am concerned about the sample of 400 cases investigated by the tax authority. The Revenue Commissioners clearly felt that there was no tax liability but it subsequently transpired, as a result of voluntary disclosures, that there was such a liability. If the people concerned had not made voluntary disclosures, would this case ever have come to light?

Mr. Daly

I preface my remarks about this issue by saying it is a live investigation. I would not like to say anything that would prejudice the investigation or its outcome. I will answer the Deputy's specific question after I have given some background information.

It has been mentioned that the DIRT and bogus non-resident accounts campaign was hugely successful. The fact that a sum of €683 million has been recovered to date is an indication of its success. Given the scale of the operation, the timeframe in which we had to conduct it and the number involved in tax evasion, it would have been somewhat unrealistic to imagine that there would not be a problem at some stage. That is not to excuse the problem that arose but to indicate the reality of the issue. One problem has emerged from this entire process to date. We may have gone away temporarily but I assure the Deputy that we are very much back in the frame in respect of the bank in question.

I would like to explain the background to the audit of the institution concerned. As with all institutions, we investigated it in keeping with a general auditing standard - auditing standard 300. When one starts such an audit, one examines the structures, the business and the management of the bank. One asks questions and forms a view about risk on that basis. When we examined the structure of the bank involved - a plc - we found that it had very strong management and a relatively small number of offices and staff. It claimed to know its customers very well. It had internal and external audit procedures in place. We were told that the non-resident problem had been examined and nothing untoward found. It was not a retail bank for much of its time. It started to advertise for retail customers in 1998, long after the bogus non-resident accounts problem had ceased to be a major one. At that stage it was dying.

The bank told us that it did not have a bogus non-resident accounts problem. That was not something to be taken on board and accepted in itself but every other bank which had ended up with a problem told us about its bogus non-resident accounts activities. The bank had never redesignated or reclassified its accounts in the manner of the other banks. It had 1% of the non-resident book at the time.

That was the framework in which we started the audit, which was as rigorous and vigorous as all of the other audits. We were there for about three months between October 1999 and January 2000 but it was not continuous. Three of our people were involved - one was there full-time while the other two overlapped.

A critical point made to us by the bank was that it would not be possible to gain access to records from before 1998. Given the risk profile we had examined in terms of the structure, management and account base of the bank, we decided to look for accounts open in October 1998. We looked for two dates - 1990 and 1995 - in most other institutions. That was the core difference between the methodology in the bank in question and the methodology in all of the other banks. It was driven by the factors I have mentioned.

We examined 400 accounts, in which cases there were declarations in place. We looked at the declarations and the customer files. We were not able to look at bank statements because the bank told us they were unavailable. There were problems with the 400 cases investigated but they did not arise in large numbers. Only five, with deposits of over €100,000, raised a query. We raised a query in respect of only 60 of the remainder. The cases looked good. In some we sought utility bills and did as much checking as we possibly could. Our auditors were conscious of the fact that the non-resident deposit book of the bank had a high proportion of obviously non-resident individuals. The conclusion was reached that the bank did not carry a risk.

I have immersed myself in this case in recent weeks in preparation for this meeting. I continue to be impressed by the professionalism of the auditors and the rigour with which they undertook the programme of work in respect of all of these institutions in a relatively short space of time. We examined five cases which seemed okay but it now seems they were possibly not okay. The auditors queried one of the five as it included a faulty undated declaration. It now seems the declarant does not have a liability. The remaining four seemed to be in order and the declarations seemed okay. One may yet have no liability but sums of £9,900, £1,317 and £1,083 have been paid in respect of the other three. There was no evidence of authenticity problems in these cases. The recoveries I have mentioned are not major in the greater scheme of things but I am not complacent about them. I want to withhold judgment until, on the strength of the court order, we have seen the full extent of the involvement of the bank in offshore or bogus non-resident accounts.

Where are we now? A court order has been in place since last March. We have been getting information from the bank in terms of the court order. The final tranche will be provided on 31 October. The committee can take it that we will go back to the bank armed with the voluntary disclosures, the section 908 order and the information that comes under section 908. We will conduct a very thorough review of its affairs.

The Deputy's specific question related to whether this case would have come to light if the individuals in question had not made voluntary disclosures. I cannot answer that question other than to say the DIRT audit is now firmly entrenched in the audit programme for Revenue. One will see elsewhere in the report of the Comptroller and Auditor General that the Revenue Commissioners recovered more than €1 million from follow-up DIRT inquiries. It is now entrenched. Every institution will be audited on a regular basis from now on. Most will be audited every year. We will be looking at all aspects of a bank being audited. I speculate that we probably would have discovered the details of this case but it is obvious that I cannot be definitive in that regard. I am sorry for speaking for so long but I wanted to give background information.

Deputy Curran

I thank Mr. Daly for providing that background information. I know that other members of the committee wish to speak about this point but I would like to ask one or two specific questions first.

Mr. Daly

May I correct something before the Deputy continues, in deference to the bank? I think I said it had claimed that it was impossible to gain access to records before 1998. It is actually going back to 1990 and 1995. I want to be a little more precise in that regard.

Deputy Curran

Mr. Daly mentioned that there were two relevant dates - 1990 and 1995 - when the Revenue Commissioners examined other institutions. The 1998 date was the only available one in respect of the bank in question. The sample of 400 cases came from that time. It is true, therefore, that the sampling in this case was considerably different than it was in respect of the other institutions. Did this fact cause any queries or set off any alarm bells?

Mr. Daly

It was unusual that our investigation was based on the year 1998, as the dates in the other cases were 1990 and 1995. We were not comfortable about this. While we would have wanted to study all of the banks on the same basis, we were looking at certain factors. The bank in question did not appear to have the type of business prior to 1998 that would be indicative of a problem. It had a small percentage of non-resident account holders. It did not advertise as a retail bank until the mid-1990s when the bogus non-resident accounts problem was disappearing. It assured us that its auditors had examined this matter and found nothing untoward. We were influenced by the auditors' findings as well as by the fact that the bank had said it would be impossible to gain access to electronic records from 1990 or 1995. I have outlined the essential difference between what we did in respect of the bank in question and what we did in respect of every other bank. It is part of what leads me to the tentative conclusion that we do not have this problem in relation to any other bank.

Deputy Curran

Five accounts were from the sample of 400 but it is obvious that others were not there. It is obvious that the assumptions and assurances given by the bank were unfounded - I will leave it as politely as that. The Revenue Commissioners did not go back, even though it would have been commonly known, as Mr. Daly alluded to, that the great problem in this regard related to the earlier dates. The banks said they did not have computerised records from the 1990s. Was there not a manual method of checking? Was such a method perceived to be too time consuming?

Mr. Daly

We were in the middle of an extraordinary burden of work at the time, involving all the other institutions. It was not that we said, "Okay, we will not go back." We asked about manual records but were told that they would be extremely difficult to retrieve. Having examined the business of the bank in question, we formed the view that it did not have a high risk factor prior to 1998. We were satisfied that an assessment of the accounts in 1998 would give us the true picture.

The Deputy has phrased his comments about the bank very politely. I agree with him. The bank gave us a list of more than 2,500 accounts, of which we examined 400. Some 62 people have now made voluntary disclosures. As the Comptroller and Auditor General said, only 13 of those people are on the list. Some 49 of those who made a disclosure were not on the list of 2,500 given to us by the bank. There are questions to be asked in that regard.

Deputy Curran

I want to understand Mr. Daly's suggestion correctly. When the Revenue Commissioners took a sample of 400 at the time of the audit, they thought that there were only 2,500 non-resident accounts with the institution in question. He is saying today that the figure of 2,500 was a gross understatement.

Mr. Daly

I am not necessarily saying that and will not say it until this investigation has come to a conclusion. My comments are based on the fact that 49 people who were not on the bank's list made voluntary disclosures. I want to be careful about the bank. The accounts were very cleverly concealed from our auditors. It is possible, as the bank will no doubt say, that they were equally concealed from it. That is a matter for it to explain but it does no harm to mention that it will have a view on the matter. Its chief executive has commented in public to the effect that it believes the accounts were concealed from it also.

Deputy Curran

According to the information we have been given to date, many of those involved had more than one account with the bank.

Mr. Daly

A total of 62 had 230 accounts, of which 108 were with the bank in question. I am trying to avoid mentioning its name. That is not unusual in the context of the investigation of bogus non-resident accounts. It is emerging as a pattern that many have held multiple accounts.

Deputy Curran

In the sample of 400, five were missed. I suggest that 2,500 is being revealed to be a very small figure. We have discovered 102 accounts in the institution under discussion, most of which were not included in the sample. Is it fair to conclude that the number has expanded considerably since the beginning of the investigation?

Mr. Daly

There are questions about the comprehensiveness of the initial listing provided by the bank. I have mentioned that a High Court order has been in place since March this year. Under its terms, lists of all non-resident accounts with Irish addresses are being forwarded to us. We have received much of the information but there is more to come before the end of this month. Given that the lists coming in under the order will certainly be comprehensive, it is unlikely that huge numbers will be added to the original list. The key question we must ask relates to the reason 49 accounts were not included in the original list. When we ask our questions, we will be armed with the section 908 order information and the 62 voluntary disclosures. We intend to do this very quickly once the High Court order information is in.

Deputy Curran

If any member wants to follow up on this chapter rather than move on to another, now is a good time to do so.

Deputy Ardagh

Can the Comptroller and Auditor General outline the implications for the overall look-back audit of all of the institutions?

Mr. Purcell

On the face of it, there are no implications. As the Accounting Officer said, it is unlikely there will be any implications as the audits of the other institutions were carried out on a different basis from the way the bank under discussion was audited. Undoubtedly, one of the matters at which we and the Revenue Commissioners will be looking as the voluntary disclosure scheme unfolds and offers new information is the extent to which accounts were on the lists provided by the banks and whether DIRT arrears were paid in respect of them. It is only as the work of the Revenue Commissioners progresses that we will find out if there are implications. With the exception of a few select banks in particular niches which did not involve non-resident accounts or the taking of deposits, almost all other banks had some liability. The one under discussion did not. It is too early to say but it does not look good.

At the time, I was not happy about the audit which had been carried out in this institution as it had acquired two other banks and their business. It may well be the case that the problem originated there in that it was already embedded business. There might be cases of individuals holding accounts with the two banks which were taken over by the bank in question. While they might have been closed in the interim, there could have been a period for which DIRT would have been payable. I have not had, nor would I expect to have had, access to the details, though we will undoubtedly be examining the matter in due course and after the Revenue Commissioners have had their go at it.

Mr. Daly

I wish to comment on the other institutions. As the Comptroller and Auditor General said, the methodology in the case of this bank was unique. The Comptroller and Auditor General is right to say we will be looking at those who made voluntary disclosures to see if they are encompassed in the lists provided by the other institutions. While we have not yet been in a position to do this systematically, we have carried out some spot checks and found no evidence of any difficulty. We have received complaints from those who made voluntary disclosures in relation to other institutions and to whom we wrote subsequently as a consequence of the section 908 orders to demand that they engage with us again. That is a positive indication.

Deputy Noonan

I thank Mr. Daly for his statement. As he has answered the committee's questions thus far very fully, I will move on. In his introductory remarks, the Comptroller and Auditor General said the audit of the bank in question might cast doubt on its bona fides. Does Mr. Daly agree?

Mr. Daly

I would be loath to make a statement like that in the context of a live investigation. I will not draw any conclusions until it is completed. As I said in response to Deputy Curran, it appears the original listing provided by the bank did not include the names of 49 people who subsequently made voluntary disclosures. This raises a question. To be fair to the bank, it may have a story about the concealment of the accounts from its officials as well as from Revenue.

Deputy Noonan

The explanation of most bogus non-resident account holders is that they were advised by the banks to invest offshore to avoid DIRT. Generally, it seems that is what happened. Is that the way the Revenue Commissioners see it?

Mr. Daly

I hear those stories and read about them and also wonder at times. In all of this people have been very trusting with large sums of money. The individual is responsible for his or her money and his or her tax affairs. I cannot say what individual bank managers or officials may have said to those with money to deposit. I really do not want to draw any conclusions in this regard.

Deputy Noonan

Is it not widely believed people who were well known to employees of banks opened accounts abroad, sometimes in their own names, sometimes in the names of relatives living abroad and sometimes in bogus names? Is it not also widely believed the banks prompted this? It has been said on a number of occasions that if one bank did not do it, the one down the road would. Banks had to do it to retain customers. Does Revenue have a view on this matter?

Mr. Daly

I probably have no more a definitive view on it than any citizen. It is anecdotal evidence and the story has been around since the DIRT scandal broke. All I could add to it is that the same suggestions are made to our auditors and in response to the letters we are now sending out to try to collect the money, namely, that the banks and their officials are blamed and people say they acted on the advice they were given. I receive representations every week from people who say I am taking a lot of money from them when I should be taking it from the bank because it advised them. I do not see anybody coming forward who is prepared to take action in this regard. There is, I understand, an unofficial grouping based around a person in Cork which is considering a class action against the banks on this issue. I do not know what is happening in that regard and probably have no more information on it than anybody around the table. We were told about it, as was everybody else, but I cannot make a judgment on the issue.

Deputy Noonan

It is clearly a criminal offence to evade tax. Is it a criminal offence to aid and abet tax evasion?

Mr. Daly

Yes.

Deputy Noonan

What is the range of penalties for aiding and abetting?

Mr. Daly

They are a monetary penalty, a fine, and a possible jail sentence of up to five years. Section 10 states that, on summary conviction, the court may impose a fine of €3,000 which may be mitigated or, at the discretion of the court, imprisonment for a term not exceeding 12 months or both or, on conviction on indictment, a fine not exceeding €126,970 or, at the discretion of the court, imprisonment for a term not exceeding five years or both.

This brings us back to the issue we were discussing. If we were to get to the stage where we wanted to take a case against a bank or an individual at a bank for aiding and abetting tax evasion which would be the offence in this respect, the first stage would be to establish the evasion while the second would be to get the evader to come on Revenue's side and act as a witness with regard to the complicity of the bank in question. As I recall, this issue was debated extensively at the DIRT inquiry and subsequently, and is still mentioned from time to time.

Despite the anecdotal evidence - when people say a bank or bank official told them to do something or other - I have yet to see anybody come forward who is prepared to side with Revenue against a bank or bank official. While I do not want to revisit old debates, the reality is that Revenue's business with the banks here was concluded in 2000 when we settled with them on payments of DIRT, interest and penalties, as reported to the Committee of Public Accounts.

Deputy Noonan

While the dogs in the street make bad witnesses, they would have it that aiding and abetting tax evasion was widespread for years and probably continues to be widespread in the financial institutions, among the professions which advise on tax affairs and in certain sections of the accountancy profession. Did Revenue ever take a prosecution for this offence?

Mr. Daly

I understand a jail sentence was imposed for the offence in one case in recent years which was taken against an accountant. We are discussing activities which took place many years ago. Everybody will realise that in proving a criminal offence the time lag is a factor. We will probably discuss Revenue's prosecution regime and role later but to give comfort to the committee and the Deputy aiding and abetting will figure prominently in our future programme or approach to taking prosecutions for tax evasion. It is, however, better and more realistic for us to take this approach to more recent activities or evasion, rather than trying to look back at events which happened in the 1980s or 1990s which, if I am honest, would be extraordinarily difficult to prove in a court of law.

Deputy Noonan

I understand what Mr. Daly is saying - Revenue must first establish that evasion has taken place, after which it would probably need co-operation from those who had money in an offshore account. Revenue came close to doing this in its NIB investigation because persons in that case openly stated they had been induced to invest in particular products and named the inducers. Has Revenue decided not to prosecute any agents, employees or staff in that case?

Mr. Daly

I would not necessarily say we have taken that decision but the same applies in that case. A lot of people said they had been advised by one person or another. As part of the NIB-CMI investigation we specifically asked people if they would be prepared to come on side with Revenue. To date, we have not received a response that would give us any basis to proceed.

Deputy Noonan

We move on to the Revenue announcement today that a further €111 million has been received as a result of an investigation into non-resident accounts, principally in a Bank of Ireland subsidiary in Jersey. Revenue is also investigating other financial institutions which have similar offshore subsidiaries in Jersey and the Isle of Man. Do these cases involve people who told their banks they wanted to have their money in Jersey or were they advised by the banks to do so?

Mr. Daly

As I mentioned, this investigation is at an early stage. As far as we can ascertain, however, the operation of these activities on the Isle of Man and in Jersey is carried out by wholly owned subsidiaries of institutions here which are, however, managed and controlled on the Isle of Man and in Jersey. As such, although one might think it should be otherwise, they have no obligations to the State, notwithstanding the fact that some proportion of the accounts in question may represent funds on which tax has been evaded in the State.

From what we have been able to establish so far, it appears the trusts, certainly in the case of the Bank of Ireland subsidiary, were managed and controlled in Jersey. From the information available to us, it appears that in that case officials of the Jersey subsidiaries may have secured funds on visits to the State, as opposed to officials in the Bank of Ireland or other institutions located here advising people specifically to put money in Jersey.

The question again is, "What happened"? The type of anecdotal statement one hears is that someone said to someone else, "If I had that money, I would put it in the Isle of Man." The reality, however, is that the individuals concerned appear to have done business directly with the offshore subsidiaries. In that case, an aiding and abetting charge against an Irish based institution which is, I presume, what the Deputy is getting at would be difficult. However, as part of this offshore investigation, we will keep that in mind.

If one takes the saga of the NIB, BNR, Ansbacher and the current offshore case, the main culprit must always be the individual because the individual is responsible for his or her tax affairs. If, however, a pattern emerges that some grouping or institution has been involved in aiding and abetting tax evasion, we would certainly want to tackle it. I assure the Deputy that Revenue will not lack the will to do so. Being realistic, it is easier to do that in a current investigation or while the evasion is ongoing than to look at what took place ten or 20 years ago.

Deputy Noonan

I accept that. It is a fair point. In regard to the trusts and deposits in the Jersey subsidiary, can Mr. Daly come up with any explanation, other than tax evasion, for placing the money there?

Mr. Daly

In the case of the 254 people who came to us, it is not easy to do so but there are many other accounts. There are indications that there are trusts and accounts in both the Isle of Man and Jersey where the underlying moneys and the income accruing from them were properly treated for tax purposes. Not everybody who puts money in the Isle of Man or Jersey does so in order to evade tax but they would probably be in the minority. There may be economic reasons for placing money there in that one may get a better return. People may have a genuine business reason for placing money offshore. This is often the case with businesses. It is fair to conclude, however, that in many cases the impetus must be to hide money from Revenue.

Deputy Noonan

Was DIRT not paid on the sum of €111 million or was it the tax on the underlying amounts?

Mr. Daly

There were elements of both but I do not have a full analysis of the details. In the majority of cases the underlying income had never been declared. In almost all cases the interest on the income had not been returned for tax. It has emerged in the course of this investigation, however, that some put money abroad which was taxed income. They were honest and up front about returning the interest for tax purposes. While I do not want to tar everybody with the same brush, the majority of such investors did so in order to evade tax.

Deputy Noonan

Despite all the good work in the various inquiries and the amount of money collected, I think Mr. Daly is aware, as are committee members, that PAYE taxpayers who are generally compliant are becoming more angry at what is going on. On several occasions I thought a line had been drawn under this matter, that they were bad practices from a past society which for a variety of reasons was less compliant but a current one was emerging. The culture of compliance appears to stop at the door of many of the financial institutions and those who advise wealthy individuals on their tax affairs. I do not have any objection to people using any scheme that is legally available to avoid tax and moving their money around on that basis but there has to be a heavier crackdown on evasion. Cracking down on those who evade does not appear to be sufficient. The shadier side of the financial services industry which organises evasion methods for taxpayers has to be hit. Those involved in aiding and abetting such practices need to be pursued. Unless the fear of God is put into the advisory industry, this will continue. To put it mildly, many taxpayers are becoming increasingly upset about it.

I have some questions on the earlier chapters. Do you want to pursue this further, Chairman?

Chairman

Yes, I will come back to the Deputy again.

Deputy Ardagh

I may not be here when the answers are given as I am due to speak shortly in the House. Audits generally take place in cases of deviation from industry norms such as non-compliance with VAT, PAYE and other returns. A question I have been asked is: what is the chance of a person being randomly selected for audit?

The Committee of Public Accounts often looks at controls rather than outputs. Is there an international benchmark in regard to the output of the Revenue Commissioners in terms of the total amount of money collected and the number engaged in this work? Is there information of which Mr. Daly can be proud and that we should be putting out?

In regard to the Revenue on-line system, how many Deputies have signed up to pay their taxes three weeks later than 31 October? How well is the ROS system operating? How much closer are we to having a non-paper system in operation?

Mr. Daly

It is timely that a question should be asked in regard to outputs. We think we are doing all right in terms of internationally benchmarked comparisons in regard to the amount of money we collect per staff member but we do not have any well researched figures. We are in the middle of an advanced revenue performance scorecard process. The first output will appear in our annual report next year. It is designed to come up with the information about which the Deputy inquired - how effective we are, what our output is per head, how we compare internationally, what is the trend over time and whether we are getting better or worse or staying the same. It is a major project tied into the management information framework currently being designed by the Government. We hope to give the first reports in our annual report next June.

I cannot give specific figures that show Revenue does well compared to other tax administrations except to report a general feeling in talking to my colleagues abroad that we do very well. I would prefer to come here next year and say I have a scientific benchmark. We do have one figure - the cost of administration in Revenue as a percentage of the total amount collected. Although I cannot lay my hands on it, it is about 0.9%. During the years it has remained roughly at this level. At least, it proves we are not becoming any less efficient. It was 0.98% in 1998 and 0.95% in 2002. That is the type of information we need from the new performance scorecard which will be a regular feature in our annual report and I presume, as such, end up before the committee.

I have no idea how many Deputies are filing electronically. I do not know whether it would be overstepping the bounds of confidentiality to even go looking for that information. I encourage anybody who has not done so to sign up for the Revenue on-line service because those who do quickly become enamoured by it and would never dream of going back to filing paper returns. Our objective is to have 50% of all payments made on-line by the end of next year. We certainly have firm objectives in regard to the volume of payments and returns we want to be made on-line. The indications for this year are very good. In advance of the pay and file date of 31 October we have far exceeded the total number who filed electronically last year. I am confident that the service will take off. Those who decide to file electronically with us this year have an extra three weeks in which to pay and file, up to 21 November. That is an incentive for people to sign up. There is also value for money for Revenue because we spread the huge workload that hits us on 31 October over a number of weeks while the Exchequer still gets the money quickly and efficiently.

Deputy Ardagh asked a question about the chances of a person being randomly selected for audit. I suppose it is a ratio of the number of random audits we carry out to the number of returns. We receive 349,000 IT returns each year and 112,000 corporation tax returns - the main ones - giving a total of some 460,000 returns. For the past year or so the random audit programme has covered roughly 700 returns. I do not have a calculator.

Deputy Ardagh

A calculator is conveniently located nearby. I am sure Revenue inspectors are numerically talented and would be able to come up with a figure.

Mr. Daly

The targeted audit programme roughly covers 16,000 returns per year. People make comparisons and say, "You have 460,000 returns but only do 16,000 targeted audits." It is a small proportion but we must remember that in getting to that figure of 16,000 there is a screening process which looks at a much higher proportion. We are about to introduce a computerised audit selection system which will really get into gear next year.

Deputy Ardagh

Are we agreed that the figure is 0.16%?

Mr. Daly

I have a figure of 0.2% but we will not quibble. Between 3% and 5% of audits are random.

Deputy Ardagh

Because there are deviations, many are unusual.

Mr. Daly

Perhaps we will eventually get to the general issue of random audits.

Deputy Boyle

I want to ask Mr. Daly about the depth of the investigations undertaken by the Revenue Commissioners - the initial and ongoing investigations. I appreciate that he has to be somewhat circumspect. Is this a broad investigation or is it only carried out in terms of bookkeeping in the sense that each account is looked at to examine the money entries, how they got there, what they are and whether they have been accounted for for tax? Do the Revenue Commissioners ask for correspondence between the financial institution and the account holder for the period concerned? Are all forms of communication in respect of accounts requested such as e-mails or a log of telephone calls that might have been made over a certain period? When an account forms part of an investigation, to what extent is the financial institution able or legally obliged to inform the account holder that it is being considered as part of a Revenue investigation? Is this information subsequently passed to the account holder?

Mr. Daly

Is the Deputy talking about the offshore investigations?

Deputy Boyle

The first question relates to offshore accounts, the second is a general one about investigation practice.

Mr. Daly

There is an obligation on a financial institution to notify the individual concerned, except in the case of a High Court order under section 908 in regard to DIRT and so on, when we are seeking specific information on a taxpayer. Other than this, I do not think there is a general requirement on institutions to notify a taxpayer that Revenue is undertaking an inquiry or investigation, although generally they do. There is an exception under the money laundering legislation which prohibits an institution telling the individual concerned about the reporting of a suspicious transaction and requires it to report to both Revenue and the Garda if it has any suspicions about particular transactions.

Deputy Boyle

Given that, it would not be possible for a financial institution to send out a blanket letter to people in this category saying there is a Revenue investigation ongoing into a particular type of account.

Mr. Daly

It would.

Deputy Boyle

It may have happened.

Mr. Daly

It has happened. As I mentioned, in the case of the Bank of Ireland, it wrote to all of its customers who held trusts in Jersey informing them that Revenue was commencing an investigation. I do not know if it advised them but it certainly reminded them of the voluntary disclosure regime in place for anybody with a tax problem. As I mentioned in my opening statement, we have begun investigations into two other institutions, of which I understand at least one is in the process of advising its customers. That is not bad advice. From a Revenue point of view, I remind everybody that there is a voluntary disclosure regime in place for those who might have a tax problem, whether it is to do with a financial institution or tax evasion or something he or she concealed in the past. Such a regime is part of every tax administration in the world and people should avail of it. Some say it is not particularly generous. It allows a person to pay tax and interest and entitles him or her to a mitigation of penalties. The information is not to be published. In managing the tax system and dealing with all of these matters, a voluntary disclosure arrangement is very important.

Deputy Boyle

Is there not a danger that Revenue is giving advance notice for people to engage in further evasion?

Mr. Daly

We are back to the question of people having confidence that Revenue is going to get to them. This goes back to Deputy Noonan's point about confidence in the tax system. Many legacy investigations are still ongoing such as those into Ansbacher, the CMI and DIRT. Even though the offshore accounts investigation is current, the events are, I hope, in the past. Most of the banks are closing down their businesses in the Isle of Man and Jersey for Irish residents. I hope the matters we are currently investigating will also be relegated to the past. Our focus is to deal with them and then direct future resources towards making sure they do not happen again.

Deputy Boyle

The first part of my question was about the type of communications a financial institution might have had with the account holder about the account.

Mr. Daly

If we were investigating a case for prosecution, we would look at all that information.

Deputy Boyle

The second area about which I wish to ask is the financial services being offered in both Jersey and the Isle of Man. At the time there was large-scale advertising of these services in the press, on radio and the Internet. Did the fact that these services were being offered set off any signal within Revenue that some questions should have been asked? Did Revenue feel this was more properly a role for the Central Bank?

Mr. Daly

It certainly set off alarm bells. I think I mentioned it was one of the factors which had led us to set up the offshore assets group to focus on this type of business. Advertisements assuring persons of total confidence probably meant only one thing - that these facilities were available to help them avoid paying tax. The degree of such advertising has diminished considerably, which is no bad thing.

Deputy Boyle

To what extent have settlements on accounts been entered into in investigations into cases such as the NIB, Ansbacher and the pick-me-up schemes? Is the money that has been put on account thought to be of a similar order to what a final settlement would be? Is it an underestimate, an overestimate or is Revenue anticipating more to come from the cases pending?

Mr. Daly

Usually, the purpose of payments on account is that people want to stop the interest clock ticking. Generally, it tends to be quite close to what will emerge in the final settlement. I do not have a figure for payments on account in the NIB case. However, the Ansbacher case is interesting. We have collected a sum of €25.6 million, of which a significant amount represents payments on account. In those cases people specifically want to stop the interest clock ticking but have either not been able to produce all of the documentation we want or are still debating the amount with us. I expect more money to come in.

Deputy B. O’Keeffe

I wish to return to the issue of the understatement of DIRT liability. The Comptroller and Auditor General said he had major concerns about the bank in question and its bona fides. Mr. Daly stated to the committee that it would probably allege it was unaware. On another occasion he said the banks had co-operated to the extent that they had sent out letters to clients saying there might be an investigation of accounts. In the case of those who had made voluntary disclosures, did Revenue investigate to see if, in fact, the bank had written to them among other clients stating they might come under investigation? If that is the case, is it not fair to assume that it failed to disclose to Revenue? That would be an extremely serious state of affairs and one on which Revenue would have to take issue with the banks? It is the fundamental issue. A total of 400 accounts were examined by Revenue. Some 62 people made voluntary disclosures, five of whom were among the account holders previously examined. It appears from what Mr. Daly said that it is likely that the bank wrote to all of the individuals involved to warn them about impending investigation. On foot of this, the Comptroller and Auditor General is correct to be concerned about its bona fides. Is this not a clear sign of a lack of co-operation and failure to disclose?

Mr. Daly

Just to be clear, when I spoke of a bank writing to its customers to inform them that Revenue was on the trail, I was referring to the Bank of Ireland Jersey trust issue. I was not referring to the other bank. Deputy O'Keeffe made a fair point. If it emerges - I do not have any evidence at this stage to say it happened - that the particular bank wrote to customers warning them that Revenue was on the trail and did not at the same time disclose them to us, that would be a serious issue.

Deputy B. O’Keeffe

That is the fundamental question.

Mr. Daly

Absolutely, the Deputy can take it that this will be one of the first things we will do when we go back to the bank. I am at pains to state that - when I said a bank had written to its customers - it was the Bank of Ireland.

Deputy B. O’Keeffe

I had that clarified. This would be fundamental from our point of view.

On the last occasion Mr. Daly was here I questioned him about some of the people who had received letters and the impact this had had on elderly persons and so on. I was homing in on the type of person who had various accounts offshore. At the time Mr. Daly said everybody knew they would be evading tax and that the responsibility lay with them. As a result of Deputy Noonan's questioning, I find that we have moved on somewhat - to the issue of aiding and abetting. I find it difficult to reconcile the reason the Revenue Commissioners did not look at this matter previously in regard to the banks. I find it extraordinary that Revenue cannot find people to provide evidence and go to court because of the way in which they were advised by the banks. The elderly persons who approached me would not have had a dog's notion about an offshore account. They certainly would not have known that they would be avoiding tax by being involved in such matters. There is no way that a percentage of them would have had any knowledge. Somewhere along the line they had to be advised.

Reference was made to a group in Cork set up in response to this matter which may take a class action against the banks. It is a costly business for any group to take a case against a bank but this group would probably be more than willing to aid Revenue in taking an action against the banks in the alleged aiding and abetting that took place. Why did Revenue not pursue this approach with such groups to establish the facts as to whether such aiding and abetting took place.

Mr. Daly

As I understand it, the focus of the group in Cork is on getting the banks to cough up and compensate individuals for the money they had to pay to Revenue. Our focus would be different.

Some years ago, at the end of much debate, we took £220 odd million from the banks in DIRT, interest and penalties. By and large, looking back it seems this was regarded as the conclusion of business between Revenue and the banks. I am much more interested in pursuing the question of aiding and abetting in terms of current evasion. That will be the focus of Revenue's future prosecution programme, if we come across it and can find people who will support us, but as yet, nobody has come to us to say he or she would actively support us in a prosecution.

We now have a prosecution programme which seeks to bring a reasonable quantum of prosecutions for tax evasion before the courts every year. As late as last week at the senior management meeting we discussed the offences that would be included in the programme. One of our conclusions was that we wanted a broader range of offences considered by Revenue. Members can take it that aiding and abetting will figure in it. However, I do not want to promise the committee something that I cannot deliver. We may have moved beyond reopening the whole saga of the banks and DIRT.

Deputy B. O’Keeffe

When Deputy Noonan was talking about aiding and abetting, it struck me that most of the people Revenue dealt with regarding offshore accounts would have claimed they were advised to do so. It strikes me that the most pertinent question it could ask them is: "Would you say that in court?"

Mr. Daly

There is a big difference between someone telling me that the bank misled them and the same person going to court to say this to support a Revenue prosecution. I prefer to look forward to Revenue's future prosecution regime.

Deputy Connaughton

I wish to continue dealing with the theme of aiding and abetting. Let us take the example of a person who has been penalised four or five times the value of the investment, which is normal, and finds himself or herself in possession of information he or she hopes might stand up in court. On the one hand, he or she is surrounded by a hugely influential bank where money for court appearances is no object and, on the other, by an ever bigger group in the form of the Revenue Commissioners - it would be like standing on the West Bank. It would be a battle of unequal partners.

I reiterate what some of my colleagues said. Of course, some knew what they were doing. However, there was a cohort, many of them elderly persons or labourers, who had earned their money the hard way and were told there was no trouble with doing what they were doing. Some have told me that they had never heard of the Cayman Islands or the Isle of Man and took what they were told at face value. Are the Revenue Commissioners prepared to pay for a court case where they have asked an individual to testify?

Mr. Daly

I want to distinguish between what we might now be doing with the whole DIRT saga and the banks. Having reported to the committee on the collection of DIRT, interest and penalties, to my mind, the issue is probably closed. In terms of Revenue being interested in taking, aiding and abetting cases in future, it will bear the costs of the court case.

Deputy Connaughton

Are we saying that, where the DIRT liability has been paid, the case is closed and we will not talk about aiding and abetting under those circumstances?

Mr. Daly

I do not see us reopening the issue of aiding and abetting——

Deputy Connaughton

It is like bolting the door when the horse is gone.

Mr. Daly

A lot of horses have escaped in the last few years.

Deputy Connaughton

There are a few still around the stable and it is hard to know whether the door is closed.

Mr. Daly

To be fair, considering what Revenue has done in these investigations in recent years and collecting a sum which will probably amount to €1 billion by the time we are finished, I do not think one can say we have sat back. The past is a different country when things were done differently. We want to do them in a different way in future. We want prosecutions to be part of our suite in tackling tax evasion. We want aiding and abetting to be included.

I take the Deputys point about the burden on an ordinary individual who might be asked to support Revenue in a case against a bank or other financial institution. In the future it will be a matter for us to see whether we can base aiding and abetting cases on other evidence such as documentation and correspondence, etc. However, the strongest evidence always comes from the person who did the evading but was aided and abetted in the process.

Deputy Connaughton

In so far as the efficiency of the tax collection system is concerned, will Mr. Daly indicate to the committee the number employed in Revenue in 1997 and 2002? What increase in staff was there in that period?

Mr. Daly

We currently have 6,463 members of staff, up from 6,079 in 1997. Most of the increase came about two or three years ago when the Minister authorised an increase of 400 staff for the purposes of audit and various other activities. Our numbers had dwindled in the meantime - to below 6,000 in 1999. There has been an incremental increase since because of the extra resources allocated to us.

There is a great focus on audit and investigation. In the years since 1998 we have been engaged in a specific programme of putting more resources into audit and compliance and trying to take them away from routine processing. This is relevant to the point Deputy Ardagh raised about the on-line service. We now have just less than 900 staff directly involved in audit and special investigations.

Deputy Connaughton

I have a question relating to the grounds for write-offs. There are a number of headings under which write-offs can be made. I note that the number deemed uneconomic to pursue dramatically increased from 35,000 in 2001 to 152,000. I also note that the Revenue Commissioners became more compassionate with 234 cases written-off in 2002 on compassionate grounds compared with 70 in 2001. What is the reason for this?

Mr. Daly

The reason for the first one is almost directly related to an automated write-off programme to weed out old and uncollectable debt. Almost all appears in the "uneconomic to pursue" category. Looking at an analysis of that debt, one will see that some of it dates from the pre-1993 period. We wrote off €51 million in 145,000 cases. The average amount written off was about €350. One is really talking about dross that needed to be cleaned out in order that we could focus on current debt. In 2002 there was an automated write-off of over 14,700 corporation tax cases involving a debt of between 1 cent and €99.99. One can see the sort of rubbish - if I can put it that way - that was there.

Deputy Connaughton

What is the answer regarding the debts written off on compassionate grounds?

Mr. Daly

I am not sure why we have become more compassionate.

Deputy Connaughton

Not many people would have thought that.

Mr. Daly

I can get an explanation for the Deputy. I would have thought it was a positive in Revenue's favour. Debt is a reality in all tax administrations. We have made enormous inroads in bringing the level down. Our focus is to keep current debt down to the minimum. Compassionate grounds are usually based on inability to pay. They may cover the elderly, those with no assets, in receipt of social welfare pensions or suffering from ill health. I am glad to hear we are becoming more compassionate.

Deputy Curran

While it may be small as a percentage of overall activity, the figure for the amount written off is substantial. This year the amount written off was €178 million, a big percentage increase on the figure for the previous year. While the total tax take may have increased by 5%, the amount written off has gone up by a much larger percentage. In money terms, how much of the debt of €178 million was more than three years old?

Mr. Daly

I have a table that tells me how much of it was older than four years. Of the total, 41% was older than ten years; 33% was between five and nine years old; 19% between two and four years old and just 6.7% less than two years old.

Deputy Curran

Almost three quarters was more than five years old. That brings me to the first category, namely, liquidation, receivership and bankruptcy. While it includes the smallest number of cases, it involves a substantial amount of money. The 360 cases involved a sum of over €31 million - an average of €86,500 per case. The equivalent figure for the previous year was approximately €70,000. Therefore, the increase is significant. Many of the 360 were in debt for a long time. This brings into question the risk management strategies in place. The companies involved did not find themselves in debt overnight - the figures tell us they accumulated the debt over a considerable period. Should the Revenue Commissioners have been acting much more quickly? Is that the correct reading? Is the right strategy in place?

Mr. Daly

There has been a step change in Revenue's approach to debt management in recent years. We are now intervening earlier than in the past. We have entirely restructured the way in which we approach debt. It starts off with active pursuit units which monitor cases every month. Where they see debt accumulating over a certain level, they will intervene immediately, commencing with telephone calls. We have an active debt management process where staff knock on doors and inform taxpayers that they are in arrears, that their debt is creeping up to an unacceptable level. We tell them that we will go to a solicitor, the sheriff or use section 214 which deals with insolvency if it is not dealt with. We did not intervene as quickly in the past. Our strategic objective is to have all debt not more than three years old, except that which is under active pursuit. While we are working towards this, we also have to be realistic as businesses do get into trouble.

Deputy Curran

I appreciate that but I am sure Mr. Daly also appreciates that the older the debt the harder it is to recover.

Mr. Daly

It is. That is what leads us back to the big write-off. We use early intervention measures and perhaps put in place instalment arrangements. We have improved enormously in this area in recent years and will continue to do so. This is also good for the businesses involved as we do not want them to use Revenue as a banker at any stage. There is an obligation on Revenue in respect of other businesses. If Revenue thinks a business is not capable of trading, it is wrong of us to let it continue as to do so may mean other creditors will lose money too.

The Deputy can take it that we have an active debt management programme which has two strands, one of which is the write-off. This allows us to get rid of the dross in the system which has been there for God knows how many years. The other strand is early intervention to prevent current debt from accumulating.

Deputy Curran

Is Mr. Daly suggesting that when we come to look at this issue next year, the amount written off will have reduced in real terms because of more active intervention at an earlier stage?

Mr. Daly

On current debt, for the period May 2002 to May 2003, we will collect 98.85% of the charges raised. We will allow very little to accumulate. While I cannot tell the Deputy that I will not return with a higher write-off figure next year, if I do, it will be as a legacy from the past in trying to clear out the dross in the system.

Deputy Rabbitte

I have a question regarding the DIRT liability. Does the subject matter of paragraph 2.5 have any implications for the look-back audit in the other financial institutions?

Mr. Daly

I will preface my remarks by saying we have an active investigation into the bank in question and I do not want to prejudge the outcome. That is when I will come to a definitive conclusion in relation to the Deputy's question. Is so far as I can ascertain, it does not, the primary reason being that the methodology used in the audit of the bank was different from that used in the others. There is no obvious evidence of what triggered it. As I have told the committee, we have not yet been able to do a systematic check of those who came in under the voluntary disclosure regime against the list from the banks. However, we have done some spot checks.

Deputy Rabbitte

I will not ask Mr. Daly to retrace it if he has already dealt with it. The point that interests the man or woman in the street is that five of the accounts were tested. Given its wide experience of this issue, is it a surprise to Revenue that five of the accounts were tested and deemed to pass muster at the time?

Mr. Daly

It is a concern that it did. I have explained at length to the committee the basis on which the audit was done.

Deputy Rabbitte

I will not go back over it if it has already been dealt with. Is there a timescale for the conclusion of the investigation into the NIB and related matters?

Mr. Daly

We are in the final stages of our investigation into the NIB. There is something like 452 cases, of which 379 have been concluded. There are 73 cases being finalised at this time. I expect the investigation will, by and large, be finished next year. We have some prosecutions emanating from it which will probably take some time longer. I expect the back of this to be broken next year. The same applies to the bogus non-resident accounts. There will be a tail-off because there are people - not many - who are not engaging with us, even with the letters we are sending as a consequence of the information we got under the court order but they will be investigated. The indications are that those who got letters have engaged with us, largely in a responsible way.

Deputy Rabbitte

Has Revenue become involved in circumstances where a person, the holder of a bogus non-resident account, feels adamantly that he or she can establish the bank was responsible for inducing them into it? Has this been looked at by Revenue in terms of the category of bank branches or managers who may have been the inducers, rather than others who wandered around the streets at night with a bag of money looking for a bank to take it on the basis that they were non-resident?

Mr. Daly

We have not done any detailed study. We had a discussion earlier about this general issue in the context of taking action against banks or officials for aiding and abetting. By and large, our dealings with the banks were put to bed in the agreement that yielded €221 million in DIRT, interest and penalties. There has been much anecdotal evidence of banks advising customers of this, that and the other but nobody has come forward to Revenue indicating that he or she would take this forward. I am much more interested in looking forward and assuring the committee that aiding and abetting tax evasion will be an offence that will be considered actively in our prosecution regime. It will be much easier for us to prove this in more current cases and issues that arrive in the future. This is now firmly embedded in our prosecution programme. Much as it would ease matters in relying on individuals who suffered at the hands of an institution, it is probably better for us if we can produce the evidence from our own inquiries into an institution or a bank.

Deputy Rabbitte

When does Mr. Daly estimate the Ansbacher investigation will conclude?

Mr. Daly

It will have a slightly longer tail. There are 289 cases and €25 million has been collected to date. Of these, 53 have been settled. We have payments on account in respect of 76 cases. I expect these figures will improve in the next couple of months as there has been a surge of activity. There are hard cases who will not engage with us and with whom we will have difficulty for a long time. I made a general point about Revenue sticking with these investigations. We will stick with the Ansbacher investigation for as long as it takes.

Deputy Rabbitte

Does Revenue conduct any rigorous examination of non-residency? If I say that I live outside the jurisdiction for the requisite number of days per annum, will this be accepted at face value or is it tested in a random sample audit?

Mr. Daly

It is tested by seeking records, log books and flight tickets from time to time. It is not tested in a systematic way, rather it is tested if it is decided to investigate the affairs of particular individuals. It is fair to say most of the individuals in that category also fall into the category of high net worth individuals. A large cases division has recently been established and will concentrate on these individuals. I am not branding them by saying they will be concentrated on - it is a matter of service as much as anything else. It is a matter of assuring ourselves that issues like residency are fully tested. We do not take this at face value and it will be tested.

Deputy Noonan

Income tax returns were down substantially between 2001 and 2002. Did this arise simply from the decline in economic activity? Employment increased in that period with the result that there are now more paying PAYE.

Mr. Daly

The more general explanation regarding income tax is that in 2002 the economy was weaker than had been projected at budget time and than it had been the year before. While employment did rise, there was a difference in the type of employment created. There was a discernible difference in the labour market in 2002 and late 2001. There were many people in high remuneration employment in the ICT sector. There was also a lot of overtime and bonuses in many sectors. While there was growth in employment in 2002, much of this was in the service industry, from which we do not get the same level of tax returns.

That is the general explanation but there is also another. As members know, our budget forecasts are made on the basis of analysis of patterns in previous years but also on macro-economic factors such as GDP, GNP and personal consumption expenditure growth. In recent years these have changed dramatically, sometimes mid-stream, because of developments in the global and Irish economy.

Deputy Noonan

I notice that a sum of €167 million in excise duty is ring-fenced; rather than paying it to the Exchequer, the Revenue Commissioners pay it to the Department of Health and Children. Mr. Daly is aware of the special savings incentive scheme, under which interest of 25% is paid by the State on savings. How is this dealt with from an accountancy point of view? I have seen figures that suggest it is paid out of income tax into savings accounts in order that the amounts do not appear on receipts of income tax. It is as though it is being transferred out of the loop. How is this dealt with, or is it dealt with only when it arrives in the Exchequer?

Mr. Daly

The Deputy is correct, it is paid out of income tax receipts. I have an expert with me who will answer the question.

Mr. Paddy Molloy

The savings accounts pay-outs, paid by the Revenue Commissioners on behalf of the Exchequer, are effectively classified as a repayment out of the income tax general collection which is divided into two blocks, the PAYE collection and the non-PAYE collection. A certain fraction of the repayment is taken from the PAYE block and the rest from the non-PAYE block. On an accounting basis, this is simply another form of repayment made by Revenue to somebody outside, just as a taxpayer might receive a repayment of tax.

Deputy Noonan

Therefore, it does not appear in net tax receipts.

Mr. Molloy

It is not included in net receipts.

Mr. Daly

In table 2.1 the Deputy will see the repayments figure. The figure will be included in gross receipts but will also be included in the repayments. Therefore, it does not appear in net receipts.

Deputy Noonan

All right.

Mr. Molloy

The scheme is a cost to the Exchequer; not a yield.

Deputy Noonan

Does this explain in part the decline in income tax returns?

Mr. Molloy

It has an impact on receipts because we have to repay this money - if the savings scheme was not in place, we would not have to do this. It had an extra impact in 2002 when there was a big surge in take-up leading up to the last month in which people were allowed to set up an account, April 2002. One of the factors explaining the dip in income tax receipts is the sudden increase in April which held its level from then on. When we were making the 2002 forecast in 2001, we based it on the normal level of income tax take.

Deputy Noonan

Does Mr. Daly have the actual figure for 2002 and the estimate for 2003?

Mr. Daly

The actual figure for repayments to SSIAs in 2002 was €433 million.

Mr. Molloy

The actual cost Mr. Daly mentioned turned out to be higher by €177 million than what we had budgeted for.

Deputy Noonan

Is Mr. Daly giving me the estimate or the actual figure?

Mr. Daly

I have given both. The actual figure was €433 million, while the estimate was €177 million less.

Deputy Noonan

What about the 2003 figure? Is it still rising?

Mr. Molloy

No - it has levelled off. Our target for the SSIA cost in 2003 is slightly stronger than what is actually happening but not by much. It is more or less on target but slightly to the positive side of the Exchequer cost.

Deputy Noonan

Value added tax write-offs in 2001 amounted to approximately €29 million, which jumped to €80 million in 2002. That seems to be an extraordinary leap. What is the explanation for this?

Mr. Daly

In 2002 we wrote off 28,261 VAT cases. In 2001 we only wrote off 1,400. Most of the 28,261 formed part of the automated write-off process, to which I referred. Under this process small amounts, most of which went back to before 1993, were written off. Over the last couple of years we have been pursuing a programme of clearing out old stuff from the system which is either uneconomical to collect or unenforceable.

Deputy Noonan

Therefore, about €31 million was written off on the grounds of liquidation, receivership and bankruptcy. Does the office examine the companies concerned to find out whether the phoenix rises from the ashes as soon as the tax is written off?

Mr. Daly

Yes. We examine them before we write off the tax. We have a phoenix programme in place developed in recent years which monitors companies - as well as the people behind them - which we suspect of being involved in this activity. In some cases we force them into liquidation, rather than letting them trade. The programme is complemented by a commonality programme which I mentioned the last time I was here. One of the matters about which we have been concerned in the past is the phenomenon of an individual being behind many entities. While tax is written off in amounts that seem small, when the whole lot is pulled together, the amount is significant. Now, before we write off tax in any category, we have a commonality check which looks behind the individual. It can look from the individual to any associated companies and behind a company to any associated individuals. We investigate this carefully.

Deputy Noonan

The balance outstanding is sometimes taken as a measure of the efficiency of tax collection. On 31 May 2003 the balance stood at €1.322 billion, €186 million less than the amount for the same period in 2002. There is a difference of €186 million which looks good but write-offs amounted to €178 million. The net improvement, therefore, was only €8 million. Unless I am missing something, it does not look as though, in dealing with balances outstanding, any progress is being made.

Mr. Daly

The Deputy should consider the two together. Our strategy is to pursue a programme of write-offs that looks extensive because we are getting rid of old debt. On the other side of the balance sheet, however, we are dealing with current debt. Leaving aside all that we had to write off, because there is nothing we can do about it - it is a legacy of old days and old systems - we have moved from a position where debt represented 40% or more of the collection to one where it represents just 3%. That represents a good improvement over time. We want to do better but realistically there will always be some level of debt.

In the past only 17% of the outstanding debt - I am talking about the figure of €1.3 billion - would have been collected but now we are confident that we will collect 80%. Perhaps we will even improve on this next year. If we set the write-off figure, in absolute terms, off against the worsening debt, we may not, on the face of it, see much of an improvement but if we look at the broader picture and see the write-off figure as something we really must get out of the way, while considering what we are doing about current debt, we can see that is where the improvement has been made.

Deputy Noonan

It is like hospital waiting lists - the figures remain much the same but they consist of different people. Does the policy of reducing the number of public servants apply to the Revenue Commissioners? How many staff will it lose?

Mr. Daly

In the course of a three year programme, we will lose 65.

Deputy Noonan

If the office could hold onto them, would it collect more tax? Would it collect more than it would cost to keep them?

Mr. Daly

I have these debates from time to time with the Minister. Of course, we would collect more tax but at the same time recognise the broader issue of public sector numbers. We argued that we would probably be hit with a greater number initially but we will live with this. We have a very strong focus on obtaining a better bang for our buck by moving staff away from routine processing and so on into compliance and audit activity. Although we are losing 65 staff, we do get money from the Minister which enables us to outsource some routine processing work and, therefore, release staff into more productive areas. This results in more satisfying work for them.

Deputy Noonan

I thank the representatives.

Mr. Purcell

Before we finish, I must make a small but important correction. Deputy Batt O'Keeffe attributed to me something I had not actually said. Talking about section 2.5, he said I had stated that I had serious reservations about the bank's bona fides. What I said was that I had serious reservations about the Revenue audit - a look-back audit - in that institution. When I mentioned the bank's bona fides, it was in the context of what had unfolded from the voluntary disclosure scheme. I said it raised questions, perhaps, about the bank's bona fides.

Chairman

I thank the Comptroller and Auditor General for that clarification. It has been made clear today that banks will be pursued in the future for condoning or accommodating tax evasion. I was delighted to hear this.

We have had a very good debate. I thank Mr. Daly and the officials from the Revenue Commissioners and the Department of Finance. As the matter will not be concluded today, I propose that we adjourn and resume the discussion at a later meeting. Is that agreed? Agreed.

Next week, on Thursday, 23 October, representatives from the Department of Communications, Marine and Natural Resources will be present to discuss chapter 8.1, forest service and development of IT systems; chapter 8.2, international telecommunications connectivity; and Vote 30.

The witness withdrew.

The committee adjourned at 1.45 p.m. until11 a.m. on Thursday, 23 October 2003.