COMMITTEE OF PUBLIC ACCOUNTS díospóireacht -
Thursday, 25 Mar 2004

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

Vote 9 — Office of the Revenue Commissioners.

Chapters 2.7 and 2.10.

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

Chairman

I remind witnesses that they do not enjoy absolute privilege. The attention of members is drawn to the fact that since 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 rights 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 a transcript of the relevant part of the committee's proceedings if it considers it 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 or objectives of such policy or policies.

I welcome everyone. Will Mr. Daly, please, introduce his officials?

Mr. Frank Daly

I am accompanied by Mr. Christy Clayton, director general of Revenue strategy and accountant general; Mr. Paddy O'Shaughnessy, principal officer, administrative budget area; Mr. Tom Dowling, assistant principal; and Mr. Paddy Molloy, head of forecasting and statistics branch. We also have our press officer in the Visitors Gallery.

Mr. David Hurley

I am attached to the organisation management and training division of the Department where I deal with the Revenue administrative budget.

Chairman

Chapters 2.7 and 2.10 of the report of the Comptroller and Auditor General read:

2.7 Prosecutions for Serious Tax Evasion

Under Revenue prosecution strategy, audit districts are required to forward cases to Investigation and Prosecutions Division for investigation with a view to criminal prosecution where there is prima facie evidence of serious revenue offences having been committed. These cases are further evaluated within the Division before commencement of the very resource intensive criminal investigation work which can take several years before reaching the Courts. Convictions were obtained in all 3 of the cases decided in Court in 2002.

·A cattle dealer/haulier was convicted of failing to submit Income Tax returns and was fined €3,000.

·An individual was convicted of delivering incorrect VAT returns and information. A six month prison sentence was imposed but was suspended on payment of a €12,000 fine.

·A house builder was convicted of delivering an incorrect Income Tax return and incorrect VAT returns. A fine of €2,540 was imposed.

Of a total of 27 cases on hands at the end of 2002, convictions have been obtained in five cases, 17 are still under investigation, bench warrants issued in two cases and three cases have been closed.

2.10 Environmental Levy

The Waste Management (Amendment) Act, 2001 amended the Waste Management Act, 1996 and provided for the introduction of an environmental levy on plastic shopping bags. The Act gave the Minister for the Environment and Local Government the power to make regulations to specify matters in relation to the collectionof the levy and other administrative matters. These regulations — Waste Management (Environmental Levy) (Plastic Bag) Regulations 2001 — were made in December 2001. They provided for the introduction on 4 March 2002 of a 15 cent levy on each plastic bag supplied by retailers to customers. The levy is imposed at the point of sale. Certain types of bag are exempt — re-usable bags sold for 70 cent or more, bags used to contain fresh meat, fish, poultry, cooked food or ice and bags used to contain loose fruit and vegetables and other foods that are not otherwise packaged. Under the regulations the Revenue Commissioners are the collection agency for the levy and returns must be made to them by the 19th of the month following the end of each accounting period — each calendar quarter is an accounting period. The amount due is deducted by Revenue directly from the retailer's bank account. The regulations require the retailer to authorise Revenue to debit the amount payable. Retailers are required to maintain stock records of their plastic bags. Revenue officials are empowered to inspect the books and premises of retailers.

In preparation for the introduction of the levy, Revenue scanned the records of those who were registered for VAT and whose trade classification (NACE) code indicated retail activity that could involve the supply of plastic bags. This produced a database of some 36,000 retailers. A manual examination of these cases was then carried out to remove cases where it was obvious that there was no potential liability to the levy. This reduced the database to 29,000 cases and these were issued with returns for the first period of the levy. In the period 4 March to 31 December 2002, Revenue collected €7,188,973 on foot of the levy.

As the levy was only introduced during the year of account, my objective was to establish the extent to which assessment and collection procedures had been put in place, and how they were operating. An examination of a random sample of 100 traders known from audit records to have been registered for VAT indicated that approximately 80% of the VAT registrations which were still 'live' were registered for the levy. Returns had been submitted by 60% of cases registered, of which two thirds were 'nil' returns. I asked the Accounting Officer for Revenue's assessment of the current level of compliance with the Environment Levy regulations. I also sought information as to when audits and inspections would commence.

The Accounting Officer supplied details of the returns compliance rates as measured at 15 August 2003 for the first five accounting periods, and these are set out in Table 2.16. He stated that while the database of 29,000 for the first issue had since been reduced to approximately 23,000 cases, Revenue's assessment was that the 'true' compliance rates were significantly higher than shown in Table 2.16 as the database, on which the percentages are based, still contained many cases that had no liability to the tax. That was supported by the result of a limited campaign of telephone contact by Revenue with non-compliant cases which indicated that approximately 80% of non-filers had no liability to the levy. The tax registration process was currently being examined with a view to identifying and registering any new cases that may be liable for the plastic bag levy at the time of general tax registration.

Table 2.16 Environmental Levy Compliance Rates

Period	Number of Returns Issued	Number of Returns Accounted For	% Compliance
30 June 2002	29.307	23,039	79%
30 September 2002	26,520	19,844	75%
31 December 2002	24,850	17,751	71%
31 March 2003	23,094	14,696	64%
30 June 2003	22,688	12,073	53%

The collection system now had the capacity to issue estimates for levy cases that fail to file returns. The issue of estimates would commence in September 2003 and it was expected both to improve compliance and to identify cases that had no liability to the levy. Revenue has stated that the charging of interest on late payment of the levy, which was provided for in the Protection of the Environment Act, 2003, should also improve compliance.

The Accounting Officer indicated that a Service Level Agreement entered into between Revenue and the Department of Environment and Local Government provided that Revenue was responsible, inter alia, for:

·Carrying out verification checks relating to the accuracy of returns

·Pursuing accountable persons who failed to deliver returns and payments within the statutory time limits.

Revenue had not carried out any audits or inspections in relation to the levy to date, but intended to carry out audits in conjunction with the existing programme of audits under other taxheads once the relevant Revenue staff have been duly authorised, as required, under the Levy regulations. Audits were expected to commence in the final quarter of 2003.

Revenue expected that the additional measures would improve compliance and clean up the register and considered that, as the levy had only been in existence for little over a year, that a compliance rate ranging up to 79% was satisfactory particularly in light of indications that the vast majority of non-compliant filers did not appear to have any liability to the levy.

Mr. John Purcell

The committee has examined the Accounting Officer on the Revenue section of my 2002 report on two occasions, 16 October and 11 December 2003. At the October meeting the committee concentrated on chapters 2.1 to 2.6, inclusive, of my report and, in particular, focused on the outcome of the different phases of the DIRT inquiry follow-up and the activities of the offshore assets group. At the December meeting the Accounting Officer updated the committee on these two issues and I have no doubt that members will want to be apprised of developments since. The VAT scam by certain property developers brought to light by the Chairman was also discussed at that time.

The December meeting disposed of chapter 2.8 of the report covering the nature of the Revenue audit programme with particular emphasis on the importance of a truly random element to help establish a ballpark figure for evasion in the self-assessed tax sector. The meeting also disposed of chapter 2.9 covering the effectiveness of Revenue's prosecution strategy regarding those who had failed to make income returns.

Apart from the issues on which the committee might want to follow up, the only parts of my report on Revenue that remain to be dealt with are chapter 2.7 dealing with criminal prosecutions for serious tax evasion and chapter 2.10 dealing with the introduction and operation of the so-called plastic bag tax. Both are included for the information of the committee as much as anything else. The Revenue Vote also falls to be considered.

If the Chairman wishes, I will briefly introduce chapters 2.7 and 2.10. Chapter 2.7 records that Revenue secured convictions in three criminal prosecutions involving tax evasion decided in the courts in 2002. At the date of my report in 2003 five more criminal convictions, including three NIB cases referred to in chapter 2.6, had been obtained. However, Revenue is finding that there is a long lead-in time in getting a case to court because of the resource-intensive nature of criminal investigation work. For completeness, I should point out that Revenue also undertook prosecutions regarding serious Customs and Excise offences.

On chapter 2.10, an environmental levy on plastic bags was introduced on 4 March 2002 with the objective of cutting down on their use. The 15 cent levy on each bag supplied is passed on by the retailer to the customer at the point of sale. Revenue is the collection agency. Each quarter, the retailer is required to make a return on usage and the corresponding levy is deducted by Revenue from the retailer's bank account. Payment by electronic means is compulsory. Revenue officials are empowered to inspect the books and premises of the retailer to ensure proper returns are being made. Local authorities are responsible for checking that customers are being charged for plastic bags.

Revenue's first big task was to establish a database of those to be issued with returns. This was achieved through identifying VAT registrations with a relevant trade classification and then refining the list following further examination and inquiry. It is likely that the figure of 23,000 mentioned in the report will continue to fall as the number of retailers using plastic bags firms up. Once the database has settled, I expect the compliance rate to improve through Revenue being proactive in exercising its powers to estimate undeclared liability, charge interest on overdue payments and undertake audits of retailers' records. The sum of €7.2 million was collected on foot of the levy in the ten months or so up to the end of December 2002 and paid over to the environmental fund. I understand the yield for the full year 2003 was €12.75 million. Revenue's collection costs are met by the Department of the Environment, Heritage and Local Government on an agreed basis.

Chairman

Mr. Daly will update the committee on chapters 2.1 to 2.6, inclusive, and 2.8 and 2.9 and open chapters 2.7 and 2.10.

Mr. Daly

I would also like to give an update on the VAT evasion and avoidance scheme discussed at the December hearing.

As most are aware by now, Revenue has been engaged for the past few years in what must comprise the most extensive suite of investigations in our 80 year history, on which I would like to bring the committee up to date. The total collected as a result of the various investigations discussed at the last meeting now stands at €1,024 million, an increase of over €100 million on the figure of which I advised members in December. The total derives from the following investigations.

For the NIB-CMI scheme, the figure stands at €49.04 million; Ansbacher, €40.65 million; the Moriarty and Mahon-Flood tribunals, €24.4 million; and the bogus non-resident accounts campaign, €726 million, made up of €222 million in DIRT, paid by the banks, €227 million paid under the November 2001 disclosure scheme, and €277 million paid following the post-November 2001 investigations. The final element making up the €1.024 billion is the figure for our offshore investigations which up until yesterday had yielded €184 million. Some of these investigations are at a very advanced stage and we are now in the follow-through stages. Of necessity, this will take longer in some cases than in others. I can give the committee further details on any one of these, should it so wish.

Our most recent investigation — the one likely to dominate our efforts in the coming years — is that into offshore accounts and structures. I would like to summarise where we are at. I mentioned at the December hearing of the committee that I was meeting several chief executives of Irish financial institutions which have or had offshore branches or subsidiaries with a view to obtaining their co-operation in order that Revenue could pursue tax evasion facilitated by the use of offshore accounts and structures in the most effective and speediest manner possible. I concluded that series of meetings in Christmas week and I am pleased to report that the response was positive and that the co-operation of the financial institutions concerned has been obtained.

I am told by the institutions that they have written to their account holders advising them of the Revenue investigation and pointing out the benefits which would flow from voluntary disclosure in the limited time left before the Revenue investigation commences on 29 March should any of them have tax problems. We have simultaneously embarked on a major information campaign reminding such account holders of the 29 March deadline for disclosure and the 28 May deadline for payment. The benefits of disclosure include mitigated penalties, non-publication and non-prosecution. I emphasise to the committee that these benefits are the same as apply generally to voluntary tax disclosures. The full tax must be paid and there is no question of capping interest or penalties.

As with most initiatives which carry deadlines, the majority only respond close to the end dates. However, the committee may be interested to know that up to yesterday we had received approximately 3,500 disclosures. By this morning this had jumped to 5,000. There has, therefore, been quite an intake in the last 24 hours.

Deputy Ardagh

In the last 24 hours.

Mr. Daly

Yes, despite the postal strike. While I can make no forecast of the eventual response to this voluntary disclosure phase, still less the eventual outcome of the investigation that will commence after 29 March, I am very encouraged by the response so far. People are taking this matter very seriously. They are learning from the example of the bogus accounts investigation, in which Revenue stuck to its promise to go after those who had not availed of the voluntary disclosure opportunity and they have now paid more than twice as much as they would have paid had they believed us in the first place.

Regarding chapter 2.5 of the Comptroller and Auditor General's report, that concerning understatement of DIRT liability, the audit of the financial institution in question is continuing. The institution is co-operating and it is hoped to have the audit finalised within the next few months. As I have indicated, I will inform the committee of the outcome.

The investigation into the VAT evasion and avoidance scheme on site sales is continuing. I feel somewhat circumscribed in the level of detail into which I can go as it is now a live investigation into several companies. Up to the middle of March, out of about 400 cases examined, we had identified 24 which had used the scheme in question. We have estimated the VAT involved in 20 of those cases — it amounts to approximately €30 million. The largest individual amount is now estimated at €12 million, less than the estimated figure of €18 million that I furnished to the committee in December. One relatively small case has agreed to pay so far. In other cases we have entered and are entering assessments for the VAT and will proceed, subject to appeals, to enforcement.

Chapter 2.7 of the Comptroller and Auditor General's report deals with prosecutions for serious tax evasion. This is an area of our work where our whole approach is changing. For some years it has been our firm policy to ratchet up the number and range of such prosecutions. We have the will to do this and have put the structures and people in place to do so. The new investigations and prosecutions division set up under our restructuring programme is now firmly established, with a remit and a very clear focus on bringing forward a regular flow of cases for prosecution.

Chapter 2.10 deals with the environmental levy on plastic bags. This is a relatively new levy collected by Revenue on behalf of the Department of the Environment, Heritage and Local Government. The scheme is operating satisfactorily and the additional measures mentioned in the chapter will further improve compliance.

Chairman

May we publish that statement?

Mr. Daly

Yes.

Chairman

I have one question, before I go to Deputy Curran, on prosecutions regarding income tax returns. On the meeting of 9 January with the Garda and Courts Service, what was the outcome on the collection of outstanding fines?

Mr. Daly

We set up a meeting with the Courts Service and the Garda. It was satisfactory to the extent that it aired the problem and brought it to the attention of the Courts Service and the Garda. It was less satisfactory to the extent that the resolution of the problem would take time. There are two issues involved. It was very clear from the meeting that the Courts Service was streamlining and computerising its procedures. If we can feed our fines into that process, we will have a much clearer handle on what is and is not being collected.

From the Garda point of view, it must understandably put our fines in a queue with everyone else. It has priorities and made the point that, very often, the people on whom such fines were imposed had no means, making them very difficult to collect. However, the first step, in which we are actively engaged, is to achieve interaction with both the Courts Service and the Garda's own system in order that we will know exactly what is happening with fines and will be able to follow through. We will be able to target repeat offenders and the more egregious cases. Satisfactory progress is being made, but perhaps it is somewhat slower than we had hoped.

Chairman

On the VAT anomaly as regards building sites, I am delighted to hear that is an ongoing investigation. What is the estimated final figure that may be collected?

Mr. Daly

It is currently an estimated €29 million. We have identified that the scheme has been used in four or five other cases. The VAT has to be quantified in those cases, which could add another €3 million to €5 million. We will examine another 160 or so building contractors over the next few weeks and some more cases may emerge from those, although not many, I expect. The final figure could be between €30 million to €35 million. If the anomaly or the weakness in the law was closed off by the Minister for Finance in the December budget, there is a constitutional challenge from two of the companies involved to the Provisional Collection of Taxes Act 1927, which is the legislation that allows matters initiated on budget night to have subsequent effect. I mention that aspect by way of information. It does not impact on our view that the schemes were artificial or false in the first place. We are proceeding, regardless of the resolution of the budget day case. It does not impact on our investigation. It will take some time but we are quite confident. We have already entered assessments in quite a few cases. I expect one or other of the companies will appeal to the appeal commissioners with what, in effect, will be a test case. We will go down that road as quickly as we can.

Deputy Curran

Mr. Daly is becoming a regular visitor. On the progress that has been made in various areas in recent months since Mr. Daly was here, I suppose €100 million in a relatively short period of time can be put down to diligent work of good well-trained staff who have gone after this money in a meticulous way. From one meeting to the next there appears to be a logical approach. Work is being done in a structured manner. I want to look at one or two things in a more specific way, for the moment.

With reference to Mr. Daly's opening statement, could he give a breakdown of from which schemes the additional €100 million collected since December came?

Mr. Daly

Just a few million euros would relate to NIB and Ansbacher. Nothing relates to the tribunals. Some millions of euros would have been accounted for by bogus non-resident accounts, the third element, the post-November 2001 investigations. The balance would have related to offshore investigations.

Deputy Curran

However, does Mr. Daly know what the figures are on that?

Mr. Daly

I can get them, fairly quickly, for the Deputy. The bulk of them would be accounted for by the ongoing non-resident accounts investigation, which is now drawing to a close, but there was a premium between December and——

Deputy Curran

Is Mr. Daly saying the bulk of the €100 million is from bogus non-resident accounts?

Mr. Daly

Bogus non-resident accounts and the offshore investigations.

Deputy Curran

If Mr. Daly gets the breakdown on those, he might come back to me. I want to look at DIRT for a moment and then the offshore accounts. The first figure there of €222 million is an old figure that was negotiated with the banks and other financial institutions. It was paid by the banks a number of years ago. When that figure was negotiated did Mr. Daly have a view as to what would be the total take under the bogus non-resident accounts?

Mr. Daly

We did not have a firm view. The DIRT figure was arrived at as a consequence of the look-back audits which the Revenue Commissioners did as part of the full investigation. Those look-back audits were done on a sampling basis, of necessity, or we would still be there, looking at those in the banks. They were extrapolated to a view of what the extent of the banks' DIRT liability was. That is what the figure was based on. There were two subsequent phases to the bogus accounts investigation. There was the disclosure phase pre-November 2001 and the post-November 2001 phase that is continuing. It is virtually impossible to do a 100% check, but we are satisfied, by and large, that this was a reasonable payment of DIRT by the banks.

Deputy Curran

At that time?

Mr. Daly

At that time, and even on the basis of the subsequent disclosures that have come in. Remember it was a sample, but it was also an exercise in which we checked every single account above €100,000. That would have accounted for an extensive part of the banks' overall liability for DIRT.

Deputy Curran

As the sampling was being done, was it not calculated forward to show what the total yield would be?

Mr. Daly

Yes, it would have been.

Deputy Curran

Does Mr. Daly have that figure?

Mr. Daly

I do not have the figure with me. I am not sure we are talking about the same figure. We went into all the institutions. We looked at a certain percentage of accounts. We extrapolated those across the range of accounts in the institutions — the range, the value, the stratification — and came to the view that the DIRT involved, including interest and penalties was €90.5 million. The bulk of it was made up of interest.

Deputy Curran

In hindsight, is Mr. Daly satisfied? Sampling is one thing, but given how the system has evolved and the number of people that have paid, is he still satisfied that the €222 million was a reasonable figure?

Mr. Daly

I am reasonably satisfied that it was. Remember the actual DIRT rate was around the standard rate of tax all through that period. The type of tax subsequently paid by people, particularly after voluntary disclosure, was often at the marginal rate. I have no reason, incidentally, to suspect that it was not adequate. We have the comfort of knowing that every account above €100,000 was included and accounted for and calculated.

Deputy Curran

In the post-November 2001 figure of €277 million, how much was tax on the underlying deposits and how much of it was DIRT?

Mr. Daly

I do not have the figure. The Deputy should remember that the DIRT would have been paid by the bank.

Deputy Curran

In the first tranche, the €222 million?

Mr. Daly

Yes, so the €277 million is made up of tax which was due from the individual, by and large at the marginal rate. I have a breakdown for the tax, interest and penalties for the voluntary disclosure element, the €227 million, for example. The tax paid was €116 million, interest and penalties were €111 million. I have not got a breakdown for the post-November 2001 phase, but that has not yet been concluded.

Deputy Curran

I appreciate that.

Mr. Daly

However, I expect to have it. It will be among the normal things to emerge.

Deputy Curran

How many individuals to date, that we know of, have had bogus non-resident accounts?

Mr. Daly

In the voluntary disclosure phase some 3,675 account holders came in. They represented about 8,500 accounts held by people.

Deputy Curran

It was 3,675 individuals?

Mr. Daly

That is correct. In the post-November 2001 investigation so far more than 7,500 taxpayers have made payments to us. We have closed off about 25,000 accounts because they were either nil or marginal liability and we were never in the business of going after people with no substantive liability. There is still work to be done on that. We are still dealing with considerable correspondence and returns from people as well as disclosures. We sent out some 91,000 letters of inquiry under the post-November 2001 phase. That is not a good indication of how many people have bogus accounts. In many cases there are multiple accounts and more than one signatory, and everybody would have got a letter. That is the scale of it.

Deputy Curran

Just to conclude on DIRT, as regards the 3,500 that opted for voluntary disclosure and the 7,500 that made payments, that is still a substantial number of people and the number of accounts was far greater. The question has been asked here time and again and the committee has heard various stories and anecdotal evidence but nobody in the banks has been pursued for aiding and abetting. Yet a great many individuals opened accounts and many more accounts were opened. Where do the Revenue Commissioners stand on this? Is there any involvement with the Garda as regards fraud investigations or anything like that? As far as Mr. Daly is concerned is that finished with at this stage?

Mr. Daly

I will deal with that in the context of the bogus non-resident accounts. I would say we are finished with it, by and large. It goes back to the DIRT inquiry and the approach that was taken there. We reported back to this committee in November 2001 on the result of the look-back audits. There was a discussion at the committee and it is referred to in the final PAC report on DIRT. It is clear that the approach taken by the Revenue Commissioners at the time was to go after the banks for the DIRT and the interest and penalties — and not to go down the prosecutorial road. That was aired quite extensively in this committee at the time. It was understood to be a pragmatic approach, that if we went into the banks and the approach was to prosecute them and their officials, we would probably be still doing it. We would not have collected €222 million and we would probably not have got to the stage of moving the rest of that investigation forward. On the bogus non-resident accounts cases, while the committee or the Revenue Commissioners may have views about the extent to which the banks were involved or not, that was the pragmatic route we took in 2001.

Deputy Curran

It remains so today.

Mr. Daly

It remains so today. It would be hard to re-open that. Apart from the difficulty of prosecuting somebody and the burden of proof, I imagine if we did that now, one of the first avenues of defence by the banks would be to assert that they had taken a certain approach in 2001 to get DIRT, interest and penalties with the understanding that the Revenue was not going down the prosecution route. They could claim that they had compromised themselves at the time on the basis of that understanding. That route is now probably fruitless. I told the committee the last day that Revenue is absolutely committed to trying to prosecute "aiding and abetting", where it can. I do not want to mislead the committee. This is extraordinarily difficult and I can talk at length on it, if members wish. I have told the committee that it is much more fruitful for the Revenue to consider this in the context of current evasion rather than something that happened, not just in 2001, since DIRT goes back to the 1970s.

Deputy Curran

In Mr. Daly's opening statement he talks about the offshore accounts. One of the deadlines is coming up, 29 March. We are also in the middle of a postal dispute. I was surprised to see that within the past 24 hours there were effectively about 1,500 new voluntary disclosures. What practical arrangements, if any, have been made?

Mr. Daly

We are not inclined to change the deadline. The way the postal dispute is going I do not know what the deadline would then become. However, we have some practical arrangements in train, which have already been notified to the various accountancy bodies. By and large voluntary disclosure declarations are being made through accountants and tax advisers. This will generally be in the newspapers tomorrow. The voluntary disclosure form is a single sheet. It does not require much information. It is a notice of intent. Some fax numbers are being promulgated to which people can send these forms when completed. We are allowing people to drop the declaration into any of our Revenue offices countrywide. We also take the pragmatic view that declarations dated 29 March or prior, will be accepted. That seems to be the most effective way to go.

Deputy Curran

There have been 5,000 declarations so far. I appreciate that many people have offshore accounts for legitimate reasons. They will become apparent quite quickly. To date the Revenue has recouped €184 million as disclosed in Mr. Daly's opening statement. It is probably the tip of the iceberg. I appreciate there is no way the final outcome may be assessed at this stage. However, what is Mr. Daly's intuition on this? Does he anticipate a fairly significant investigation. Might it yield in excess of €1 billion over its lifetime?

Mr. Daly

I think it will be a significant investigation, given that we have already got 5,000 disclosures. By the way, they do not include cases where people have declared small accounts for shopping or a student account in the North or something like that. This indicates it is quite significant. I expect, if not an avalanche, then certainly a large number of these disclosures over the coming days. I am extremely loath to speculate about money in this regard. Once I do it will become a type of benchmark. I have no idea, in any event. The forms merely tell us that people intend to make a disclosure and make a payment by 28 May. By and large they do not give any indication of the scale of the disclosure. We will have a figure some time after 28 May, which at that stage, will be fairly accurate.

Deputy Curran

The figure will be substantial and €1 billion would not be out of the ballpark?

Mr. Daly

It depends on the ballpark. I think it will be substantial, but I am loath to speculate. I would prefer never to over-promise anything.

Deputy Curran

The last time Mr. Daly was here he mentioned he was in negotiations with the various financial institutions, who were Irish-based, by and large. They had written to their various account holders. There are many non-Irish based financial institutions in the Isle of Man, other parts of the UK and further afield. Have they been contacted?

Mr. Daly

The Deputy mentioned earlier the methodical way in which we are approaching all these investigations, the phasing, timing, etc. Of necessity we have had to concentrate on the Irish financial institutions. To a certain extent even asking them to come in and meet me was an exercise in moral authority, perhaps, rather than anything else. I do not have any right to ask them to come in. At this stage, it would probably be fruitless for me to make inquiries in the headquarters of some Swiss or UK banks. However, we have no intention of just concentrating our efforts on Irish-based institutions. In so far as we can and when we get to the stage where we can tackle accounts based in other institutions, we will do so. Three developments, which are perhaps useful for the committee to know about, are closing the gap on information as regards bank accounts and demolishing bank secrecy.

The EU savings directive which will come into effect next January allows for the exchange of information between most EU member states and some of their dependent territories. There are tax information exchange agreements sponsored by the OECD which are actively negotiated by our international branch with the Isle of Man, the Channel Islands, the Cayman Islands and so on. Since money laundering legislation was introduced last year, suspicious transaction reports now come to the Revenue Commissioners. All of these measures are closing the gap. When taken with our increased powers to access financial information, we are now much better equipped than ever before. There is a series of investigations where we have to match our capability with what we want to do.

Deputy Curran

Revenue has obviously been advertising the 29 March deadline. Up until yesterday there had been 3,500 voluntary disclosures. Were many of those disclosures by banks other than Irish based institutions?

Mr. Daly

There are a number of them. They are people who realise that the game is up.

Deputy Curran

Is it a significant percentage at this stage?

Mr. Daly

No.

Deputy Curran

There is a significant difference. Most of those caught avoiding DIRT by creating bogus accounts were effectively trying to avoid tax on interest. However, the money placed abroad in offshore banks accounts is a different matter. In this case Revenue is more interested in the source than the interest. Is that the case?

Mr. Daly

I would not necessarily agree that the source of the money in the bogus accounts was not also hidden. Many of the disclosures and settlements concerned more than the interest. The money placed in the accounts was untaxed as it was taken from the business and hidden. There was not much of a difference between these accounts and offshore accounts. The scale of the sums involved in offshore accounts was certainly larger.

Deputy Curran

Is that the average outturn per person?

Mr. Daly

Yes. The amount placed in an offshore account was, on average, greater than the amount placed in a bogus non-resident account.

Deputy Curran

As the parent company of the banks involved was Irish based, would the branches abroad have operated under the same criteria?

Mr. Daly

From a regulatory point of view?

Deputy Curran

Yes.

Mr. Daly

There would be differences but they would not be huge. For example, money laundering legislation is more or less the same worldwide.

Deputy Curran

Is Mr. Daly happy, therefore, with the legislation in place?

Mr. Daly

Yes. In the Finance Act 1999 the Revenue Commissioners were given extensive powers to look at financial institutions. Work is now being done to open up bank information following the savings directives, the exchange of information, money laundering and so on. In the years before that Act was introduced, in trying to tackle tax evasion, we were like the fellow fishing in the river with just a rod and line. One had to have the right date and the right information to achieve success. We now have a whole suite of powers which is more like a net.

Deputy Connaughton

It would have to be blocked.

Mr. Daly

Not quite blocked but we are getting to the stage where if we see a pool with a fish, we can go after it.

Deputy Curran

When we spoke about DIRT, Mr. Daly stated taking the legal route to prosecutions was no longer an option because of the timescale involved. With regard to offshore accounts, is there a suggestion that the institutions have liabilities?

Mr. Daly

We are really only starting the investigation. The Revenue Commissioners must first see what cases emerge against individuals. Tax evasion starts with the individual who is responsible for his or her tax affairs. The first element, therefore, is to prove that there was evasion by the individual. The next step is to see if there was someone aiding and abetting the process. It is too early, with regard to offshore accounts, to determine what the role of the financial institutions was. The Deputy is as aware of the anecdotal cases as I am. However, as the investigation progresses, we will look at the question of possible aiding and abetting by financial institutions.

Deputy Curran

Will it be more proactive than before?

Mr. Daly

Probably. We tried some cases in the past without success. We have been looking at the whole issue of aiding and abetting with which there are some difficulties. There is no point in me saying this will be easy. The offence of aiding and abetting is closely related to the tax return made by the individual who first has to be prosecuted and convicted. Second, it has to be proved that the aider and abetter was close to the individual in making the return. Revenue has a good chance to prove this against an accountant, tax adviser or book-keeper. If a bank official advises a client to take money to the Isle of Man and gives him or her a contact number, it is wrong and we all deplore it. However, it is much more difficult to prosecute as one is far removed from standing over his or her shoulder as he or she signs his or her tax return.

Aiding and abetting legislation is quite onerous. It is a criminal offence and there are no civil penalties. The wording used in the section is "knowingly aids, abets, incites or induces another person to make or deliver, knowingly or wilfully, an incorrect return in connection with tax". Therefore, the burden of proof is beyond reasonable doubt, not the balance of probabilities. I have individuals looking at the matter because I would like to be more confident that we will be able to do it than I am when I look at the hurdle posed by that text.

Deputy Curran

One can look at the numbers in respect of DIRT — a sum of €750 million was raised from thousands of accounts — and the greater amount in returns to the State from offshore accounts. How did all of the individuals concerned know where to go and what to do? I find it very hard to believe advice was not given somewhere. They were well resourced with significant amounts of money. Until someone is brought to task it will always remain an option, although I take the point that it will not be easy to prove. The Revenue Commissioners must explore this avenue fully. I understand Revenue has an offshore assets group. Can Mr. Daly tell me something about it?

Mr. Daly

It is a group which was set up in 2001 because we were of the view, in some ways as a result of the DIRT disclosures, that there was an area we could and should investigate. Over the years there would have been views on offshore accounts held in the Isle of Man and similar places. The outcome of the DIRT disclosures convinced us that at last we had some hard facts — enough to justify the setting up of a specialist group. Its focus is the detection of Irish resident tax bearers using offshore trusts, structures, accounts or property for tax evasion.

The group has spent much time analysing the type of business engaged in in that area, considering websites and types of product advertised, talking to counterparts in other tax administrations, considering various reports on money laundering and so on. It has begun this offshore investigation with two very successful targets in mind: trusts in Jersey and accounts held in the Isle of Man with one particular institution. It is now investigating general offshore accounts.

Deputy Curran

Does the group comprise senior staff?

Mr. Daly

They are very senior. Essentially, it is an expert co-ordinating group of eight individuals in the division. However, that is not, by any means, the full story because they are, effectively, the core analyst co-ordination group. Much of the work would be carried out in tax districts.

Chairman

What is the position on the investigation into estate agents and the purchase of apartments abroad?

Mr. Daly

It is ongoing. We are investigating persons who may have bought property abroad. We do not care whether they own property abroad but are very interested in where the funds for the property came from. We have visited estate agents and investigated fairs held from time to time for the purposes of encouraging people to buy property abroad. We liaise with our counterparts in some of the relevant countries such as Spain. It is simply another phase of the work of the offshore assets group.

Chairman

Is Revenue concerned with the origin of some of the cash used?

Mr. Daly

There would certainly be indications that some of the cash is not taxed.

Deputy Connaughton

I welcome Mr. Daly and his team. Deputy Curran asked whether it was likely that the investigation into offshore accounts would bring in a sum of €1 billion. I note from Mr. Daly's reply that dealing with bogus non-resident accounts has already brought in a sum of €726 million. Given this, would it be reasonable to assume we are on target to bring in €1 billion?

Mr. Daly

I suppose it would. I am very reluctant to give a figure.

Deputy Connaughton

Is it likely to exceed €1 billion?

Mr. Daly

That is why I did not want to start with a figure of €1 billion.

Deputy Connaughton

I thought Mr. Daly was using the figure as a floor, that it was to be above it.

Mr. Daly

I am very reluctant to give a figure. As I said, the disclosures are beginning to come in. They do not contain any information as to the amounts but are simply a notice of intent. All I can say is that between late May and mid-June we will have an accurate figure.

Deputy Connaughton

There are signs that the golden goose is merrily laying.

Mr. Daly

There are many eggs in the clutch.

Deputy Connaughton

It appears they are 18 carat gold. To return to the bogus non-resident accounts, there is a certain category about which I wish to ask. Mr. Daly mentioned that 3,675 bogus account holders had declared for voluntary disclosure and paid €270 million in respect of over 8,500 accounts. Some 599 account holders declared a nil liability. Will Mr. Daly indicate how they were treated? How did Revenue verify that what they had said was correct? Were particular files sent to the local tax office for verification?

Mr. Daly

I want to ensure we are dealing with the same figures. There were 475 account holders with nil liability.

Deputy Connaughton

I thought it was 599.

Mr. Daly

Perhaps the figures are being updated. Two checks were carried out in regard to bogus accounts. There was an eligibility assessment to ascertain whether persons were eligible for the disclosure in the first place or whether they were already under investigation by Revenue for any reason, which would have meant they were ineligible. The second check was a liability review. We either took a percentage of all the disclosures and sent them to the districts or did this in the bogus non-resident accounts co-ordination area. We carried out a liability check to see where-——

Deputy Connaughton

Whether my figures or his are correct, will Mr. Daly indicate how many of the 599 were involved in the random sample?

Mr. Daly

I do not have that figure.

Deputy Connaughton

Would it be 20, 30 or 100?

Mr. Daly

I imagine it might have been approximately 10%. However, I stress that we were at pains during the bogus account investigation process and the advertising of voluntary disclosure to ensure we would not be nit-picking in regard to accounts. If individuals made disclosures on a reasonable comparison with their circumstances which appeared accurate, we did not intend to spend years or months going through each one because we would never have completed the investigation.

Deputy Connaughton

Are those named kept on record for future inspection if their names come up again?

Mr. Daly

It would be indicated on their normal tax record that they had made a bogus non-resident account disclosure and that the outcome of the investigation in their case was nil. They would come up in the normal way if they came up for audit or for selection for examination.

Deputy Connaughton

I will now turn to the offshore accounts. It is obvious from the information provided by Mr. Daly today that there are now 5,000 voluntary disclosures. I assume, if the rate stays the same, by 29 March the figure could double to 10,000.

Mr. Daly

I am fairly confident it will be 10,000. As long as we stay away from the subject of money, I am prepared to speculate. However, I think it will be quite a lot higher than 10,000.

Deputy Connaughton

Will it be 20,000?

Mr. Daly

I do not know but there were approximately 5,000 this morning. That figure may now be 5,500 or 6,000. It will certainly be over 10,000.

Deputy Connaughton

I compliment Mr. Daly on an article he wrote for one of the national newspapers entitled, "Hot Money Is Useless If You Cannot Spend It". It is good bedside reading for the many worried about where the money came from. There is great public awareness of this issue, the reason I feel there will be a huge number of voluntary disclosures.

Mr. Daly

I hope so. If there is one message Revenue would like to send, it is to remind people of the example of bogus non-resident accounts when there was an opportunity for voluntary disclosure, of which, in hindsight, relatively few availed. Since that date, another 7,000 have paid us money, in most cases twice what they would have paid us if they had come forward under the voluntary disclosure arrangement. The names of those involved are published where the amount exceeds €12,500.

Deputy Connaughton

Can Mr. Daly give some indication of the difference between voluntary disclosure and being followed up afterwards through the powers of the Revenue Commissioners? I appreciate all kinds of factors enter the equation and it may not be possible to compare one with the other. If a person had €100,000 in an offshore account during the past five or six years that was not declared and has decided to come forward voluntarily this week, what penalties will be imposed? What penalties are likely be imposed if he or she does not come forward voluntarily?

Mr. Daly

It is difficult for me to deal with a figure of, say, €100,000, but there is an example in the offshore assets group booklet which I might use to be of assistance. It is a booklet we have produced for those contemplating making a voluntary disclosure. When a person comes forward under the voluntary disclosure arrangement, his or her name is not published. Generally, this is very important to people. There is huge public odium attached to having one's name published in the defaulter's list published quarterly. Furthermore, he or she will not be prosecuted. There is also the mitigation of penalties. There is an example in the booklet of somebody who was salting away the average industrial wage over the years. It is a reasonable figure.

Deputy Connaughton

What figure is used?

Mr. Daly

In the period since 1974 he or she may have salted away something of the order of €500,000. Tax on this amount, if it had been paid along the way, as it should have been, would have amounted to about €281,000. The statutory interest due would amount to €415,000. Somebody coming forward under the voluntary disclosure arrangement will have to pay the tax and interest due but the penalties——

Deputy Connaughton

Could Mr. Daly, please, go back over that again because most will find it quite astonishing?

Mr. Daly

It is astonishing. It is contained in our offshore assets group booklet. It concerns a person who has placed income abroad since 1974. There could be such cases. He or she may have salted away, perhaps, €500,000 during that period. If he or she had paid tax on it, as he or she should have——

Deputy Connaughton

Is €415,000 the relevant figure in the context of voluntary disclosure?

Mr. Daly

Yes.

Deputy Connaughton

Would that be the liability on the original sum of €500,000?

Mr. Daly

It would be the interest due if the person concerned had not paid tax in the period since 1974. Interest would emerge at a figure of €400,000.

Deputy Connaughton

Therefore, very little would remain of the original investment.

Mr. Daly

It would depend on the return the person concerned was getting in interest.

Deputy Connaughton

Based on the original figure.

Mr. Daly

Correct.

Deputy Connaughton

Perhaps we can now move to non-voluntary disclosure.

Mr. Daly

In the case of non-voluntary disclosure a person will pay penalties all through that period, an additional amount of €280,000. The person who comes forward voluntarily will pay mitigated penalties amounting to about €140,000. In addition to non-publication and non-prosecution, the saving is €140,000 to €150,000.

Deputy Connaughton

There was anecdotal evidence that small investors who had, say, sums of €40,000 or €50,000 had a financial liability amounting to three times that amount. Is that possible?

Mr. Daly

That is roughly correct. To a large extent, the outcome depends on the interest charged. Obviously, this depends on the period involved when the money was salted away.

Deputy Connaughton

In other words, those who had a sum of €50,000 could have a liability of €150,000.

Mr. Daly

They could.

Deputy Connaughton

Could it be a higher amount?

Mr. Daly

It could, depending on the period involved when the money was placed abroad. It depends on tax rates over the years. They were higher in the earlier years. Penalties pre-1991 cannot be mitigated in any circumstances because of the amnesty legislation.

Deputy Connaughton

Mr. Daly mentioned the last day that he was in the process of meeting the chief executives of Irish financial institutions. I note he met them at Christmas time. I imagine there was not too much Christmas cheer at that meeting.

Mr. Daly

The meetings were extended. There were individual meetings rather than a group meeting. The last one was held at the beginning of Christmas week. They were not cheerful but, by and large——

Deputy Connaughton

Was there a certain degree of resignation?

Mr. Daly

Yes. Our approach was one of exerting, to a large extent, moral pressure on them but there was also a very definite message that we were going to begin this investigation, that there was great merit from everybody's point of view in undertaking it as pragmatically and speedily as possible and from our point of view in giving people an opportunity to disclose, thus allowing us to concentrate our resources on those who did not. There was also a view which I put strongly to the banks that in the wider sense the country needed to put the perception, whether it was true, that the financial sector was involved in facilitating this type of tax evasion over the years behind us. By and large, there was a ready acceptance of this view. What the Deputy has referred to as a degree of resignation is, perhaps, an accurate view, that it is time we put this behind us once and for all and moved on.

Deputy Connaughton

I raise the issue of aiding and abetting. As Mr. Daly will appreciate, other members and I have mentioned this on a few occasions. Did any discussion take place about this aspect at the meetings held with the banks at Christmas time?

Mr. Daly

In one or two cases I was asked if Revenue would be looking at it in relation to the banks. My response would have been — this goes back to the point I made to Deputy Curran — that to prove aiding and abetting one has to prove there was tax evasion by the individual. Our focus is on evasion by the individual but if we come across evidence of aiding and abetting, we will pursue it. There is no question of giving any comfort to the banks that we will not be looking at the aspect of aiding and abetting.

Deputy Connaughton

Given that they have received comfort before, are they assuming there is comfort for them in offshore accounts?

Mr. Daly

There certainly should not be.

Deputy Connaughton

Many will want to hear Mr. Daly say that.

Mr. Daly

I am quite clear in my view. As I said at the last meeting, it is Revenue's commitment to pursue aiding and abetting where we can, whether it be by accountants, tax advisers, financial institutions or anybody else. I am much more interested in doing this for current investigations rather than the bogus accounts one, for which I explained the reason to Deputy Curran, but I have also explained the difficulties in actually doing it. As I said, we are actively looking to see how we can improve our chances of getting a conviction because it appears, reading the particular section and looking at it as a criminal offence, that we have to prove beyond all reasonable doubt. The fact that the section seems to be very closely linked to the making of the tax return by the individual, such that whoever is aiding and abetting would nearly have to be standing beside the individual, creates enormous difficulties for us. I do not want to come here wringing my hands and saying it is difficult. We want to do something about it and if that means considering changing the legislation, we will certainly propose this.

Deputy Connaughton

In answer to a question from me some months ago, Mr. Daly said the onus of responsibility was on those who believed they were aided and abetted or in some cases, they, particularly small investors, would say they were conned — the word many of them would use — into opening an offshore account. Like everybody sitting around this table, I congratulate Revenue for what it is doing. It is vital for the future of the country that it continues but there is a certain cohort who will have a very low income base afterwards. It is one thing for a very rich person to lose €500,000 if he or she can make €10 million the day after but a different matter for someone who loses his or her life savings at an age when he or she is not able to work. As Mr. Daly knows, there are a number of such persons passing through his system. He mentioned to me that the onus would be on them to prove in a court of law that they were so involved with the banks but as I said at the time, it would be an unequal battle if the investors about which I speak at this very low level lost their life savings — properly so — because of the law of the land and then had to bring a bank to court to prove that aiding and abetting took place. I asked Mr. Daly at the time if it would not be better in the overall scheme of things for Revenue to do this if the evidence was available. What does he say to this suggestion today?

Mr. Daly

My recollection of what we were talking about at the time is not so much the individual taking the bank to court for aiding and abetting but he or she assisting Revenue in taking a bank official to court for aiding and abetting. If I recollect correctly, I said we had received much anecdotal information from people who said the bank had encouraged or told them to open the account but I also said it was a very different matter when we asked the individual in question to come into court side by side with Revenue, give evidence to that effect and enable us to take an aiding and abetting case.

Deputy Connaughton

Revenue would be the principal in such a case.

Mr. Daly

Yes, we would——

Deputy Connaughton

That did not come across to me the last day.

Mr. Daly

I am sorry. I want to make it clear that Revenue would be the principal in such a case. In effect, the individual would be a witness on the side of Revenue. I believe it was Deputy O'Keeffe who asked me at the last meeting if, in the circumstances, Revenue would meet the expenses of the individual involved and I said we would. Aiding and abetting legislation is revenue law; an individual could not take an aiding and abetting case. He or she would be coming to court with us, supported by us and have his or her expenses met by us.

Deputy Connaughton

I thank Mr. Daly for that important clarification because to my knowledge many were not aware that that was the official standing. Will he give the committee an indication of the actual number of letters sent in the current tranche of offshore accounts?

Mr. Daly

The current tranche. Not the bogus——

Deputy Connaughton

No.

Mr. Daly

The first comment I want to make is that the letters were issued by the bank, not Revenue.

Deputy Connaughton

Does Mr. Daly have any idea of the numbers sent?

Mr. Daly

Individual banks have given us estimates of the numbers they sent which we are aggregating as something like 120,000 letters but all of the banks and building societies have said to us that in that number there could be multiple accounts and co-signatories. Obviously, there are accounts that will be closed. In Northern Ireland, in particular, many legitimate accounts are maintained, just for the sake of convenience, by people who live near the Border. Students attending university in Northern Ireland generally open a bank account there. Many of these accounts are quite legitimate and there is no issue with Revenue.

Deputy Connaughton

Will the category who might, for whatever reason, have held an offshore account for ten or 20 days be considered in the same basket as everybody else?

Mr. Daly

They will probably get a letter from the banks because, understandably, they were not in a position to distinguish between who might have a tax problem and who might not and they took the appropriate approach of notifying everybody. We are asking those who have accounts where there are no tax issues involved to make contact with their local district Revenue office or the offshore assets group and, based on an assumption that what they will tell us is correct, we will confirm that they do not have a problem and that they should not make a voluntary disclosure.

Deputy Connaughton

On the VAT avoidance on sites that Mr. Daly mentioned, on the last occasion he appeared before the committee he mentioned that special Revenue inspectors — they could hardly be called undercover agents——

Mr. Daly

No.

Deputy Connaughton

——had been to call to the sites. I assume they arrive without too much notice.

Mr. Daly

In each region we have special compliance districts with special investigative staff who sometimes work undercover but, by and large, they do not. In some areas they would have been the persons who made the inquiries about the VAT scheme. I do not want to go into too much detail because it is a live investigation but we looked at various databases of contractors, asked tax districts to look at their own databases——

Deputy Connaughton

Is Mr. Daly speaking about the building industry?

Mr. Daly

Yes. We asked tax districts to look at building activity in their areas for the past number of years. By and large, they would know about all the big schemes. We were able to look at details of site sales and related contracts from documents and information in the stamp duty area. From this we initially identified about 400 likely targets, individuals who might have been attracted to the scheme. We have contacted every one of these and are satisfied that of the 400, approximately 24 or 25 used the scheme. That is our target grouping. There are approximately 160 who we need to examine in the coming weeks. We may get another half a dozen from that examination. Generally those who used the scheme were not building a one-off house; they were building large schemes of houses or apartments. We are fairly satisfied we have identified the bulk of them.

Deputy Connaughton

One hears much criticism around the country, despite the fact the commissioners have been successful. Why are there not more prosecutions? Why are more people not in jail today for bucking the system?

Mr. Daly

I can go into that in the context of chapter 2.7. As I said, this is an area where our approach is changing. I acknowledge that in the past we concentrated almost exclusively on settling cases on the basis of the payment of tax, interest and civil penalties which are quite significant and inflict a lot of pain. In response to our view of the world and a view that there is a need for more prosecutions, our approach has changed. The majority of cases will still be dealt with by collecting the tax, interest and civil penalties. That reality is driven by the sheer effectiveness of the approach, on the one hand, and, on the other, by the burden of proof and enormous resources needed to sustain a successful prosecution.

We fully acknowledge the need for a number of criminal prosecutions each year where the nature of the evasion deserves this and where, regardless of the resource implications, it is necessary to drive home the message that tax evasion is a criminal act which society condemns and deplores. We are getting there. We have an investigations and prosecution division staffed by people who have skills and experience which they are building as they go along. We doubled our number of successful convictions in 2003 over the year before. We had six prosecutions and convictions in 2003.

Deputy Connaughton

What sentences were applied?

Mr. Daly

Sentencing is another matter. The sentences are usually fines.

Deputy Connaughton

In other words, there were no prison sentences in any of the six cases.

Mr. Daly

There was a six months suspended sentence in one of the six cases in 2003.

Deputy Connaughton

No one went to jail.

Mr. Daly

The last time I was here I said someone was in jail. Over the years a few people have gone to jail for tax evasion, although not for a long time. These cases, for one reason or another, seem to attract fines more than custodial sentences. It is an area we aired a little the last time and where Revenue would like to see custodial sentences.

Deputy Connaughton

The problem is that a young woman could go to court for shop lifting and get 28 days in jail. The public finds it difficult to equate this with someone who did not pay tax on millions of euros.

Mr. Daly

I do not have any argument with the Deputy. However, sentencing is out of my hands as it is a matter for the Judiciary. Perhaps it is something which evolves over time when tax evasion is viewed as a criminal offence and as something which is totally condemned by society. Six convictions in 2003 represents considerable progress. We also have another case in court and another on the way. There are 12 cases with the Director of Public Prosecutions and 34 under investigation. There are 48 in the pipeline. Our general objective is to have a steady flow of cases going to the courts for prosecution for criminal tax evasion. In addition, we prosecute approximately 1,400 cases each year for other offences on the Customs and Excise side and for failure to file tax returns, etc. Our approach has changed and we are getting there reasonably fast, given the burden of proof and resource implications. Some cases can take a year and a half or two years to investigate.

Deputy Noonan

I thank Mr. Daly for giving a full explanation. I want to discuss a few miscellaneous items, not to go back over the ground already discussed. I noticed an announcement recently in the newspapers that Revenue would be more rigorous in monitoring the amount of time many of our well known tax exiles spend inside and outside the country. Perhaps Mr. Daly could give us some detail about this.

Mr. Daly

It is true that is our intention. Like any other taxpayer or group of taxpayers, those who claim non-residence enter our system as part of the risk profiling approach we take to taxpayers. Some will emerge from time to time for examination. Our planned approach is to monitor more closely their presence in the country. Their presence inside or outside the country will determine their eligibility for non-residence.

Deputy Noonan

What is the number of days?

Mr. Daly

It is 183.

Deputy Noonan

Is that in the country? That is just half the year.

Mr. Daly

A person is resident for a tax year if he or she is present in the State for a total of 183 days or more in the tax year or present in the State for a total of 280 days or more in the tax year and the preceding tax year taken together. We must monitor this because it is easier to get in and out of the country these days as transport improves. Our planned approach would probably be to ask the individual to prove it on the basis of documentation they may have such as credit card statements, passports or bank statements. We would also check media information. It seems there is a lot of media information available about when people are here for a particular event. We would also use mutual assistance provisions with other countries to check such matters. Revenue is a combined tax and customs administration. We are not slow in accessing information which Customs and Excise may have about people's movement in and out of the country. That is the general approach.

Deputy Noonan

Many of the high profile names have been published and Revenue has a more extensive list. I will not name any names. How many are availing of non-residency to gain tax exemption in this jurisdiction?

Mr. Daly

I do not have that figure.

Deputy Noonan

Is it in the hundreds or 1,000 or 2,000?

Mr. Daly

By definition, the people concerned make tax returns to us for one reason or another by claiming non-residence for exemption. Many are genuinely non-resident and do not come into our frame. If the Deputy is talking about people who might be marginal and whom we should consider, I do not have a figure for them.

Deputy Noonan

The category described in general terms as our tax exiles is the subject of increasing comment. Can Mr. Daly get us information on how many there are? Perhaps he can write to the committee about it.

Mr. Daly

I will see what we have.

Deputy Noonan

The names would be confidential.

Mr. Daly

Obviously, yes but not the numbers. Our approach to this is the same as that to anything else — to analyse the risk in respect of this group or category and tackle it on that basis. If I can get some information, I will pass it on.

Deputy Noonan

What are the exact benefits of claiming the exemption? Is it purely an income tax benefit?

Mr. Daly

There could be income tax and capital gains tax benefits. It is a technical area in which I am not an expert. For example, if one is resident and domiciled, one's worldwide income is subject to Irish income tax. If one is resident but not domiciled, one's Irish and UK income and remittances of foreign income are subject to Irish tax. If one is non-resident, not ordinarily resident — I hope the Deputy will not ask me to define the difference but I can supply the information in writing — one's Irish-sourced income is subject to income tax. There are similar provisions for capital gains tax. If one is resident or ordinarily resident and domiciled, one's worldwide gains are subject to Irish capital gains tax. I can give the Deputy some information in writing.

Deputy Noonan

As well as the tax exile benefiting from non-payment of income tax in this jurisdiction, was there not a change in the law in recent years that also exempts them from inheritance tax and gift tax? There is now a substantial benefit whereby their extensive assets in this jurisdiction would not be liable to such tax.

Mr. Daly

In that regard, domicile, as the key concept for capital acquisitions tax, was replaced by the concept of residence and ordinary residence in December 1999. The transitional arrangements which will expire in December this year provide that a non-domiciled person will not be treated as resident or ordinarily resident in this period. In addition, the residence and ordinary residence of the beneficiary are now relevant factors in claiming capital acquisitions tax on worldwide assets. I am not sure if this answer will be of help to the Deputy.

Deputy Noonan

I am trying to establish whether I am correct in assuming that because of the changes in the 1999 Act which will be fully implemented in December this year, "tax exiles" who in the view of the public are exempt from paying income tax will have no liability in this jurisdiction for inheritance tax or gift tax, not only on their estates in Ireland but on their worldwide assets.

Mr. Daly

I am getting advice from someone more expert than myself. I would prefer to provide the Deputy with a written answer, rather than providing a verbal reply that may be incorrect.

Deputy Noonan

That will satisfy me. It has been suggested to me that the benefits of being a tax exile are significantly more extensive than is publicly realised. There has been a massive benefit in the area of inheritance tax and gift tax since the Finance Act 1999 changed the qualification from domicile to residency. As people are commenting increasingly on this issue, any public debate that might ensue would be helped if we could get the facts.

Mr. Daly

The best I can do is to give the Deputy the facts in writing.

Deputy Noonan

I would be happy with that. I now wish to move on to the special savings incentive scheme. People are obviously topping up their special savings accounts. Does Mr. Daly have any information on this? People still have discretion to top up. Is it treated by Revenue as a tax rebate lodged to the account of the account holder? I am wondering what the trend is.

Mr. Daly

Certainly, the facility to top up is still available. We might have some recent figures which indicate the position, although I do not have any to hand in my brief. I can, however, provide them in writing.

Deputy Noonan

I would like to take Mr. Daly back to the policy of auditing by Revenue with self-assessment. The last sentence on page 29 of the Comptroller and Auditor General's report states a review of the random audit programme was under way and that various issues remarked upon in the report would be taken into account. As I presume this was written early in 2003, what progress has been made in reviewing the audit programme?

Mr. Daly

We discussed this matter at length at the last meeting of the committee and, particularly, the question of the audit programme. The review has more or less been completed. As I indicated at the last meeting of the committee — I think, in response to Deputy Curran — we have decided to go with a totally random approach, mainly for the purpose of being able to extrapolate meaningful figures about the extent of non-disclosure or under-declaration in the future. We have completed the report which is being discussed with our regional offices with the intention of putting the random programme in place later this year. It will be totally random. We have further work to do as to how we will extrapolate data. As I said at the last meeting of the committee, we will need a couple of years' results before we will be able to properly extrapolate the data but it is on the way.

Deputy Noonan

Do I understand the total audit programme will be random, or is it the case that the random element will be fully random? Will there still be targeted audits?

Mr. Daly

Most of our audit programme will still be targeted or screened. We undertake about 16,000 audits in any one year. We will probably undertake something like 1,000 totally random audits. The rest will be on the basis of risk analysis. In fact, we have just commissioned a new computerised risk analysis scheme, the escort scheme, which had its first test run a couple of weekends ago, taking data from particular tax cases. On the basis of rules input into the system by ourselves, it churned out cases likely to yield a result. The vast bulk of our audit programme will be targeted or screened but there will still be the random element largely but not exclusively in response to urgings from this committee and the Comptroller and Auditor General.

Deputy Noonan

One thousand would only be about one quarter of 1% of those making returns. Is that correct?

Mr. Daly

In recent years we agreed with the Comptroller and Auditor General that a total of 6% of audits to be carried out in any one year would be random. As emerged from earlier discussions, we were carrying out random audits but they were not truly random — they were targeted at random. We will stick roughly with that 6% figure over the next few years which will work out at about 1,000 random audits per year.

Deputy Noonan

Of the 16,000?

Mr. Daly

Of the 16,000 but there are a lot more returns than that. People sometimes make the mistake of thinking that Revenue only examines 16,000 returns annually but that overlooks the screening process which is what gets us to the figure of 16,000. Therefore, a much higher percentage of returns is examined each year in the screening process.

Deputy Noonan

There is a view in our profession that there is an awful lot of cash in the economy. For the last three years not a lot of goods and services have been purchased for cash. Is any group looking at the black economy?

Mr. Daly

There is a black economy monitoring group comprised of representatives of Revenue and the various social partners at a high level such as IBEC, the Small Firms Association, ICTU and so on. It looks at general issues related to the black economy from a tax angle, identifying particular areas on which we might focus. The black economy is such an amorphous area that we have concentrated on specific sectors from time to time such as the building industry and forestry. The area of goods and services causes us concern and is the focus of special attention in all regions for monitoring, compliance and examination. We have staff in our policy unit carrying out research trying to target areas where we can intervene successfully.

Deputy Noonan

Is there any evidence of a strong connection between the black economy and the problem of offshore accounts?

Mr. Daly

Again, the investigation of the offshore accounts issue is in its early stages and we need to wait for disclosures to see where the money comes from before making that connection. I could speculate that some of the money that found its way into bogus and perhaps offshore accounts and was invested in property in Spain, for example, might have come from the black economy.

Deputy Noonan

Are those with the typical apartment in Spain which they rent for a couple of months subject to Irish or Spanish taxation, or no taxation?

Mr. Daly

They are subject to Irish taxation but I understand they get credit for any tax paid in Spain.

I may have unintentionally misled Deputy Curran earlier when he asked about the make-up of the figure of €100 million I mentioned the last time I was here. There is an Ansbacher element that I wanted to include. The figure is made up of €500,000 from NIB-CMI, €14 million from Ansbacher, €29 from DIRT-BNR and €58 from offshore accounts. It amounts to €101 million.

Chairman

Deputy Noonan mentioned tax exiles. Can Mr. Daly give us a full report on those living outside the State and getting huge benefit, particularly as they are exempt from capital gains tax and inheritance tax, as the Deputy said? Also, there is huge disquiet about the controls and criteria in respect of the figure of 183 days. At a time when we are talking about equity in the tax system there are people who pay no tax anywhere. An elite number of multimillionaires avail of this system. There is uncertainty about how the 183 day rule is applied. Does Mr. Daly agree?

Mr. Daly

I can write to the Chairman setting out the legislation and what we are doing. Our large cases division, a new division formed as part of restructuring, is focused on this matter.

Chairman

Does a tax exile with an income from a major Irish company pay tax? A large company in Ireland pays tax on the wages of its employees but would the principal of the company be exempt?

Mr. Daly

In principle, the person concerned would be taxed on their Irish sourced income but double taxation rules and agreements would come into the equation.

Chairman

He or she could be exempt from tax in his or her main country of residence and paying no tax in any jurisdiction. Does Revenue check whether the person concerned is paying tax?

Mr. Daly

That is unlikely. I mentioned the use of mutual assistance agreements between Ireland and countries with which we have double taxation agreements. We would look into this.

Chairman

Tax exiles enjoy huge benefits. Deputy Noonan mentioned capital gains tax and inheritance tax exemptions. Such exemptions represent a huge derogation in respect of State receipts.

Mr. Daly

I will set out the legislation for the committee but legislation is a matter for the Oireachtas. I cannot deal with matters of policy.

Chairman

If Mr. Daly is not certain as to what is exempt, there will be huge doubt among the public in respect of the 183 day criterion. Is it being operated? Are people qualifying on this basis?

Mr. Daly

There is uncertainty because I am not an expert in this area but there are plenty of others in Revenue who are and in policing the area.

Deputy Curran

Revenue is looking at funds in offshore accounts. Is there any evidence to suggest these funds are the proceeds of organised criminal activity?

Mr. Daly

I have had no indication of this. We have not seen any of the accounts because we are in the early stages of disclosure. We have a very good working relationship with the Garda. Revenue is represented in the CAB in which we have some very skilled individuals and is in regular contact with the Garda Bureau of Fraud Investigation. If we come across anything like this, we will not be slow to deal with it.

Chairman

On the environmental levy on plastic bags, I see that in the period 1 January to 31 December 2003 a sum of €12.7 million was collected. What is the projected income for 2004? Will it be higher?

Mr. Daly

In the first two months of 2004 we have collected €5.6 million. It seems, therefore, that there is a slight increase but I do not think it will be huge. This is a unique levy and its success will be indicated by how little we collect as opposed to how much. When we reach zero, its success will be total.

Chairman

Is the money ring-fenced? Is it paid to the Department of the Environment, Heritage and Local Government?

Mr. Daly

Yes, it is paid into the environmental levy fund, or whatever its technical name is. We receive an agency fee for collecting it. Our function is to collect rather than police. For a levy that has been in place for two years it is successful, whether shops charge for bags. There is more work to be done on compliance which is quite good. It is also a fact that the vast bulk of the money is paid by a relatively small number of major retailers. In the past few months we have audited the main retailers which, by and large, have been compliant.

Chairman

Is Mr. Daly happy with the level of compliance?

Mr. Daly

I am, although we may have some work to do.

Mr. Purcell

The Chairman asked about the destination of funds. They are payable to the environment fund and associated with the landfill levy. While the plastic bag levy yielded a sum of €7.2 million in 2002, the landfill levy yielded a sum of almost €13 million. The funds are earmarked for a number of schemes, including the waste capital grants scheme, and the costs incurred in the planning and procurement of major local authority waste infrastructure. The fund, when audited, will be examined by the committee. The expenditure aspect can be considered at that time.

Chairman

I thank Mr. Daly and his team. Is it agreed to note chapters 2.1 to 2.10, inclusive, and the Revenue Vote? Agreed.

At its next meeting to be held at 2 p.m. on Thursday, 1 April the committee will deal with the 2002 accounts of Bord na gCon and Vote 35 — Department of Arts, Sports and Tourism.

The witness withdrew.

The committee adjourned at 2 p.m. until 2 p.m. on Thursday, 1 April 2004.