Léim ar aghaidh chuig an bpríomhábhar

Thursday, 17 Jan 2008

Chapter 3.10 — Aspects of Rental Income Taxation.

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

I welcome Mr. Frank Daly and his colleagues. As of 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 and 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 or 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 be exercised only with the consent of the committee. Persons invited before the committee are made aware of these rights and any person identified in the course of proceedings who is 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 the committee considers it appropriate in the interests of justice.

Notwithstanding this provision in the 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 by name or in such a way as to make him or her identifiable.

Members are also reminded of the provisions within Standing Order 158 that the committee should also refrain from inquiring into the merits of a policy or policies of the Government or a Minister or the merits of the objectives of such policies. For the information of members, in case they are not aware, the proceedings of the committee are generally available on the internet within one to three working days following the committee meeting.

I welcome Mr. Frank Daly, Chairman of the Revenue Commissioners, whom I invite to introduce his officials.

Mr. Frank Daly

I thank the Chairman. I am accompanied this morning by Mr. Liam Irwin, deputy secretary and head of the strategic planning division and by Mr. Paddy O'Shaughnessy and Mr. Ken Monaghan from the administrative budget unit in the strategic planning division. With the Chairman's permission, our senior press officer, Mr. Dave Coleman, is in the Gallery.

Chapters 3.7 to 3.10 of the annual report of the Comptroller and Auditor General read as follows:

3.7 Control of Alcohol Tax Warehouses


Excise duty is levied on excisable products – alcohol products, mineral oils and tobacco products. The rates of duty are set nationally. Total excise duties collected in 2006 on alcohol products amounted to €1,078m (€1,038m in 2005).

Excise duty is payable at the time of production in Ireland or importation into Ireland. However, if the product is held in a tax warehouse, payment of the duty is suspended until it is released for consumption onto the home market. A tax warehouse is a premises approved by Revenue where excisable products can be produced, processed, held, received or dispatched under a duty suspension arrangement by an authorised warehousekeeper in the course of business. There are 177 approved tax warehouses in Ireland and 122 of these are authorised to operate duty suspended arrangements for alcohol products. Revenue also grants approval to traders who operate as tenants in tax warehouses thereby allowing them to operate the duty suspension system. There are 286 traders approved as tenants and 247 of these deal in alcohol products.

European Union

With the introduction of the Single European Market in 1993, an EU-wide control and movement system for excisable products was introduced. Each Member State determines the rules for the production, processing and holding of excisable products subject to the provisions of EU directives. As excise duty does not become payable until goods are released onto the market for consumption, duty is suspended on goods sent from a tax warehouse in one Member State to a tax warehouse in another. Goods moving between Member States under these arrangements must be accompanied by a document known as an AAD (Administrative Accompanying Document). This document is completed by the dispatching warehouse. The receiving warehouse signs the document and returns it to the dispatching warehouse as proof that the goods were received. Similarly, duty is not payable on goods transferred between tax warehouses in Ireland. The System for Exchange of Excise Data (SEED) is an EU wide database of excise warehouses. Each approved warehouse is given a reference number by the Revenue administration of the country in which it is situated. The dispatching warehouse can therefore check whether the receiving warehouse is an authorised tax warehouse. Its usefulness as a control depends on it being kept up to date by all Member States.

Revenue System of Control of Tax Warehouses

The warehousekeeper is responsible for the control and security of products stored or being moved under duty suspension. Revenue controls the operation of tax warehouses by means of

An approval process for warehouses, warehousekeepers and tenants

On-going administrative control including supervisory visits and checks and review of monthly stock returns

Regular audits.


To obtain approval, applicants must satisfy a number of specified criteria, for example that there is an economic need for the warehouse, that it is secure, complies with Health and Safety requirements and will be operated in a way which will enable Revenue to achieve satisfactory levels of control. In all cases Revenue officers visit the applicant at the proposed premises.

Checks are also carried out of the applicants' tax compliance history, of Company Registration Office records, enquiries are made with Revenue's Investigation and Prosecution Division and tax clearance certificates are sought. Revenue does not seek Garda clearance for applicants.

I enquired why no Garda clearance checks were carried out. The Accounting Officer informed me that Revenue carried out detailed checks on applicants drawing on the extensive information it holds. In the case of non-residents, tax administrations in other countries were consulted. He stated that, given the depth of information that Revenue already obtained, the usefulness of Garda checks was not certain. However this was something that would be looked at in the context of a current review of the tenant warehousekeepers approval system.  I also asked whether control would be improved if approved warehousekeepers and tenants were required to provide tax clearance certificates on an on-going basis. I was informed that, in addition to formal authorisation, every warehousekeeper must hold an excise licence for the activity in the warehouse and that the granting of these annual licences was subject to tax clearance. Formally specifying tax clearance as a requirement for warehousekeeper approval, and making failure to obtain tax clearance a ground for revocation of authorisation, was one of a number of options for strengthening of the law on warehousing that was being considered.

Administrative Control

A Revenue control officer is assigned responsibility for the supervision of each approved warehouse.

Each warehousekeeper is required to submit a monthly stock return to Revenue detailing all goods movements. Control officers examine returns for accuracy and any deviations from normal activity. Dutiable deliveries are checked to the supporting documentation and spot checks are carried out on duty suspended movements to other EU countries and on third country movements.

Supervisory visits by control officers may entail physical inspection of the premises and procedures. In general, storage and distribution warehouses are visited at least quarterly and manufacturing warehouses at least monthly. Instructions to control officers provide for a full stocktaking to be carried out every 12 months but they can be carried out less frequently having regard to staff resources. However, they must be carried out every three years.

Warehouse Audits Periodic audits of warehouses by Revenue officers, other than the control officer, are also an important control. Audits involve

Ensuring proper records are maintained and the conditions of approval are being complied with

Statistical checking of volume of trade with duty declarations and stock levels

Sample checking of transactions between accounts records and duty declarations

Physical stock checks and challenges

Checking warehouse records for a sample of tenants to the tenants' own commercial records.

The Drinks, Tobacco and Multiples Unit (DTM) of Revenue's Large Cases Division (LCD) is responsible for the major warehouses dealing in alcohol products. A separate audit section of the DTM Unit carries out audits of the warehouses controlled by the Unit. Warehouses are selected for audit based on an assessment of risk. When the audit based system of control of warehouses was introduced the intention was that each warehouse would be audited every 6 months. The current general objective is that each warehouse be audited every two years. There were 53 audits carried out in the period 2004-2006 by the Large Cases Division, from which there was no yield.

In 2005 the audit section of DTM took on responsibility for customs audits for other LCD Business Units as well as providing a mentoring services to other units in relation to customs. The provision of mentoring is due to end in 2007. This diversion of resources to other activities has reduced the number of audits of tax warehouses. Of the 33 warehouses authorised for alcohol products and controlled by DTM Unit, 17 were audited in 2004, 15 in 2005 and 8 in 2006. In the years 2004 to 2006, 16 of the 33 warehouses had not been audited within the planned two-year cycle.

The Accounting Officer informed me that operational policy on audit frequency and coverage is reviewed on an ongoing basis, and, based on current risk analysis, risk assessment and risk management techniques, the current level of audit was considered to be satisfactory. Full stock takes were carried out at least every three years and, in the case of some of the larger warehouses, more frequently. He also stated that, unlike some other jurisdictions that rely solely on audit as a form of control, the Irish system incorporates control officers who scrutinise and supervise activities on an ongoing basis. Given these safeguards, and the low levels of risk as evidenced by the minimal yields from audits, he was generally satisfied as to the frequency with which audits are carried out.


A bond is required to cover the duty perceived to be at risk rather than the total potential duty liability. Warehousekeepers can provide separate bonds or guarantees to cover specific procedures such as goods dispatched to tax warehouses in other EU countries. A minimum bond level of €127,000 is required for storage and distribution warehouses. Bonds are not usually required for tenant warehousekeepers as the risk is considered to be covered by the warehousekeeper's bond.

While regard is had to various criteria in setting bond levels, there is no risk based formula with weightings for different risk factors used to calculate bond levels. Such a method of setting bond levels would be more transparent and allow for a more structured periodic review of bonds. Revenue considers that current bond levels are adequate based on knowledge of traders and assessment of risk and taking account of the well-established record of tax compliance that most of them possess.  The Accounting Officer informed me that the role of bonds as a mechanism for excise control is also to be reviewed. He stated that many low-tax Member States pitch the level of their bonds to their own rates, with the result that they are completely inadequate to cover the risk for consignments moving to this country. Revenue was conscious of the important role that the provision of appropriate financial security played in the overall system of monitoring and control of excisable products under duty suspension. While providing appropriate safeguards against default or fraud, a bond system must also avoid imposing excessive financial burdens on excise traders, the vast majority of whom were tax compliant.


As duty on goods held or moved under duty suspension arrangements has yet to be paid, there is a risk of loss of revenue. Duty will not be collected if goods are fraudulently removed from the duty suspension system. There is a loss to the Irish Exchequer if such goods are released onto the Irish market. If goods are fraudulently released onto the market in another EU country, there is a loss of revenue in that country. There are several types of fraud that can occur when goods are held or moved under duty suspension, including

Outward Diversion Fraud – duty suspended goods being purportedly transferred to a tax warehouse in another EU country but are diverted onto the market without payment of duty

Inward Diversion Fraud – duty suspended goods being purportedly transferred from a tax warehouse in another EU country to an Irish tax warehouse but are diverted onto the market without payment of duty

Inland Diversion Fraud – duty suspended goods moving between warehouses in Ireland but diverted onto the market.

Administrative Accompanying Document (AAD)

The system of movement between EU countries is underpinned by the AAD document. The dispatching warehouse satisfies itself that the receiving warehouse is an authorised warehouse and completes the AAD. This is not discharged until the dispatching warehouse receives a signed copy from the warehouse in the other Member State as proof that the goods arrived. The AAD system is open to abuse in a number of ways, not all of which require collusion between the parties to the movement of goods.

As even genuine AADs can take some time to be returned to the dispatching warehouse, it can take a considerable time to identify fraud.

Another control is the issue of a movement verification request to the Revenue authorities of another Member State. This involves Revenue requesting the relevant authorities to confirm that a consignment dispatched from a tax warehouse in Ireland arrived at the tax warehouse in the other Member State. This is a useful control but is dependent on a speedy response. Even when a prompt response is received it may be too late, as the goods and the perpetrators of the fraud may have disappeared.

I enquired as to the number of undischarged AADs and the related value of duty involved in each of the years 2004, 2005 and 2006 and whether the duty had been recovered from the dispatching warehousekeeper in all of these cases. In his response the Accounting Officer informed me that at present no actual records of undischarged AADs was maintained by Revenue. However with the introduction of a planned new electronic system, EMCS, a database register of all electronic AADs showing their current status will be created.

Electronic Movement and Control System (EMCS)

Due to the high level of fraud in Member States and the corresponding loss of revenue, especially in the case of tobacco and alcohol, the EU Council of Economic and Finance Ministers in 1998 endorsed a report recommending the setting up of a computerised trader-to-trader link via member states' tax administrations. A feasibility study concluded that the computerisation and replacement of the AAD with an electronic system was feasible. A 2003 decision of the European Parliament and the Council of the EU provided the legal basis for the development of the system known as the Electronic Movement and Control System (EMCS). Each member state is developing its own system based on EU standard requirements. The EMCS is expected to be operational by mid 2009 and is intended to improve the monitoring of movements of duty suspended goods by

Simplifying duty suspended movements by electronic transmission of the AAD rather than as a paper document

Securing the movements of goods by checking traders' data before the goods are dispatched and ensuring a quicker return of evidence that goods arrived at their intended destination

Monitoring the movement of excisable goods by providing real time information and allowing checks during movements.

The system will be capable of computerising domestic movements.

The Accounting Officer informed me that experience shows that the intra-Community movement system had been reasonably effective and it is expected that it will be significantly improved when it is fully computerised in 2009.

Alcohol Duty Frauds in the UK

From the mid 1990s diversion fraud began to be recognised as a growing problem in the UK. Between 1993 and 2000, it was estimated that revenue lost in fraud cases investigated amounted to stg£668m, representing 1.45% of total alcohol duty over the period. The UK was particularly susceptible to diversion fraud because it, like Ireland, had a high excise duty regime, unlike many other EU countries. The removal of a Customs presence in tax warehouses was identified as an important factor in failing to prevent the frauds. In the majority of the frauds, the receipting stamps on AADs were forged.

Frauds Identified in Ireland

Case details

In 2003, two diversion frauds, perpetrated by tenant warehousekeepers, were discovered. In the first case, the ownership of a company, which had approval as a tenant, changed. In response to a movement verification request, the Spanish authorities informed Revenue that a consignment of goods was not received in a Spanish warehouse. Subsequent verification requests established that 9 out of 25 consignments were not received in the Spanish warehouse. It also came to light that the Spanish warehouse had a previous history of infringements. Revenue was not notified of the change of ownership of the tenant company, despite a requirement that it be advised when there is a change of effective ownership or controlling interest where the warehousekeeper is a limited company. The Alcohol Products Tax, Regulations, 2004, introduced a regulation that, where there is a change of ownership or control, the approval ceases.

In the second case, approval was granted to a tenant, about whom Revenue had suspicions, because legal advice was obtained to the effect that approval could not be refused solely on the grounds that a person might commit fraud. The Spanish authorities, in response to a movement verification request, informed Revenue that a consignment had not arrived at a Spanish warehouse. The following day, the UK authorities contacted Revenue to state that they had detained a consignment sent by the Irish tenant to a Spanish warehouse and sought confirmation that the Irish warehouse was approved. The UK authorities also informed Revenue that the Spanish warehouse was no longer authorised. However, it was still showing as authorised on the Irish SEED database. Further movements from the tenant were stopped. Copies of all AADs relating to 55 shipments by the tenant to two Spanish warehouses were sent to the Spanish authorities for confirmation and investigation. None of the consignments were received.


Revenue considers that none of the goods involved in these frauds were diverted onto the Irish market but, if they had been, the loss to the Irish exchequer would have been approximately €16.3m. However, there was a loss of duty in the country in which the goods were ultimately sold, which Revenue considers was most likely to be the UK. In neither of the two cases of fraud was the duty on the missing consignments paid or the bond estreated. The investigation is effectively closed in Ireland. No duty has been recovered. There are unlikely to be any prosecutions in this jurisdiction because of lack of evidence. However, Spanish authorities have taken criminal proceedings against the directors of the Spanish company involved.

I have been informed that developments to the SEED system were implemented in July 2006 and that Revenue regularly reviews and updates the database from an Irish perspective. As the database is a Community one, it is also dependent on other Member State administrations for input, and delays can occur that are outside Revenue’s control. A one-week delay in updating the system presently applies but this is an improvement from the monthly EU updates previously available. A further development of the system is scheduled for May 2008. This will reduce the delay to a few days at most.

I enquired why the bond in both fraud cases was not estreated and whether it was considered that the effectiveness of bonds in securing revenue at risk and acting as a deterrent was undermined if bonds are not estreated in cases of fraud. The Accounting Officer informed me that the traders involved in the frauds were given warehousekeeper approval, despite Revenue's reservations as to their suitability, because the legal advice was that there were insufficient grounds for refusal. The landlord warehousekeeper was not informed of those reservations, because to do so would have left Revenue exposed to a claim for defamation. The landlord, therefore, assumed the tenant's bona fides on the basis of the Revenue approval.

In the circumstances, and taking considerations of natural justice into account, it was considered draconian to penalise a legitimate trader who was innocent of any knowledge or involvement and had derived no financial benefit from the frauds. Furthermore, it was considered that estreating the bond in these cases would, at best, have recovered only a part of the tax liability and could have put the business of the landlord warehousekeeper at risk.

Finally he informed me that the practice of giving warehousekeeper approval to tenants in a tax warehouse, and the control requirements imposed on persons who receive such approval, are currently being reviewed.

Revenue Response to the Frauds

Arising from concerns in relation to these frauds, a number of proposals will be made in 2007 to Revenue's Management Advisory Committee. Under these proposals there will be no tenants as they now exist. Instead, approved warehousekeepers will be required to risk rate owners of goods who want to store them in their warehouse, advise their bond provider and provide evidence to Revenue that the bond provider has been informed of the full details and that the underwriter accepts the liability. The owner of the goods will be required to formally register with Revenue and will normally be restricted to storing goods to be released for home consumption only. The implementation of these proposals would require legislative change.

I have been informed that a number of options for the modification of the system of approving tenant warehousekeepers are under consideration. A decision as to any action to be taken will be made in the near future. It is likely that any change to the existing system would require the amendment of section 109 of the Finance Act, 2001. This would be undertaken in tandem with the envisaged strengthening of the provisions for approvals and revocations.

Revenue established an Excise Risk Group in September 2005 to identify the risks to revenue in relation to excise duty and to make recommendations on the level of excise checks. The Group reported in January 2006. The main risks identified in relation to duty on excisable products were the approval process and the scope for fraud in the AAD system. The report is currently being implemented on a phased basis in all Regions and appropriate Divisions of Revenue.

I asked the Accounting Officer if consideration been been given to introducing a system of tax stamps for spirits as provided for by EU Directive. He informed me that tax stamping of spirits was introduced in the UK in July 2005 despite strong opposition from the trade. This was in response to significant excise losses from smuggled spirits on the UK market. However he stated that there was no evidence that the threat posed to tax receipts in Ireland by illegal sales of untaxed spirits was such as would warrant the introduction of tax stamps. While a number of publicans have been successfully prosecuted for such offences in the last few years, there was no indication that the problem is widespread or increasing. In current circumstances the introduction of tax stamps was considered to be disproportionate in terms of the risks involved and the burden to the legitimate trade in operating a stamping system.

Accounting Officer – General Observations

The Accounting Officer informed me that

Despite fears that the abolition of customs control of imports in 1993 would lead to widespread fraud, the warehousing system had continued to be effective and there had been very few instances of fraud over the years. The vast majority of tax warehousekeepers were compliant and their number small enough to allow for adequate monitoring and control.

He believed that the system of control was satisfactory and struck a reasonable balance between protection of revenue and facilitating legitimate trade. While there was no single corporate performance indicator for monitoring the effectiveness of the system, its effectiveness was evidenced by the nil yield on 53 audits carried out by our Large Cases Division between 2004 and 2006 and by the rarity of instances of fraud.

There would, however, always be a risk of fraud where excisable products were being moved under duty suspension. For that reason, Revenue was committed to reviewing control systems and processes on an ongoing basis, taking account of best practice throughout the EU, and would effect modifications or enhancements where the need arose.

The two frauds referred to had prompted a re-examination of certain aspects of control requirements and procedures. In particular, the practice of authorising tenants as warehousekeepers in a warehouse, and the responsibilities to be imposed on them, were being reviewed and proposals for change, with supporting legislation as required, would be made in the near future.

3.8 Stamp Duty on Property Transactions


Stamp Duty is a duty payable on a wide range of legal and commercial documents, referred to as instruments, including conveyances of property. The rate may be either ad valorem or fixed. The First Schedule to the Stamp Duties Consolidation Act, 1999 lists the types of instruments liable to duty and the rate applicable. The Act also sets out how Stamp Duty is to be collected and denoted and the person liable to pay the duty. The legislation is premised on a self-certification approach to drafting instruments for presentation to Revenue’s Stamping Offices. The self-certification approach is reinforced by the provision in the Act that instruments not properly stamped are not admissible in evidence in civil proceedings.

Instruments which must be stamped are presented, accompanied by the correct amount of stamp duty due, to a Stamping Office and examined by a Revenue officer to establish the particulars therein affecting stamp duty. In general, stamp duty is assessed and calculated and reliefs granted based on the information and certification contained in the instrument. Assessment/calculation and stamping (receipting) for stamp duty is processed by and recorded on Revenue's Stamp Duty Administration System (SDAS).

In the vast bulk of cases, copies of instruments are not retained and the SDAS electronic record is the only data retained. Roughly half of the entire number of stamp duty transactions is conducted over the public counter and the other half by post. Paper files are only retained in relation to adjudication or complex cases, refund cases, penalty mitigation cases and for all postal cases in which there were issues to be addressed.

In 2006, stamp duty relating to property transactions accounted for approximately 82% of total net stamp duty receipts of €3,632m.

Stamp duty receipts from property transfers in the period 2001-2006 are set out in Table 1.

Table 1 Total Stamp duty receipts from Property Transfers (€m)













In the case of property transactions, the rate and amount of duty payable is determined by

The price paid for the property or the assessed market value

Whether the purchaser is a first time buyer, an owner occupier or investor

Whether the property is new or second-hand

Whether the property is residential or non-residential

Whether the size of the total floor area exceeds 125 square metres and

Whether, in relation to new property, a building agreement exists.

Revenue Audit of Compliance in Dublin

A dedicated stamp duty audit section was established in 2002. This carries out audits relating to stamp duty in respect of properties purchased by Dublin-based taxpayers. There were 10 staff deployed in the section at the end of April 2007.

In 2006 the section carried out an audit project in relation to stamp duty on property transactions conducted in 2003. The audit sought to establish whether those availing of owner/occupier full or partial exemption had rented the property within 5 years of purchase or were investors. In such cases the purchaser is liable to pay Revenue the difference between the duty paid, if any, and the duty liable had the relief not applied, along with any interest that may be due. The project examined a database containing in excess of 65,000 cases. Incomplete records were excluded. The data was specific to new house purchases only.

A matching exercise was carried out between the SDAS and Revenue's Common Registration System (CRS). A total of some 5,500 cases from the Dublin region was extracted where the purchaser's recorded address differed between the SDAS and CRS and where the purchasers availed of full owner/occupier relief on stamp duty for new property.

A random sample of 1,000 of these cases was selected. An inquiry letter issued to each purchaser requesting information on all property owned within the previous five years. Revenue received a reply in approximately 90% of cases. Where no reply was received, Revenue visited the addresses in question — 102 visits were necessary. Further enquiries were necessary in 35 of these cases. On examination of the 898 replies received, further investigation was necessary in 105 cases making a total of 140 requiring further audit. A total of 31 of these cases were later found to be satisfactory.

An estimated €1.2m in stamp duty, penalties and interest charges was assessed in respect of the remaining 109 cases, comprising 94 clawback cases as the property had been rented within five years of purchase and 15 cases where investors had incorrectly claimed relief.

As results in approximately 11% of the sample of 1,000 cases selected for the purposes of the stamp duty audit project were found to be unsatisfactory, I asked was consideration given to increasing the sample size and, if not, why not. I also asked if consideration had been given to conducting a similar exercise for more recent years. The Accounting Officer informed me that the results of the pilot sample were analysed and reported upon by the Capital Accounts and Audits Division (CAAD). This report was submitted to the Operations Management Group (OMG) in May and a steering group had been set up to scope a potential risk focussed national project taking account of the Dublin claw back cases, data matching possibilities to narrow the target range and resource implications. This group had very recently furnished recommendations to the OMG which is now considering the matter.

He also informed me that, in Dublin, CAAD carries out post-stamping audits to support the stamp duty compliance programme. In other regions, stamp duty compliance issues were addressed if they arose in the course of general audit programmes. Most Revenue audits were carried out as a result of risk-profiling the taxpayer looking at all available risk factors as opposed to focusing in the first instance on a particular tax or scheme of exemption/relief within that tax.

In 2003, a working group in Revenue was convened to devise suitable audit triggers for stamp duty risk assessment. As a result, a list of 31 triggers was agreed that would form the basis for risk profiling, risk analysis and an audit programme for stamp duty in the future. 10 were identified as occurring most frequently and/or carrying the greater risk of loss of stamp duty. Certain triggers were checked at the processing stage (when deeds are presented for stamping) while others were checked in post-stamping audits.

The audit undertaken by Dublin Region's CAAD was a logical follow on from this work to target those who claimed owner occupier exemption on new residential properties.

I also asked what action was taken by Revenue to validate replies received in response to questionnaires issued. I was informed that, in the first instance, Revenue applies the presumption of honesty to all responses unless there is reason to believe otherwise. Where any suspicions arose they were fully pursued.

At the time of my audit examination it was noted that there was a proposal to devolve responsibility for stamp duty audit from CAAD to Districts in the Dublin region.

Data Management

A form ST21 (an abstract of the instrument) must accompany deeds of transfer of land and buildings only. The ST21 contains details of the parties concerned, including Personal Public Service (PPS) numbers and addresses, the location and a description of the property and the consideration paid. There is no provision on the form to record the amount of duty paid.

This form's main purpose is to provide certain specific data from property transfers for other Revenue areas. It is not used to calculate the stamp duty payable or to establish any particulars, which may affect stamp duty.

ST21 forms are forwarded to a private company for entry on the SDAS.

An analysis of the SDAS database for 2005 carried out by Revenue, at the request of this Office, in May 2007 noted that there were 268,606 purchasers in total. Of these

3,720 had no name included

75,074 had no address

22,865 had an invalid PPS number

49,931 had no PPS number.

Revenue did point out that names, addresses and PPS numbers are not required in all cases to assess duty.

Moreover, in a recent report, on an unrelated subject, provided to Revenue, consultants noted that, of 400 randomly selected ST21 forms, no information was available on 50 of the transactions.

In the light of the results of the analysis of the ST21s for 2005, I asked the Accounting Officer if he was satisfied with the accuracy and completeness of information on the SDAS. He informed me that SDAS records all the relevant information on which stamp duty is calculated and assessed in respect of every document presented. He was satisfied that the information on SDAS accurately and completely reflects the processing casework in each record.

He stated that Revenue practice was to check ST21s for completion of relevant fields as well as validity of tax reference numbers since January 2006. Furthermore in 2005, Revenue issued instructions and advised the legal profession that incomplete or illegible ST21s would no longer be accepted. While it was accepted that all of the information that was required on the form may not have been accurate and complete for 2005 and prior years, Revenue did not consider that this posed any high level risks. The data was informational only and had no role to play in the assessing and collection of stamp duty. He stated that at present Revenue had no plans in place to identify and capture valid PPS numbers for 2005 where none were presently available. Since 2006, a system had been put in place to ensure that the PPS number is on the ST21 and was valid. Initiatives had been put in place to address some of the concerns regarding the completeness of ST21s.

He informed me that the data was captured and made available to other areas in Revenue who were obviously interested in such financial information from a risk profiling point of view. Finite resources meant that a 100% check was not always possible. Nonetheless it was considered that the checking level was adequate. The primary focus of the Stamping Offices was to ensure that the relevant instruments were correctly stamped and the correct amount of duty was assessed and paid.

Returned ST21 Forms

Forms that cannot be processed by the private company are returned to Revenue. These are referred back to the relevant stamping areas for attention.

The main reasons given for the return of documents to Revenue by the company are the absence of or duplicate identification numbers. In the absence of the numbers it is not possible to link the information on the ST21 with the SDAS.

The number of documents returned in recent years was

2003/4 – 6,500 documents returned

2005 – 4,360 documents returned

2006 – 334 documents returned (to May 2007).

In view of the potential value to Revenue of the information contained in ST21 forms, I asked what action is taken with documents returned by the contract company to Revenue. I was informed that, due to pressure of work and other priorities in Revenue, no action had yet been taken to address the ST21s returned by the company. The main priority for staff involved in what essentially was a customer service activity was to assess the liability by reference to the information provided in the deed. The risks associated with not processing this small number of forms were considered to be low.

Improvements Made or Planned The Accounting Officer stated that some central points and issues raised by my staff had already been identified within Revenue and improvements made

Data capture of ST21s was fully operational with ongoing improvements

Districts had better access to IT systems to assist in identifying the correct PPS numbers

An updated audit capability had been introduced

Significant progress had been achieved in the elimination of deposits.

In addition, improvements have been made in response to concerns expressed by solicitors at the proliferation of Revenue certificates that can apply. Inclusion of incorrect certificates results in a high percentage of deeds being rejected at processing or indeed, being processed incorrectly. Dublin Stamping District has designed an intuitive, user-friendly web routine that allows solicitors to navigate to the correct certificates to be included in deeds, depending on the nature of clients' transactions. The web routine was launched in April 2007 and has been well received by the Law Society. Increased usage of this web routine will result in fewer incorrectly certified deeds being presented for stamping.

The following improvements were planned

Revenue was continually reviewing its compliance intervention programmes and planned to extend compliance checking of elements of stamp duty that appeared to show the biggest risks using better risk triggers

Revenue was currently engaged in a process of planning the introduction of a self-service e-stamping system that would simplify and modernise the entire administration of stamp duty. As part of this project, a stamp duty return would be designed and would be required for every stampable instrument. Completion of the proposed stamp duty return would be mandatory while simplicity of design would assist in the processing of the information. Inclusion of stamp duty in the Integrated Taxation Systems (ITS) would also ensure that the data captured through the e-stamping process would be available to other Revenue systems to assist whole case management audit and compliance operations.

Some issues arising from Revenue's Dublin audit and my audit had signalled the need for procedural improvements and the following would now be introduced

Floor area certificates would be sought as part of the standard approach to audit enquiries where relevant to exemption claims made

Publicity and information around owner/ occupier reliefs and clawback situations would be extended.

Accounting Officer's General Comments

Management and control over the stamp duty system must take the following into consideration

There is a large necessary element of reliance on honest reporting in all taxes and duties.

The customer service and collection system works efficiently and effectively and delivers a quick turnaround of cases with relatively low staffing.

Customer Service principles and the accurate assessment and accounting for stamp duty receipts are the priorities in the Stamping Offices. This has been achieved, during periods where there has been huge volume of transactions in the unprecedented booming property market and a buoyant economy, with finite resources.

Resources were allocated to areas of highest risk but efforts were made to cover all risk areas to an appropriate level. Stamp duty audit of residential property transactions fell, in general, into the low risk category. Audit results backed this up. There were some particular issues of concern, for example, around clawback situations, that are by their nature difficult to police. But these had to be addressed in a proportionate way. A balanced view needed to be taken between a necessarily limited compliance resource and risk based prioritising of taxpayers with higher tax yields.

In the case of stamp duty on property, the purchasing taxpayer had the added incentive to report and self-certify honestly because title to property depends on the instrument being properly stamped. Insufficiently stamped instruments are not admissible in evidence. Realistic and worthwhile improvements to control and audit stamp duty were planned. E-stamping, a major strategic project in which internet technologies and solutions would be employed to re-engineer all aspects of the assessment and collection of stamp duty, was part of that solution. This would streamline processing, provide an electronic record of each case within ITS for better risk analysis and would free staff from processing for control.

3.9 Passenger Controls at Airports

Persons arriving in Ireland from another country may be liable to pay duties and tax on goods purchased abroad. Customs duties may be charged on goods imported from outside the European Union. The rate of duty depends on the precise nature of the goods and is set by the EU. The Customs and Excise Tariff of Ireland sets out customs duties chargeable. Subject to certain exceptions such as goods for personal consumption, excise duty is payable on all excisable products imported into Ireland regardless of origin. Rates of duty are set nationally and different rates apply to each category of excisable product. As a general rule, imported goods are liable to VAT at the point of entry into Ireland at the same rate as applies within Ireland.

The amount, if any, of duty and tax to be paid by persons arriving in Ireland with goods purchased abroad depends on whether

The goods were purchased in an EU Member State or in a country outside the EU — a third country

The goods are for personal or commercial use.

Goods imported for commercial purposes are liable to customs duty (if imported from outside the EU), excise duty (depending on type of goods) and VAT.

There is a wide range of goods that cannot be brought into Ireland and other goods can only be brought in subject to certain restrictions. Examples of prohibited goods include controlled drugs, explosives, firearms, obscene books and videos and certain animals and plants.

Passengers Arriving from EU Countries

Since the establishment of the Single European Market in 1993, passengers arriving from countries within the European Union do not have to make a customs declaration on arrival in Ireland as tax and duty are not payable on goods brought in provided they are for the passenger's personal use. In the case of alcohol and tobacco products, Revenue have set indicative quantities of these products that, if not exceeded, will be regarded as for personal use provided there is no indication or suspicion of commerciality. If these quantities are exceeded, the passenger must prove that the goods are for personal use.

There are separate limits on the amount of tobacco products that can be brought into Ireland for personal use that have been purchased in certain EU countries.

Persons travelling between EU countries cannot purchase goods duty and tax free except for immediate consumption on board ferries or aircraft. Duties and/or taxes must be paid on any such goods still held on arrival in Ireland.

Passengers Arriving from Third Countries

Passengers arriving in Ireland from a third country are obliged to make a customs declaration at the point of entry. Passengers are permitted to bring in goods for personal use free of duty and tax provided the combined value of the goods does not exceed €175 (€90 in the case of persons under 15 years). In addition, tobacco products, alcohol and perfumes can be brought in free of tax and duty subject to certain limits.

Customs Declaration effected by Colour of Exit Channel

Three Irish airports have been authorised by Revenue and approved for air traffic with third countries and in which customs controls on baggage can be carried out – Dublin, Shannon and Cork. There are three customs channels at each of these airports and the functions of each are

Red Channel – passengers go through this channel if they are arriving from outside the EU and have goods to declare on which tax and/or duty is payable. By entering this channel they are making a customs declaration to that effect and Customs officers will collect the amount due.

Green Channel – by entering this channel, passengers arriving from outside the EU are making a declaration that they have no goods on which duty and/or tax is payable. Customs officers may stop passengers going through the green channel and examine their baggage.

Blue Channel – this channel is for passengers arriving from a country within the EU. They are not required to make a customs declaration. Customs officers may not stop passengers going through the blue channel unless they suspect they are not arriving from an EU country or that they have prohibited goods or are involved in commercial smuggling of goods. Passengers' baggage on intra EU flights is given a green-edged label to assist in identifying it as arriving from another EU country.

Passengers who exceed the relevant limits are liable to have the goods seized and are also liable to be prosecuted. Except in the case of prohibited goods, the goods may be released on payment of the taxes and duties due as well as any penalty imposed.

Transfer Passengers

Passengers who arrive in Ireland from a third country via an EU country must make a customs declaration by entering either the green or red channel unless all of their baggage was cleared by the Customs Authorities at the first point of arrival in the EU.

Growth in Air Travel

Table 1 shows the dramatic increase in air travel which has occurred in recent years. It also shows that over 75% of all air passengers travel through Dublin Airport. In 2006, approximately 10.7m passengers (9.3m in 2005) arrived in Dublin Airport. The predominant importance of Dublin Airport, from a customs compliance perspective, is also demonstrated by the number of Revenue seizures at airports which show that in 2006 over 80% of these were in Dublin Airport and represented approximately 90% by value of airport seizures.

Table 2- Airport passenger (arrivals and departures) numbers 2001-2006 (millions)




































Accordingly my audit examination focused primarily on Dublin airport.

Revenue Presence at Dublin Airport

Revenue's Dublin Airport District (the District) is responsible for the enforcement of customs regulations for both passengers and cargo arriving in the Airport and for the facilitation of trade. The District currently has a staff complement of 71. 39 staff are involved in enforcement activities – 3 of whom deal with management and administrative duties – and 32 deal with trade facilitation and the control of commercial cargo. Most enforcement staff operate in the passenger terminal. An extra 14 staff are to be appointed shortly who will increase regular enforcement operational resources to 50. New rosters are to be implemented to allow for greater customs presence at highest passenger throughput times.

The responsibilities of the District are, in relation to Dublin Airport, to

Collect all import duties

Enforce prohibitions and restrictions

Prevent, detect and seize controlled drugs at importation/exportation

Implement import and export controls

Facilitate trade and commercial cargo.

The District is also responsible for Revenue activity at 3 aerodromes in the Dublin area, Weston, Newcastle and Trim.

The Accounting Officer informed me that he was satisfied that the level of resources now available in Dublin Airport (and indeed in Cork and Shannon) was sufficient to implement the necessary controls at passenger terminals in an effective and efficient manner. This was kept under regular review. He stated that Revenue had recently carried out a review of enforcement staff numbers and that extra staff were in the process of being assigned to the areas of greatest risk.

Activity Levels

Precise figures are not available but it is estimated that approximately 790,000 or 7.4% of passengers arriving in Dublin Airport in 2006 arrived from third countries and were required to make a customs declaration i.e. exit through the green or red channel.

In 2006, tax, duty and penalties of €38,202 (€18,441 in 2005) were collected at Dublin Airport from passengers arriving from third countries who either declared personal goods at the red channel or were stopped at the green channel and found to be in excess of the relevant limits. Details of seizures at Dublin Airport in 2005 and 2006 are set out in Table 3.

Table 3 Dublin Airport seizures 2005 and 2006





Value €


Value €





















Prohibited/Restricted Goods





Counterfeiting (cheques, etc.)










Focus of Work of the District

In practice, staff attention is prioritised to detect smuggling of drugs and other prohibited goods, tobacco/cigarette smuggling and cash imports and exports under the Proceeds of Crime Act, 2005.

I asked the Accounting Officer if the emphasis on the targeting of drugs and tobacco smuggling posed a risk that the abuse of the personal goods limits might not be adequately monitored. In reply, he informed me that the EUROPOL Organised Crime Threat Assessment (OCTA) urges all Member States to direct their law enforcement resources at tackling organised criminality and therefore, Revenue's enforcement resources were rightly primarily directed at addressing the two major threats specific to Dublin Airport, namely drug smuggling and organized cigarette smuggling. He also stated that the tax at risk due to organized cigarette smuggling dwarfed any slippage on small-scale personal smuggling. Historically, Dublin Airport was always considered high-risk in respect of both drug and fiscal smuggling. The detection record over the years clearly proves the significance of Dublin Airport as a prime enforcement location which targets the highest risk in respect of passenger movements.

However, Revenue did mount periodic examinations of flights where the abuse of personal goods limits may arise and the results of these indicated that there was no major risk involved. It was not a major risk to revenue or to society compared with the social and fiscal impacts of drug trafficking and organized cigarette smuggling.

Operational Controls

The Blue and Green Channels are simultaneously manned by Customs officers dependent on passenger levels, perceived risk and resource levels with separate interview rooms available if more rigorous interventions are required. There is an unmanned gate midway through the Red Channel that is locked and passengers with something to declare press a bell to get officer assistance. All channel partitions are transparent and officers can easily spot suspicious movements at each channel. Other physical controls include dedicated storage rooms for seizures, specialist baggage and undercover officers and trained sniffer dogs. Broad surveillance is maintained through a CCTV system, strategic location of officers and viewing rooms with mirrored glass panels. The experience of Customs officers is important in identifying suspicious passenger activity. There is an administrative support unit to allow officers concentrate on core activity.

Certain activities and routes are prioritised and targeted. This is done by collection of intelligence from many sources (e.g. Interpol bulletins, the Investigations and Prosecutions Division (IPD) of Revenue, Revenue staff nationally and in other jurisdictions) and risk profiling of individual flights and passengers. Such profiling is also informed by periodic targeted blitzes on certain routes. However, my review noted that these activities and their outcomes were not systematically recorded.

A blitz was carried out in relation to passengers returning from shopping trips to the USA in the period September to December 2006. The District estimated, as a result of this and on-going interventions, that there was no significant revenue evasion issue. Interventions by officers in the green channel in November and December 2006 resulted in the identification of only four passengers from transatlantic flights carrying goods in excess of the limits. One of these cases involved the confiscation of 2,400 cigarettes. In the other three, goods (clothing and a musical instrument) with a total of value of €3,484 were detected and duty, VAT and penalties of €2,062 were collected. However no records are currently maintained of the numbers of passengers challenged by Customs officers in the Green Channel. In the same period, 12 transatlantic passengers declared goods (value €15,740) in the Red channel in excess of the limit and paid €4,180 in tax and duty.

I asked the Accounting Officer if he considered that collection of data on the number of customs challenges and its analysis would assist in improving control and facilitate the targeting of scarce resources. In his response he informed me that, since my audit review, Revenue had commenced keeping detailed data on passenger challenges as part of a risk testing exercise. These are controlled exercises set up to test whether certain flights and passengers from certain locations pose a significant risk of smuggling. These exercises are conducted as part of planned periodic controls or on receipt of information indicating an increased risk from identified locations. However, Revenue did not consider that the collection and analysis of data on every single challenge conducted would improve effectiveness in better identifying risk and improving control. He felt that such activity would lack focus and could be considered to be wasteful of a very scarce and valuable enforcement resource. He also stated that Revenue kept detailed data on passenger challenges where detections have been made or where the officer is still suspicious despite the lack of a success on a specific intervention.

He felt that Revenue's approach had proven to be a very effective risk analysis method in improving the quality of targeting and had proven to be an efficient use of scarce enforcement resources. Analysis of the outcomes of Revenue's successes, combined with the strategic and tactical intelligence garnered from other sources both nationally and internationally, completed the intelligence cycle. It was only through systematically doing this that Customs could seek to keep up with the constantly changing facets (routings, modus operandi, concealments) of smuggling and organised crime. Best international practice in improving the quality of targeting is to constantly refine risk analysis and profiling through regular risk testing and evaluation.

Opportunities for Enhancing Controls

As in other areas of revenue collection, preparation of estimates of losses from fraud, evasion and non-compliance enables risks to be assessed, strategies developed to tackle those risks and the success of those strategies to be measured. The preparation of such estimates is difficult and a relatively untested area, although estimates of indirect tax losses have been prepared in the UK for some years now. The preparation of such estimates would make many of the targets set in the District business plan more meaningful. The Accounting Officer informed me that such estimates are inherently difficult and untested. While they would be informative, there would be little point in attempting to produce them if, at best, they would be unreliable and, at worst, misleading.

Risk identification and targeted actions are the most effective use of resources. However, as the results of targeted actions have not, to date, been formally documented and analysed, their use in informing future risk identification is not being fully exploited. Dissemination of the results has to date been dependent on verbal communication and the retained knowledge of individuals.

Flight and passenger numbers are an essential source of data for risk identification and targeting. Flight schedules and aircraft capacity are supplied by the Airport Authority on a weekly basis. Actual passenger numbers and names are not automatically available. The District is not routinely entitled to information on passenger names due to data protection issues. Such information would provide useful management data to inform risk profiling.

I asked whether the Accounting Officer considered that the receipt of enhanced passenger data would improve control. In reply he informed me that passenger data was an essential tool for risk analysis of passenger behaviour patterns that could be an indicator of possible smuggling activity. Timely routine access to the enhanced passenger data, in airline systems, including historic data, would certainly enable more targeted and better quality interventions. The provision of pre-arrival information to Customs for the purposes of preventing, detecting or investigating (smuggling) offences etc. met the requirements of Section 8, Data Protection Act 1988 in full. However the provision of such information was not obligatory. This matter was being considered as part of the e-Borders directive, currently being progressed at EU level.

I enquired whether formal streaming of flights, perceived to represent a greater than usual risk, through customs would improve control. In response, the Accounting Officer agreed that it would but also stated that controls need to be balanced against the facilitation of the legitimate traveller and the efficient running of the Airport. Currently Revenue had a very good working relationship, which is reinforced by Memoranda of Understanding, with the Airport Authority, airlines, and other service providers. They co-operated fully with requests from Revenue staff regarding delivery of baggage on particular carousels when such action was required. He felt that the implementation of a system for the streaming of passengers was not practical in Dublin Airport due to the volume of concurrent flight arrivals and the open aspect of the baggage collection hall.

Intelligence, Risk Analysis and Profiling (IRAP) Unit

The District established this Unit in March 2007. Its main functions are to introduce a risk management structure to evaluate and maximise the use of all information in order to target smuggling, fraud and other areas of non-compliance.

I enquired when it was considered that the results of the improved targeting of resources, arising from the establishment of the IRAP Unit, would become evident and how it was proposed to measure the improvement. In response, the Accounting Officer informed me that, since its establishment, it had already had considerable success in the area of cigarette smuggling at Dublin Airport. It had identified a recent major organised cigarette smuggling attempt from a Baltic State and developed a robust and successful strategy for countering it. The result of this IRAP led intervention was the seizure over a two week period of cigarettes with a value in excess of €600,000, the disruption of the organised supply in the state and the arrest, prosecution and conviction of the two principal organisers. The measure of IRAPs success would be the number of serious smuggling threats, especially organised threats, it identified and succeeded in eliminating. The unit would achieve this through employing better intelligence gathering and dissemination methods, employing better and more imaginative profiling and risk analysis methodologies. It would also ensure that enforcement resources were better focussed on eliminating the most serious risks.

It was intended that all targeted actions would in future be fully documented and employed by the IRAP unit in shaping future risk actions.

Also in current development was a risk template. The purpose of this template would be to aid risk profiling so that resources could be appropriately applied. It would consolidate all risks for Customs activity at Dublin Airport and it was expected that this would be constantly reviewed and updated to maintain its relevance as a result of changing circumstances.

Other Airports and Aerodromes

Revenue approval is required for aerodromes that handle intra-EU and third country traffic. The terms of approval for aerodromes handling third country traffic require that 24 hour prior notice be given to Revenue of each intended departure to or arrival from a third country. At July 2007 there were 24 licensed aerodromes in the State.

Control over aerodromes is exercised by means of risk assessed inspection visits. Table 4 shows the number and results of such inspection visits in the years 2005 and 2006.

Table 4 Inspection Visits 2005 — 2006






Cigarettes seized



Value of drugs seized



Value of other seizures



The Dublin Airport District makes visits (both routine and surprise) to the 3 aerodromes for which it is responsible on the basis of passenger activity and perceived risks. In 2006 fifteen visits, twelve planned and three unplanned (ten and six respectively in 2005), were made to the largest of the aerodromes and one annual visit was made to each of the others in 2005 and 2006.

A review of customs controls in place at licensed aerodromes was carried out in January 2007. The principal focus of the review was to examine the controls in place at smaller public licensed aerodromes to prevent the smuggling of prohibited goods, particularly drugs. The review team made several recommendations for improving controls that were accepted and these are currently being implemented. Following on from these, Revenue had drawn up an implementation plan covering diverse areas including visits to aerodromes, risk rating, the issue of approvals, guidance for staff, training and deepening of co-operation with other agencies. I was informed that Revenue regions are giving the control of smaller aerodromes specific attention in their business plans for 2007.


In summary, the Accounting Officer stated that the review of Customs controls initiated in late 2006 had found that

The risk based approach being adopted was a sound one, and indeed the only appropriate one, in the circumstances

Intelligence and related risk ratings rely on timely information and need to be reviewed regularly

Ireland's approach is in line with the methodology adopted by other EU administrations in similar circumstances and

The increase in the volume of international air traffic requires a corresponding increase in Revenue activity.

He was satisfied that the information gathered from controlled test exercises and from passengers, where detections were made, combined with the strategic and tactical intelligence garnered from other sources both nationally and internationally provided a good quality intelligence for identifying smuggling threats which in turn enabled Revenue to target resources in the right areas.

3.10 Aspects of Rental Income Taxation


Under various provisions of the Taxes Consolidation Act 1997 (the Act), income earned by individuals from the letting of residential property is taxable under self-assessment. Rental income earned by companies is assessable for Corporation Tax. The taxation yield on rental income from individuals and companies from 2000 to 2003 is shown in Table 5 below.

Table 5 Taxation Yield on Rental Income 2000 — 2003

Tax Year Ended



























Information Shared by Government Departments with Revenue

Under section 910 of the Act, Revenue is entitled, for the purpose of the assessment and collection of taxes, to request in writing from Ministers details of payments made by that Minister's Department to persons or groups of persons that Revenue specify. This section was subsequently amended by section 208 of the Finance Act 1999, to empower Revenue to request information from any body established under statute. Currently, Revenue receives information regarding rental income from, amongst others, the Department of Social and Family Affairs and the Department of Environment, Heritage and Local Government in respect of the rent supplement scheme and the rental accommodation scheme.

Rent Supplement

Rent supplements are payments to assist in the provision of accommodation to eligible persons living in private rental accommodation who are unable to meet the cost of accommodation from their own resources and do not have alternative sources of accommodation available. Community welfare officers in each Health Service Executive (HSE) administrative area carry out assessments of claimants' eligibility for the scheme. While claims for payment of rent supplement are processed and administered by HSE staff, the Department of Social and Family Affairs is responsible for policy, legislation, the provision of funding and payment to recipients. Payment is either made directly to tenants or to a nominated payee, i.e. the landlord or the landlord’s agent for the property.

Each year Revenue requests and receives a file from the Department containing details of rent supplements paid during the previous tax year. The file received contains the following information

Tenant's PPS number

Tenant's name and address

Landlord's name, address, and telephone number or agent’s name, address and telephone number

Amount of rent supplement paid

HSE administrative area handling the tenant's claim.

When the file is received, a programme is run that attempts to match the data provided with existing Revenue taxpayer information. A match is sought on landlord name and address. The entire file of both matched and unmatched records is then stored onto Revenue's Integrated Business Intelligence (IBI), a stand-alone system containing various databases.

Information was provided to my Office by both the Revenue Commissioners and the Department of Social and Family Affairs in respect of their exchange of data relating to rent supplement payments for the year 2005. This information is summarised in Table 6.

Table 6 Data Exchanged in respect of Rent Supplement Payments 2005

No of Records Exchanged


Number of Landlords/Agents

Expenditure €m


Landlords resident in Ireland




Landlord outside Ireland




Agents Recorded



The information supplied by the Department to Revenue did not specify whether payments were made directly to tenants or to a nominated payee.

Although 2005 scheme expenditure amounted to €368m, the file initially forwarded by the Department only detailed payments amounting to €354m. Data in respect of the balance of €14m was incomplete and clarification had to be subsequently sought by the Department from the HSE. Details were later forwarded to Revenue.

As no landlords' PPS numbers are provided on the file received, Revenue attempts to match landlords' names and addresses to existing taxpayer details held on its systems. I requested details of the number and value of payment records received from the Department of Social and Family Affairs for 2005 that were not matched to taxpayer records on Revenue's systems. The Accounting Officer informed me that there were 52,792 records with a value of €197,472,733 not matched to taxpayer records. This amounts to approximately 56% in monetary terms. He stated that Revenue was currently in the process of putting a project in place that will examine the best approaches to take in dealing with unmatched cases.

Revenue has informed me that the 2006 data had only been received in mid June and that the matching of payments to records would now be scheduled. It would not be possible to risk assess this data until the details of the 2006 Income Tax returns have been loaded into the Risk Evaluation Analysis and Profiling system (REAP). This process would not be finished until approximately May 2008.

I asked the Accounting Officer if Revenue had requested landlords' PPS numbers be supplied by the Department of Social and Family Affairs when making a request for information under sections 910 and 208 of the Finance Act, 1999 and, if so, what had been the Department's response. He informed me that, as the requirement that certain public bodies request tax reference numbers was only introduced in the 2007 Finance Act, the information had not been requested for 2006 payments. However landlord's PPS numbers would be requested for 2007 payments under Section 910.

The Accounting Officer of the Department of Social and Family Affairs stated that the application form for rent supplement does not currently seek details of the landlord's PPS number as this information is not germane to the decision making process related to the qualification criteria for entitlement to this payment. He also stated that the new legislative provisions present a number of operational issues for the HSE who administer the scheme and that there may also be IT development issues for the Department in capturing landlord/agent PPS data. In that regard, officials from the Department had recently met with Revenue to commence discussions on these and other matters arising in complying with the proposed arrangements in the future.

Section 1041 of the Act requires tax be deducted at the standard rate from rent payable directly to non-resident landlords. However the Department of Social and Family Affairs does not deduct any tax from such payments. When I queried this, the Accounting Officer of the Department informed me that initial enquiries indicated that, to provide for tax deduction on the Department's computer system at source for rent supplement payments, would involve considerable development work and would need to be considered in the context of the Department's future programme of IT modernisation and development. In addition, operational issues that would arise for the community welfare service who administer the scheme would also need to be considered. He stated that the Department provided Revenue with payment details relating to rent supplement on an annual basis and in the format requested by them. Revenue had not indicated until recently that it found the current arrangements unsatisfactory. Revenue is in ongoing discussions with the Department on this matter.

I enquired what policies and procedures are employed by Revenue to ensure compliance by Government Departments, State Agencies and individuals with the provision of section 1041 of the Act which requires that tax be deducted from rent payable to a non-resident landlord. The Accounting Officer informed me that these procedures were specified in a December 2000 Revenue publication and staff instructions. He also stated that the obligation is on the tenant or agent (as the case may be) to make the required deduction and payment to Revenue. Where non-compliance is detected, tax is recovered together with interest/penalties, where appropriate.

Rental Accommodation Scheme

The Rental Accommodation Scheme commenced in 2005. Its aim is to transfer rent supplement recipients who have long-term housing needs to local authorities over a four-year period. The scheme is administered by local authorities and is a collaboration between the Department of the Environment, Heritage and Local Government and the Department of Social and Family Affairs. The local authority pays the rent. In order to be eligible for the scheme, the landlord must be tax compliant.

The Department of Environment, Heritage and Local Government forwards an annual file to Revenue containing details of rent allowance scheme payments made by each local authority in the previous tax year. The information provided consists of

Landlord/agent's name

Landlord/agent's PPS number

Landlord/agent's contact address

Address of rented property

Total paid.

The data file of payments for 2006 was sent to Revenue. It was incomplete in that it did not contain information from six local authorities.

Payments under the scheme are made to charitable organisations, housing associations and landlords, a small percentage of whom are non-resident, agents and companies. An analysis of the payments is shown in Table 7 below.

Table 7 Analysis of Payments made under Rental Accommodation Scheme in 2006

Payment Details

Amount €

Amount as % of Total Payments

Payments made to charitable organisations



Payments for which PPS details are not provided or incomplete



Payments with valid PPS details provided





I asked the Accounting Officer for details of the number and value of 2006 payment records received from the Department that were not matched to taxpayer records on Revenue's systems. In reply I was informed that a matching exercise had not been carried out on this data. Details of 2006 payments submitted by the Department could not be referred to Revenue's computer systems division, as the data was not received in a standard format.

I also asked him what action Revenue had taken to obtain information from the Department in respect of those local authorities that did not submit a return of payments made under the scheme for 2006. He informed me that Revenue has pursued the Department for the outstanding returns and had since received returns for three of the local authorities, via the Department.

It is recognised that the Rental Accommodation Scheme is in its early stages and that the extent of tax at risk might not merit prioritisation by Revenue at this juncture. However, it is important that proper matching and follow-up mechanisms are put in place to make full use of the information provided as resort to the scheme is scheduled to increase in the coming years.

Third Party Returns Made by Letting Agents

If a landlord appoints an agent to manage property and collect rent, the agent is a collection agent on behalf of the landlord and, as such, is chargeable to tax on the rents received. The agent must account for the tax due under self-assessment. Under section 888 of the Act persons who, as agents, are in receipt of rents are required to submit an annual return to Revenue (form 8-3) unless the beneficiary is not resident in the State. Such a return is known as a third party return. On this form the agent provides the address of the rented premises, the name, address and PPS number of the owner and the amount of rent received.

I asked the Accounting Officer how Revenue utilised the information received from agents on form 8-3. In reply he stated that this information is gathered at district level and how it is used is a local decision dictated by work priorities. There is no formal cross-referencing but matched information is available through IBI and can be cross-checked on a case-by-case basis as required.

Private Residential Tenancies Board

Section 11 of the Finance Act, 2006 amended the Taxes Consolidation Act, 1997 to allow landlords to treat mortgage interest on rental properties as an allowable expense for tax purposes. Entitlement to this relief is conditional on compliance with the registration requirements of the Private Residential Tenancies Board (PRTB) Act 2004. This Act requires landlords to register details of all tenancies within one month of commencement. Certain types of dwelling are exempt from registration. The registration form requires the provision of landlord and agent PPS numbers.

Interest relief on borrowings is netted against rental income to arrive at net rental profit for each year. As only the net rental profit is recorded on Revenue's computer systems, no statistics are available on the number of landlords claiming mortgage interest relief and the total cost of this relief. I asked why Revenue did not have this information available. I was informed that figures on loan interest in respect of borrowings employed for the purchase, improvement or repair of rented residential properties are not separately identified from other allowable loan interest which can be set against other rental income and for this reason the information referred to cannot be accurately assessed.

Revenue requests and receives information from the PRTB on tenancies on a case-by-case basis only. Section 127 of the Residential Tenancies Act 2004 precludes the disclosure of the register to any person or body and has not been updated to reflect the registration requirements of section 11 of the Finance Act 2006. Legislation is currently at committee stage to allow for information sharing.

Maximising the Value of Information Received

In response to my general inquiries about maximising the value of the data received from other State agencies on rent payments to landlords and related information under various schemes, the Accounting Officer made the following points

Revenue decided on a particular course of action to manage compliance risks at a time of rapid expansion of the case base. Resources were directed at cases where evidence suggested the risk of tax evasion was greatest.

This had led to the establishment of a computerised risk ranking of its self-employed and corporate base – REAP.

The fourth REAP run has just been completed.

REAP is now being enhanced with the addition of data from Revenue's own records and from third party sources. Rental information is part of this process and is a priority. Matched data from the rent supplement scheme was included in the latest risk run.

As regards unmatched cases, Revenue's intention is to seek legal authority to require tax identifiers on the most valuable returns – where such a requirement does not place an unreasonable or disproportionate burden on the provider. The process now underway, of evaluating all third party returns in the light of their potential contribution to REAP, or other systems-driven intervention, will identify the most valuable returns. In the meantime, the most significant unmatched cases can be screened and matched using long-standing manual processes. Revenue plans to look at more systematic ways of doing this over the next couple of years.

Two recent pieces of legislation were relevant to the future of third party information provision and processing. The first of these is Section 125 of the Finance Act 2006 which is enabling legislation for the automatic reporting of certain payments made by or through financial institutions, Government Departments and other public bodies, including the provision of a tax reference number in appropriate circumstances. Regulations under this section will require the consent of the Minister for Finance. Section 123 of the Finance Act 2007 provides that certain public bodies making payments in the nature of rent or rent subsidy will be required to include the landlord's tax reference number when making information returns to Revenue. The section also provides that a broad range of third party information returns (including rent returns by letting agents) can be required to be supplied in an electronic format specified by Revenue.

Revenue wants a system that will get third party data in a format that can be readily used.

This approach would allow Revenue to create rules and scores around the most useful third party data in the REAP system.

The Operational Policy and Evaluation Division had included this project in its business plan for 2007. Delivering this strategy would spill over into 2008 and beyond.

Revenue can get most value from third party information to the extent that it enriches its REAP profiles or can be part of resource-efficient, systems-driven compliance programmes based on apparent mismatches vis-à-vis its assessing or PAYE data for returned income or gains.

Mr. John Purcell

Four sections of my annual report will be dealt with this morning. The first of these is Chapter 3.7 which records the results of an examination by my staff of how the Revenue Commissioners manage the risks associated with the operation of the bonded warehouse system for alcohol products. Excise duty on alcohol products in 2006 amounted to more than €1 billion. The duty is payable at the time of production in Ireland or importation into Ireland. However, if the product is held in a bonded warehouse, payment of the duty is suspended until the product is released on to the market for consumption.

Since the introduction of the single European market in 1993, similar considerations apply to intra-community trade. The effectiveness of the system in this case depends to a large degree on the timely exchange of information regarding the arrival of consignments in the receiving warehouse. Revenue maintains tight control over the approval process for both warehouses and warehouse keepers. It also has an ongoing system of monitoring and regular audits.

The evidence from the 53 audits carried out by Revenue during the three year period 2004 to 2006, inclusive, suggests the system works well, although two significant frauds in 2003 involving the export of alcohol products from Irish warehouses reminds us of how vulnerable to abuse the system can be. In both cases, goods which were purportedly being transported to Spanish bonded warehouses were diverted on to the market, thereby evading the payment of the appropriate duty.

The Revenue Commissioners do not believe the goods were sold in Ireland. However, if they had been the loss to the Exchequer would have been approximately €16.3 million. It seems as though Spain, or wherever the goods were sold, suffered a loss of excise. This is called diversion fraud and is reckoned to be a major problem in other EU countries, particularly those with high excise regimes. A report by my UK counterpart estimated the revenue lost in such fraud cases over an eight year period following the introduction of the single European market amounted to between sterling £600 million and £900 million.

Is the Comptroller and Auditor General reading from a script provided to us?

Mr. John Purcell

No, I am reading from speaking notes and it is not verbatim.

I thank Mr. Purcell.

Mr. John Purcell

The Revenue Commissioners examined the risk to excise duty in late 2005 and a number of recommendations were made which are being implemented progressively. The system of control over movement of goods between EU member states should become much tighter when it is fully computerised in 2009.

Chapter 3.8 records the results of an examination of the system for collecting stamp duty on property transactions and the extent of follow-up work by the Revenue Commissioners to ensure the correct rate of stamp duty has been applied and compliance with relevant conditions. In 2006, approximately €3 billion was received in stamp duties on property transactions.

When documents are sent for stamping, and they can be presented personally or through the post, certain basic checks are undertaken but generally there is a presumption of honesty, unless the Revenue Commissioners have reason to believe otherwise. Since 2002 there has been a dedicated stamp duty audit section with responsibility for properties purchased by Dublin-based taxpayers. In the other regions, stamp duty compliance issues are addressed if they arise in the course of the general audit programme.

I was particularly interested in an exercise carried out in the Dublin region in 2006, when a targeted sample of 1,000 new residential property purchasers were examined, where the purchasers availed of owner-occupier relief. The results showed that more than 10% had failed to comply with the conditions governing the relief. There were 94 claw-back cases where the property had been rented within five years of the date of purchase and 15 cases where investors had incorrectly claimed the relief. The extra revenue generated by that exercise was €1.2 million. As a result of the success of this exercise, it was decided in July 2007 to carry out a national audit project along the same lines. The accounting officer may have up to date information on the outcome of that audit.

Notwithstanding the results in the Dublin region, I agree with the Accounting Officer that the risk to stamp duty revenue is low and that a proportionate approach to follow-up checking is warranted.  I also accept there has been an improvement in recent years in the completeness and reliability of the information being captured in the system where it can serve as a valuable input to Revenue's risk assessment procedures.  In this context, I note that a new e-stamping project which is under way has the potential to enhance all aspects of the assessment and collection of stamp duties.

Chapter 3.9 focuses on the effectiveness of Revenue's approach to enforcing the rules governing the importation of goods by passengers arriving in Ireland by air, with a particular emphasis on Dublin Airport, which accounts for the vast majority of inward traffic. In 2006, some 10.7 million passengers arrived through the airport. The increasing number of arrivals places extra pressure on customs' staff to deliver an appropriate level of checking. The major threats to compliance at Dublin Airport are drug and cigarette smuggling. This is evident from table 20 in my report, which shows that the preponderance of seizures in 2005 and 2006 were in these categories. It follows that the main thrust of customs' control effort is geared accordingly and additional staff were deployed in 2007 to augment the customs' presence at the airport. The current Revenue approach is very much based on intelligence gathering, risk analysis and profiling. This is in line with the methodology adopted by their counterparts in other EU states. Further developments designed to better inform the Revenue approach are in train. While I fully accept the imperative to concentrate resources in the areas of greatest risk, I felt that the requisite minimum level of customs control was not being applied to arrivals from third countries and in particular, to transatlantic flights, where there is more than anecdotal evidence that passengers are importing personal goods to a value far above the legal limit. The returns from the pre-Christmas 2006 customs activity in this area suggested only a token effort on Revenue's part but to be fair, they seem to have taken a more serious approach in the pre-Christmas 2007 period.

Another potential problem existed at licensed aerodromes where it is impractical to have a permanent customs presence. Revenue carried out a review of controls in this area last year and are implementing the recommendations emanating from that review.

Chapter 3.10 draws attention to the use Revenue makes of the information it receives from other State sources on rental income. Foremost is the data on rent supplements from the Department of Social and Family Affairs. Payment of rent supplement is made either directly to the tenant or to a nominated payee, that is, a landlord or an agent. Regardless of the payee, the data supplied by the Department should include the landlord's or agent's name, address and telephone number but does not include his or her PPS number. This has frustrated attempts to comprehensively match the payments to Revenue's records so as to enable it to establish whether proper returns are being made by landlords. For example, in the case of the 2005 rent supplement data received, more than 52,000 records with a value of €197 million were not matched to Revenue records. Although a legislative basis is now in place for supplying landlords' PPS numbers, which will greatly facilitate matching and follow-up, certain operational difficulties remain to be resolved before that aim can be achieved.

Problems have also arisen in respect of the data supplied by the Department of the Environment, Heritage and Local Government to Revenue on payments made under the rental accommodation scheme. Although the landlord's PPS number is included in this case, the data could not be processed by Revenue because it was not received in a standard format. While the amounts involved in the scheme are not significant at this stage, the opportunity should be taken to iron out the problems because payments under the scheme are scheduled to increase rapidly in coming years. My examination also established that payments of rent supplement were being made to non-resident landlords without deduction of tax at standard rate as required by law.

All in all, it appeared to me that the arrangements currently in place for supplying and using information on rent payments by the State were haphazard and ineffective and that it would take a concerted effort on the part of all concerned before we see an improvement.

Before asking Mr. Daly to speak, I ask the officials from the Department of Finance to introduce themselves.

Mr. Paddy Barry

I am Paddy Barry, principal officer in the tax and financial services of the Department.

Mr. David Denny

I am David Denny from the sectoral policy division of the Department.

Mr. Frank Daly

I thank the committee for the opportunity to make an opening statement on the paragraphs of the 2006 report of the Comptroller and Auditor General which are being examined this morning, namely, chapters 3.7 to 3.10.

Chapter 3.7 of the report deals with the control of alcohol tax warehouses. An efficient and secure system of tax warehouses is essential to safeguard excise duty receipts from alcohol products. These receipts amounted to €1,105 million in 2007. The current system is based on the long established bonded warehouse model that has been adapted to meet European Union requirements for the intra-Community control and movement of products liable to excise duty. The system is built on a multilayered framework of controls relating to the approval of warehouses, proprietors and operators, hands-on administrative controls with the assignment of a revenue control officer to each warehouse and regular periodic audits of warehouse records and accounts.

Following the establishment of the Single European Market in 1993, there were fears that abolition of internal EU customs controls would lead to widespread fraud. However, this has not turned out to be the case and our system has continued to be very effective with few instances of fraud. The vast majority of tax warehouse keepers are compliant and their number is small enough to allow for ample monitoring and control but we are not naive and recognise that the risk of fraud is always real. Our aim is to identify that risk, manage it and have effective controls that achieve the right balance between protecting revenue and facilitating legitimate trade.

If there is a weakness in the present system, particularly in regard to intra-Community movement of alcohol products, it is because it is essentially a manual system dependent on the processing of paper records across the EU. This will be rectified when it becomes fully computerised with the excise movement and control system referred to in the report. This computerised system is scheduled to become operational in 2009.

The next paragraph of the Comptroller and Auditor General's report for consideration today is stamp duty on property transactions. This is a significant tax, accounting for €2,376 million in 2007. Our customer service and collection system works efficiently and effectively to deliver a quick turnaround of cases with relatively low staffing. The incentive for honesty on the part of the taxpayer regarding stamp duty is high because title to a property depends on the instrument being properly stamped. Instruments that are not properly stamped are not admissible as evidence in civil proceedings. That incentive is normally sufficient to ensure compliance. So strong is this as a compliance mechanism or incentive that, before November 1991, the payment of stamp duty was not mandatory. As mentioned in the report, we have already taken on board the need for procedural improvements identified by the Comptroller and Auditor General in a number of areas. We are engaged in a major strategic development which will see the introduction of a self-service e-stamping system. That system will allow a full 24-hour, seven-day, self-service on-line process where the user can file, pay and receive an instant stamp without Revenue requiring to see the deed in up to 90% of cases. We are in ongoing communication with the major stakeholders. They have shown a strong interest in the system and we hope to deliver it in the second quarter of 2009.

The next paragraph for consideration is passenger controls at airports. Given the predominance of Dublin Airport from a customs compliance perspective, the audit examination focused primarily on it. As indicated in this paragraph, customs control at airports has received considerable attention in recent times. Broadly speaking, Revenue has a dual function at airports — to facilitate international trade, including tourism, and to detect smuggling. The main smuggling threats are drug smuggling and organised cigarette smuggling. Personal smuggling by otherwise legitimate travellers is on a very small scale compared to these threats. The threat posed to the Exchequer from organised cigarette smuggling is significant as is the threat to the welfare of society from drug smuggling. We put the focus of our anti-smuggling activities at airports on those threats.

In 2007, as in previous years, our customs service mounted operations to address the perceived risk of mass smuggling of consumer goods from the US in the period leading up to Christmas. As in previous years, we found that the perceived risk seemed to be overstated. From early October to the middle of December last year, 635 flights from the US into Dublin, Shannon and Knock Airports were checked. Some 6,756 passengers were challenged and 4,599 items of baggage searched. In total, 108 detections were made of passengers exceeding the duty limit. The value of goods involved was €88,347 and a total of €22,921 in VAT and duty was collected. During this same period, the same staff at those airports seized €1,946,078 worth of drugs and 8,767,650 cigarettes with a potential loss to the Exchequer of €2,411,104.

Paragraph 3.10 deals with aspects of rental income taxation. Revenue has over 2.2 million PAYE taxpayers on its register. We also have over 750,000 self-employed taxpayers and companies registered for tax. Potentially, any one of these taxpayers could have rental income. We are entitled to receive what is called third party information where a Government body makes a payment, including rent, to any person or group. As is mentioned in the paragraph, we get information on rents from the Department of Social and Family Affairs and the Department of the Environment, Heritage and Local Government. The Department of Social and Family Affairs gives us substantial information on rent supplements paid, including some landlord information, for example, name, address and amount of supplement. Matching the information received to our records is a major task.

The Department recently gave us 95,000 records for rent supplements for 2006. To match these against nearly 3 million tax records is not straightforward for a number of reasons, one of which is the absence of landlord PPS numbers. However, we matched 40% of the Department's records and 42% of the money on the 2006 file with our own register. The Finance Act 2007 requires the Department to give us the PPS number of all landlords covered by rent supplement payments. This situation will start to improve from 2008 onwards with the changing of the Department's records and computer systems to capture PPS numbers of landlords. Unmatched information is not lost, as it is captured on Revenue's integrated business intelligence system where it can be accessed by any Revenue officer working on a case.

There is also a relatively new rental accommodation scheme, which is for tenants who need financial support with rent over a long term. With this scheme, the Department of the Environment, Heritage and Local Government gives an annual file of money paid to landlords for rent subsidies. The numbers in the scheme are small but they will grow. We are getting excellent co-operation from the Department in making sure the data will be sent to us in future in a standard format with PPS numbers for landlords.

Is it agreed to publish Mr. Daly's statement? Agreed.

I welcome Mr. Daly, who is a regular visitor before the committee. Before I discuss the individual chapters, I have a few general questions on the Vote. Subhead A1 relates to salaries, which were approximately €300 million. Approximately how many people are employed in the Office of the Revenue Commissioners?

Mr. Frank Daly

There are 6,530 employees, although it varies by the day between 6,500 and 6,600 full-time equivalents. Some people are job sharing so we have just under 7,000 people on our books.

Subhead A2 relates to travel and subsistence, which is a little under €6 million. What type of people use this funding? Are they people carrying out audits?

Mr. Frank Daly

The vast majority of that expenditure would be on audit and compliance visits, along with other interventions such as intelligence gathering, customs and travel to small airports, for example, which is relevant to today's discussion. Occasionally, people like myself would go somewhere but not very often.

Subhead A7 relates to consultancy services and comes in just under €28 million, which is a rise of approximately €10 million on the previous year. That figure is almost equivalent to 10% of the salaries bill so it is very significant. Will Mr. Daly explain what the funding is being spent on, how many consultants are engaged, the value of the contracts and the type of work being done? I do not expect an explanation of all of them but it is a very significant figure, particularly when compared to the salary bill for the Office of the Revenue Commissioners.

Mr. Frank Daly

It is a significant figure but sometimes we have a difficulty even with the terminology. The bulk of the consultancy funding is on IT expenditure and the development of IT systems, which in themselves become assets. It is development work rather than traditional consultancy. When most people speak about consultancy, it refers to engaging an expert to explain how to carry out a task in an improved manner. The vast majority of our consultancy expenditure relates to IT development.

It relates to design.

Mr. Frank Daly

It relates to the design of our IT systems. For example, in recent years most of that expenditure would have gone to the building of the Revenue on-line system for dealing with PAYE. It was mentioned in our opening statement that we will develop an e-stamping system. The figure is related to all those projects, so we regard it as an investment in tangible assets.

I have no real problem with it but I am curious because it is a substantial figure. How many consultants are engaged by the Revenue Commissioners? Could Mr. Daly identify the top four or five and the figures involved?

Mr. Frank Daly

That information is public knowledge already so I have no difficulty with it. The main group we would be involved with, Accenture, have participated in the design of our IT systems for some years. The bulk of the expenditure relates to that. We also engage with companies like Fujitsu, BEA and other companies.

We have a policy of gradually lessening our dependency on development companies such as these and continuing to develop our in-house expertise. We also have a policy of reducing dependence on individual companies. We must engage with such companies to help develop our information technology systems because the alternative is to proceed at a much slower pace.

The figure, at almost 10% of salary spending, is significant, and I know Revenue must use outside consultants for an independent view, but has the ratio been evaluated and would it be more economical to have additional permanent staff carrying out such projects?

Mr. Frank Daly

We continually evaluate that and there is no clear-cut answer. We would prefer to have our own staff do this but the learning period is extensive and there can be difficulties recruiting suitably qualified people. Our strategy is to reduce dependence on external companies over time but if we want to continue to develop our systems, modernise and provide the e-government and on-line services we have, then we must engage external companies for some time to come. We go through an extensive, competitive and rigorous tendering process in all such cases and we focus on getting value for money and a transfer of skills from such companies to our staff.

Mr. Daly mentioned that he is using such companies for the e-stamping project and the Revenue on-line service: Revenue knows what it wants in terms of design and so on and contractors supply what it requests. When such services have been provided, do copyrights for packages and designs reside with the independent consultants or with Revenue?

Mr. Frank Daly

It is a mixture and the Revenue on-line system, probably the one on which most money has been spent, provides a good example. That system is based on blueprints and code originally provided by Accenture as part of its tender and those original assets are owned, and separately marketed in other countries, by that company. However, new components that were specifically created for Revenue and were partly built by Revenue staff along with Accenture are jointly owned and we receive payment for this.

Has Revenue received payment for this yet?

Mr. Frank Daly

Some components of the type I described have been sold to the French revenue authority and the UK rural payments agency, although I do not know how they are using them, and we received consideration in this respect. I do not have a figure for this.

It is the principle that matters.

Mr. Frank Daly

It is the principle that is important to us.

I am looking at some of the tables before us on consultancies and I understand that Revenue is responsible for almost one third of total spending on consultancies by all Government Departments, that is, around €40 million out of a total of around €121 million. There was a 95% increase in Revenue's budget in this regard in 2001, an 87% increase in 2004, a 33% increase in 2005 and a 54% increase in 2006. Why were the increases so significant in those years?

The Accenture project cost €39 million. What was the longest standing contract involved in this? Have any contracts, for example, a three-year contract, exceeded their stated duration or price? Mr. Daly suggested Revenue has followed best practice as outlined by the Office of the Comptroller and Auditor General and the Department of Finance and in his response to Deputy Curran I ask that he assure us that contract terms and fees have not been exceeded substantially, particularly in the case of Accenture.

Mr. Frank Daly

Certainly. First, the Chairman mentioned growth and expenditure over the years 2001 to 2004. That would coincide with the extensive development of the Revenue on-line service, ROS, and its extension to the PAYE sector. It is a reflection of the way in which we were modernising over that period. It also coincided with a general increase in e-government activity and consultancy. I do not particularly want to say this, but Revenue projects came out quite well in the recent e-government report by the Comptroller and Auditor General in terms of their adherence to good planning, good governance and value for money. We have spent about €42 million on ROS but we have made estimated savings of about €49 million in postage, printing and processing since 2004 as a result of increasing use of the on-line service. Thus, there is already a net benefit. This is the type of positive e-government result that we are seeing not just in our project, but in others as well.

With regard to exceeding contracts, we are pretty rigorous in ensuring that if we have an engagement with Accenture or anyone else, we adhere to the terms of the contract. I am sure there has never been any substantial deviation in terms of exceeding the price or of non-delivery by the due date. In fact, most of our projects have come in either on time or ahead of time.

I acknowledge that the public's perception of ROS is very good and I am pleased to hear that there are savings associated with it.

We have spent a lot of time talking about consultancies, increases in computerisation, IT and so forth. The two chapters I want to examine both mention issues with non-use of PPS numbers — which I was taken aback to see — and a lack of integration across services, particularly as we have been talking about increased computerisation.

Chapter 3.8 deals with stamp duty on property transactions. My first point is to do with the review that took place in 2003, in which a total of 65,000 cases was reduced to 5,500 and a random survey carried out on 1,000 cases. Of these 1,000 transactions, a tax liability was found in 11%, or 109 cases. One thousand transactions were surveyed from a total of 5,500, leaving 4,500 in which we could expect that another 11% would have a tax liability. Was anything done with regard to those 4,500 cases?

Mr. Frank Daly

Based on the Dublin survey, we undertook a countrywide one involving 18,000 transactions, which is referred to later in the report.

I appreciate that.

Mr. Frank Daly

One thousand cases were surveyed from among 5,500. The 4,500 other cases, as I understand it, had no obvious indications of non-compliance. There are valid reasons--

I disagree with Mr. Daly on that point. The 5,500 cases were taken from a total of 65,000. My understanding is that the 1,000 cases surveyed were chosen from 5,500 cases in a purely random fashion.

Mr. Frank Daly


There is no suggestion that the 4,500 other cases were ever dealt with.

Mr. Frank Daly

No, but they will be dealt with. I do not want to confuse the Deputy. A national project is now being carried out, but the residual cases in Dublin, including the 4,500 cases he mentions, will be dealt with when we decide what to do on the basis of the results. We have moved from a Dublin project which showed evidence of non-compliance to a national project that is under way at the moment. From this we will get a view on the overall rate of non-compliance and what needs to be done in this regard.

In the Dublin project, the original sample was 65,000 and screening was conducted to reduce that number to 5,500.

Mr. Frank Daly

Yes. We chose cases in which there was an apparent mismatch between the address--

Then the sample was reduced to 1,000. Did Revenue return to any of the Dublin cases, or was that enough for it to make the decision to carry out a national audit?

Mr. Frank Daly

That was enough for us to do a national audit. We have not gone back yet on the 4,500. The national one explains it better. We took 18,000 cases and issued those to the regions in October of last year. The regions screened those down to 1,250 cases where there are apparent contradictions or issues to be looked at. They are now specifically examining each of those 1,250 cases.

What has emerged so far, up to last week, is that approximately 10% of those 1,250 cases have been completed. Of those, approximately 20% are yielding. In other words, there is an issue. I want to see what comes out of the full analysis of the 1,250 cases. Then we will have to ask ourselves whether there is a serious compliance issue here. We will have to go back on the figures, not just nationally but in regard to Dublin as well. It is emerging as not a huge non-compliance issue but it is significant enough for us to do something about it.

Will Mr. Daly keep this committee informed of progress?

Mr. Frank Daly

I will. The general point to be made in regard to stamp duty is that there is a great incentive to declare it and pay it because of the non-admission of the documents in civil proceedings. Non-compliance is likely to arise where there is an exemption or a relief and the main area is that of the owner-occupier.

I appreciate it is particularly the first-time owner-occupier.

Mr. Frank Daly

It is. There is a five-year period during which one must reside in the property. In the budget that was reduced to two years.

Historically we are looking over a five-year period. In the same review there is reference to ST21s. The numbers who have no PPS numbers or invalid PPS numbers is worrying. This amounted to more than a quarter. I would have thought that for an organisation such as the Revenue Commissioners, the PPS numbers would be the most significant. As a public representative, when I telephone the Revenue Commissioners on behalf of a constituent, the first and perhaps only question I am asked is whether I have the PPS number. For anybody on the outside looking in, PPS numbers are like gold dust. They are the key to everything. If this system operated over a period of time and almost a quarter of submissions had either invalid or no PPS numbers, what internal checks were going on? All the information resides with the Revenue Commissioners but it seems as though different sections are working independently and they are not joining up the information. We on this side of the room listen week in, week out to every organisation attending before us with new and better IT solutions and computerisation, yet we are seeing the same problems. There is no joining up and that is very worrying.

Mr. Frank Daly

That is a valid point. I acknowledge that in the past we have not been as assiduous as we should have been in regard to these ST21s. I need to make the point that the ST21 has nothing to do with the assessment or the collection of stamp duty. Revenue does not hold onto deeds. It stamps them and gives them back. The ST21 is an extract of the data from the deed in relation to the value and the purchaser and the duty which is intended to feed into the rest of Revenue for the purposes of matching information. It is important to remember the purpose of it. It is a very important document from the point of view of intelligence and information gathering. In the past we would not have been as assiduous as we should have been.

If the Revenue has a person's PPS number it knows whether he or she has paid stamp duty. It also knows what taxes and so on he or she is paying. There should be internal checking based around the PPS number. The view of this side of the room is that one quarter of them did not have valid PPS numbers, therefore, that internal checking could not be taking place.

Mr. Frank Daly

I acknowledge that did not happen but it has been happening since January 2006 and is continuing to happen. There is now a matching and a validation of the PPS number. If it is not valid it is rejected.

The real value for us from the ST21 is the automatic feeding of that into our new risk analysis system and if that is to be effective, the data and the PPS number must be valid. We are fully apprised of that since January 2006 but I acknowledge that in the past we may not have appreciated the value. We did not have the IT systems at such a sophisticated level that they could have made the best use of this but we do have them now and we will have in the future.

Chairman, I know my time is running out--

You are in injury time.

--but the same issues arise with the PPS numbers, specifically when we consider the rental income side. Historically, PPS numbers were not collected for those receiving the rent supplement. In other words, checking of the system was very difficult. In his opening comments, the Comptroller and Auditor General said difficulties were still being experienced in implementing that system. What is the position today in regard to capturing the PPS numbers of all landlords who are receiving cheques in regard to rent supplement?

Mr. Frank Daly

There is a requirement that the PPS number should be captured by the Department of Social and Family Affairs. That requirement is in place since the Finance Act 2007. Prior to that there was not a requirement to do that, although in some cases we got it but in others we did not. It would be immeasurably easier for us to match data if we got that. The Department is co-operating with us now in fine-tuning its systems to collect the PPS number and transfer it across for us. I am conscious--

Can I interrupt Mr. Daly?

Mr. Frank Daly


Revenue and the Department work in conjunction with each other. Before I got elected here I was self-employed and if I was to get a contract with somebody who was financed by the State, perhaps a university, and if it was over a certain value, I would have to produce a taxpayer's certificate or I would not get my cheque. If landlords do not produce the PPS numbers to the Department of Social and Family Affairs, they should not get paid. Is that too much to ask?

Mr. Frank Daly

The Deputy would have to ask that question of the Department of Social and Family Affairs. All I can say is that the requirement to produce the PPS number--

But Revenue is monitoring it with the Department. Revenue will not wait for a year to see what the Department turns up with.

Mr. Frank Daly

No. We are engaged actively with the Department and with the Department of the Environment, Heritage and Local Government on the other scheme. Everybody recognises this is vital to Revenue. The Department of Social and Family Affairs is fully on board in this regard but the requirement is only in place since the Finance Act 2007. It is being implemented and we are confident that the data coming across to us for 2008 will have the PPS number.

For all? Is Mr. Daly saying 100%?

Mr. Frank Daly

To claim that any scheme will work to 100% effectiveness from day one may be difficult. I would be answering for the Department of Social and Family Affairs if I gave the Deputy that assurance and I cannot do that. In respect of any discussions we have had with the Department and the Department of the Environment, Heritage and Local Government on the other scheme, it is a positive disposition to do this as quickly as possible.

Moving away from State supported rent schemes, either the rental accommodation scheme or the rent supplement, the Private Residential Tenancies Board was established some years ago. Prior to that, the scale of private rented accommodation in Dublin but also nationally was greatly understated. One only had to examine the number of tenancies registered with the local authorities in comparison with those now registered with the PRTB. I have two questions in light of that. First, is Revenue hooked up to receive PPS numbers from the PRTB as a matter of course? Second, has that initiated any concern that landlords who might have been operating in the past had not returned taxes based on the scale of what was registered with local authorities versus what is now registered with the PRTB?

Mr. Frank Daly

The Residential Tenancies Act 2004, under which the PRTB was set up, only allows for the exchange of data with Revenue on a case-by-case basis. I understand the full register the PRTB maintains cannot be transferred to Revenue. We can only obtain data on a case by case basis. As the Deputy knows, the claiming of tax relief by landlords on mortgage interest payments on rental property is dependent on their being registered with the PRTB. If we receive a claim, we can ask the PRTB for information but we are not entitled to receive the full register from it.

In other words, if somebody rents a property and does not claim any reliefs but receives an income from it, Revenue has no means to investigate through the PRTB.

Mr. Frank Daly

That is true.

Does Revenue see that as a significant weakness?

Mr. Frank Daly

I would like to get my hands on the PRTB register. It would be very useful to have it but it is not available to us under the legislation. We are talking about the PRTB and information received from the Departments of Social and Family Affairs and the Environment, Heritage and Local Government in the context of Revenue trying to identify every landlord with rental income. We start with our own intelligence and look at streets, newspapers and information available in residential letting agencies, etc., to try to identify individuals. The other part of the feed is from the Departments of Social and Family Affairs and the Environment, Heritage and Local Government and the limited amount of information we can obtain through the PRTB. The PRTB is useful but it is not a--

Does it have the potential to be a lot more useful?

Mr. Frank Daly

Yes, if we could get our hands on the full register.

Mr. Daly has mentioned that since the Finance Act 2007 there is a change in the requirement to supply PPS numbers. I suggest that change is perhaps the result of a recommendation from the Revenue Commissioners or advice that this was a weakness. Will Revenue make any recommendations in regard to the PRTB in order that information would automatically be available to it?

Mr. Frank Daly

We certainly believe we need to evaluate this issue. If there is a strong case to be made, we will not be shy in looking for the information.

There is a major defect in that Revenue cannot obtain information from the PRTB list which is totally inadequate. Local authorities are also not fulfilling their obligations in regard to the register. I could list ten or 12 properties which are not included in the register but which should be. I thank Deputy Curran for his questions.

I wish to explore the issue of the PRTB. I am surprised Revenue only has access to data on a case by case basis. Like other members, I know about this issue from dealing with individuals who depend on community welfare offices for rent supplement. I can see how information would not be forthcoming from that source. One often sees in newspaper advertisements that rent allowance is not accepted. I am sure it would be very useful to have the PRTB register. Tenants can also claim tax relief and in doing so must forward information on the rented property and name of the landlord.

Mr. Frank Daly

That is correct. The payment of tax relief to those who rent private property is conditional on their supplying Revenue with the landlord's details, including his or her PPSN. That does happen. I am not sure to what extent tenants do not claim tax relief because for whatever reason they do not want to ask the landlord for his or her PPSN, but from time to time there is anecdotal evidence that some landlords are not enthusiastic about supplying their details to tenants to allow them claim tax relief.

Would it be the case that the tenant would look to claim tax relief but would not have the PPSN of the landlord?

Mr. Frank Daly

In that case the tenant cannot claim tax relief.

It is not similar to the position in respect of stamp duty, about which Deputy Curran asked in his original question. We are now discussing rented properties again. The PPSN is integral to the entire system, in respect of which there are large gaps. Are the Revenue Commissioners proposing changes in this regard or updating IT systems to enable them to cross-check whenever rent relief or stamp duty relief is claimed?

Mr. Frank Daly

The PPSN is the key to everything Revenue does. We have redesigned all of our systems in the past five or ten years. Returning to the discussion on consultancy, in the redesign of every system the PPSN is the linchpin. Obviously, in respect of any information we receive from any other Department or agency, we want the PPSN to be the key also. As I stated, we are working with the Departments of Social and Family Affairs and Environment, Heritage and Local Government in that regard. In so far as there is a link with the PRTB, it is based on the PPSN. It would be an article of faith for us that in any exchange of information the PPSN would be the key. Our systems will be designed in such a way that we will accept information based on the PPSN. As I stated, it is for other Departments and agencies to have computer systems capable of collecting and accepting that vital piece of information and transmitting it to Revenue. There is good work being done in that regard. There is full appreciation of the value of the exchange of information and having such an identifier.

I will leave that issue and concentrate on others before the committee. On passenger controls at airports, Mr. Daly has stated in his report to the committee that before Christmas Revenue increased the number of checks at Dublin Airport. However, we were also told that in the previous year, 2006, approximately 10.7 million passengers passed through Dublin Airport, yet in the months of November and December only four passed through the green channel, while 12 volunteered to pass through the red channel. In the light of the experience before Christmas, is there scope for increasing the level of Revenue activity at airports, certainly to monitor passengers from third countries but definitely on flights from the USA?

Mr. Frank Daly

In his opening remarks the Comptroller and Auditor General spoke about the need for a minimum level of customs controls in respect of transatlantic flights. At a place like Dublin Airport or Shannon Airport or Knock airport to a lesser extent we tend to focus on drugs and cigarettes because they are the big ones. Those are the risk areas which present serious issues for the economy. I am not underplaying the seriousness of shopping in the United States for business in Ireland but the matter needs to be viewed in perspective. It is essentially a two-month phenomenon that has emerged in recent years. Let us not forget the hundreds of thousands who come to Ireland to shop and bring goods back home with them. However, we were sensitive to the claims that we were doing nothing about this and ignoring it. That is why we engaged in a more significant operation between October and December 2007 and checked 635 flights. If we find goods in excess of the limit, we will get the money. At the end of the day, it yielded approximately €23,000.

In the light of that, does Mr. Daly think it was not worth it and that Revenue will not repeat the exercise?

Mr. Frank Daly

It was worth it because if there is a law, it is wrong for Revenue or any other agency not to enforce it. We have to be seen to do this. As well as intervening last year when flights returned, we made sure passengers travelling from Shannon and Dublin airports to the United States were well aware of the limits by issuing leaflets to them. It is sometimes easy to identify those who are going to shop for a few days. Some ladies travelled with cut-out patterns of the feet of their children and husbands to match them with shoes in the United States. That is marvellous planning and initiative but the people concerned can be identified and we made sure they received leaflets and were aware of the limits. We also make sure they are aware of the possible exposure on their return. We intervened last year and will continue to do so this year. However, at the same time, everybody returning from the United states cannot be checked. Apart from the chaos it would cause at Dublin Airport, the vast majority of passengers are compliant. Everybody says the limits are low. However, for example, there is no VAT on children's clothing, which many bring back. They have a basic allowance of €175. In addition, they can use an allowance of €350, which attracts a minimal customs duty of 3.5%. One could spend €800 or €900 on children's clothing and attract a net duty at €12. We need to keep this in perspective. The law must be applied and people need to realise what is important but we will continue.

This discussion has centred on the plain and good people of Ireland passing through our main airports. Mr. Daly made a passing reference to private airports and airfields. An incident occurred last year that raised major questions in this regard. How happy is he that Revenue has adequate security at these locations? Is it informed of air traffic movements through these airports?

Mr. Frank Daly

We are informed of air traffic movements. Each aerodrome must go through an approval process with Revenue. The incident to which the Chairman referred involved an attempt to move drugs through Weston Aerodrome outside Dublin. It never got off the ground because it was intercepted on the Continent. As a consequence, we conducted a comprehensive and quick review of security at 27 or 28 small airports and implemented its terms. I would not like to go into operational details but security is based on being aware of what flights are coming in, where and when. It is also largely based on unannounced visits rather than anything that would give people forewarning that we were about to visit an aerodrome.

In 2007, we made almost 500 visits to small airfields. We also depend on local intelligence. Some of the airfields are very small and where we build up a good relationship with local people, a swallow would not land without us knowing about it.

Do customs officers have a presence at sea ports also?

Mr. Frank Daly

Yes, we do. We have a presence at all the major ports for two purposes, to facilitate trade and prevent smuggling. The main ports are Dublin, Cork, Rosslare, Foynes-Limerick and Drogheda. Our customs service coastal watch programme also applies to the many landing places, small ports and harbours around the country. We have carried out a review of our work at the major ports with regard to drug smuggling and are in the process of implementing that. Within a short period, we also expect to conclude a review of whether we need additional resources in terms of scanners or cutters for port surveillance.

I have a particular interest in the control of alcohol and tax warehouses as I am from Cork where the bonded warehouse formed part of the landscape.  The Comptroller and Auditor General's report gave some detail on two frauds.  Both related to tenants in possession of a warehouse rather than the owners.  In light of that, should there be any change in the procedures dealing with this aspect?  Mr. Daly mentioned that he did not think it was possible to ask for their Garda clearance certificates.  He mentioned also that he had a difficulty with informing the owner of a warehouse about suspicions he had about a tenant.  How could this be improved on, particularly in light of the fact that tenants might be more likely to carry out such fraud?

Mr. Frank Daly

The Deputy mentioned Cork. I spent the first two months of my career in the customs service in warehouses in Cork that are probably well known to Deputy Clune, the old Beamish brewery and Murphy's brewery. I was also in the North Mall, Midleton and Watercourse Road.

Mr. Daly is familiar with Cork.

Mr. Frank Daly

I am. It is important to put this issue in context. We have had two frauds since 1993. While I would not condone even one fraud, this low number probably indicates that the overall control system is quite secure. The two frauds related to two tenants about whose approval we were not comfortable originally. However, we got legal advice that indicated we could not refuse them. I hope that, as a result of this year's Finance Bill, we can bring the necessary improvement to the system through greater powers to refuse approvals to tenants in the future. We also need to work on ensuring that tenants will be required to provide their own security or bonds. These two steps would bring major improvements.

Another improvement, which is outside our control, will be the computerisation of the control and movement system, which is due for delivery in part this year and in full in 2009. The weakness in the system lies in this area. The Comptroller and Auditor General mentioned the UK. The Deputy may remember a time in Cork when we had resident excise officers in every warehouse, brewery and distillery — it was an occupation we all aspired to. We moved away from that in 1992. Other countries distanced themselves to a far greater degree from warehouse keepers than we did. We stayed involved. We have a small number of these; we know our clients and they know us. I think we are on top of this but we can improve and I hope this year's Finance Bill will give us the means to make two major improvements in the bond and in our ability to refuse approval to somebody where we have some suspicions about their compliance.

I believe there have only been two instances of fraud of which the Revenue Commissioners are aware. They are dependent on this bit of paper being returned when there is not a computerised checking system.

Mr. Frank Daly

I refer the Deputy to the comptroller's report which describes a distinct lack of enthusiasm on the part of Revenue for this paper control. It is almost totally in the hands of the warehouse keeper or the owners of the goods. We intervene by inserting ourselves into the loop but other countries do not do the same. We are major advocates of the new computerised system and we look forward to it. However, we do not rely totally on this so-called AAD, the administrative document; we rely on traders' records. We are in touch with the alcohol business, the drinks business in Ireland, and we know what is going on. Two frauds is two too many.

How many warehouses exist?

Mr. Frank Daly

Approximately 200. There are 177 approved tax warehouses and only 122 of those are involved in the alcohol business. There are a total of 247 tenants. These are relatively small numbers.

Is Revenue hoping for legislative changes in the Finance Act?

Mr. Frank Daly

There will be a couple of proposals in the Act. I think they will be enabling proposals to allow Revenue to make regulations in that area.

I will allow my colleague, Deputy McCormack, to ask a question.

I refer to chapter 3.8 of the report. If somebody qualifies for owner occupier exemption and they change jobs after a few years and must move to another part of the country, they then either become a landlord or leave the house unoccupied. If they become a registered and compliant landlord with regard to taxes, what is their position?

Mr. Frank Daly

It is a condition of the relief that the person resides in the property. In cases where the person moves, this results in a clawback of the relief.

Is it a clawback for the period of time left or for the total period?

Mr. Frank Daly

I am not absolutely sure of the time period. I will confirm this to the Deputy. It is the relief for the total period. I referred to a change in that situation and since the budget, the period has changed from five years to two years. This probably reflects what the Deputy is referring to, with a more mobile workforce--

Is that two years retrospective?

Mr. Frank Daly


Is there not a difference between the person who would leave after a year and the person who would leave after four years? There is serious discrimination against an owner occupier who has been a genuine case for three to more than four years.

Mr. Frank Daly

When one claims such a relief, one claims it on the basis of the conditions attaching to the relief. The conditions attaching at the time were that the person must be resident for five years. This period has been changed to two years but there is no proposal to make it retrospective.

What is the situation with the 18,000 national cases which have been reduced to 1,250?

Mr. Frank Daly

It has been reduced to 1,250 but to date we have only completed the inquiries in about 10% of those cases.

Some 10% of the 1,250?

Mr. Frank Daly

Yes. These only went out to the regions in October and they have to be worked on and in some cases people will need to be visited. Of that 10%, we are finding that approximately 20% are yielding cases — in other words, we are finding that money is owed. When we have finished our inquiries into the 1,250 cases, we will decide how to proceed with them. While I find it somewhat strange that such cases should exist, some people have said they did not know about the five-year requirement when they claimed owner-occupier relief in the first instance. This clause is clearly mentioned in the documentation provided to those purchasing a house and claiming stamp duty relief. We have engaged with the Law Society of Ireland in recent months to ensure that when house purchases take place, purchasers are well aware of the conditions attaching to stamp duty relief.

Will the Revenue Commissioners take action against just 20% of the 1,250 people in question?

Mr. Frank Daly

If no money needs to be collected, that is obviously fine. When I say that 20% of the examinations are yielding cases, I am saying that 20% of those examined so far owe us money because they did not comply with the conditions. As the other 80% of people were found to be in compliance, there is no issue with them.

I would like to confine my questions to the area of rental income. When I read the Comptroller and Auditor General's report, I found it hard to come to any conclusion other than that the Revenue Commissioners are very soft on landlords. I note that the Comptroller and Auditor General stated in his presentation that he thinks the performance of the Revenue Commissioners in respect of landlords is "haphazard" and "ineffective", which are two very damning terms. What is Mr. Daly's assessment of the performance of the Revenue Commissioners in respect of landlords? How do the Revenue Commissioners measure their performance? I was somewhat surprised to learn that the only figures available to Mr. Daly, in respect of an estimate of the number of landlords, pertain to 2003. Given that we are now in 2008, why do the Revenue Commissioners not have more up-to-date figures? How does Mr. Daly assess the Revenue Commissioners' performance in this area? Is there an official estimate of the total number of current rental properties in this State? To what extent are the Revenue Commissioners dealing with the properties in question?

Mr. Frank Daly

I can give the Deputy the 2004 figures, which have just become available. Perhaps we can add them to the Comptroller and Auditor General's report as table 22. The first column of the table sets out the taxation yield for individuals, which was €295 million in 2004. The taxation yield for companies in that year, which is set out in the second column, was €121 million, which brings the total to €416 million. The yield is increasing. As I said earlier, the information received from the Departments of Social and Family Affairs and the Environment, Heritage and Local Government, as well as the Private Residential Tenancies Board, merely forms part of the Revenue Commissioners' attempts to get a total handle on the number of landlords and the level of income they receive from rentals. The conditions attaching to tax relief for tenants are also associated with the same area. I do not know the total number of rental properties in this country.

Does Mr. Daly have an estimate?

Mr. Frank Daly

I do not have an estimate.

He must have some idea. That kind of information is retained by local authorities — I see it in the newspapers all the time.

Mr. Frank Daly

I certainly do not have that kind of information. I start from the basis that one is required to declare one's tax liability when one makes one's return. Many people declare rental income. An increasing number of people have been doing so over recent years. The last time I attended a meeting of the Committee of Public Accounts before Christmas, I mentioned that one of the issues which will have to be considered by the Revenue Commissioners to an increasing extent in the future is whether all PAYE taxpayers should be required to make returns — every couple of years, if not every year. People in the PAYE sector who are landlords are receiving rental income. It is all part of an attempt to get a full handle on this area. We are matching the information from the Department of Social and Family Affairs to a ratio of 50% or 60% and we have a team working on trying to match those we have not matched so far.

I am asking Mr. Daly for his assessment of the performance of the Revenue Commissioners.

Mr. Frank Daly

The point I am making is that if, through this process, we begin to identify every landlord in the country, that will be a success. We are doing much better than we were several years ago and using every source we can to identify landlords.

Mr. Daly speaks as if tackling the landlord class or dealing with landlords is a new phenomenon with which the Revenue Commissioners are only now beginning to get to grips. I find it hard to understand the reason this is the case. One would think that addressing rental income would be a major area of activity for Revenue but that does not appear to be the case.

Mr. Frank Daly

Sorry, it is the case.

It appears to me not to be the case. The five principal sources of information in respect of rental income are as follows: information on stamp duty; information from the Department of Social and Family Affairs; information from the rental accommodation scheme; information from the Private Residential Tenancies Board; and information from tenants who claim tax relief. Each of these five areas is extremely problematic and none is operating effectively or satisfactorily. Mr. Daly discussed each of them and there are serious problems in each case. We are told that since the Finance Act 1999, the Revenue has had the power to request information from anybody. This is established under statute. Why are these information systems still so unsatisfactory given that the Revenue Commissioners have had nine years to tackle the problem?

Mr. Daly indicated Revenue could only match up 42% of the landlords reported to it by the Department of Social and Family Affairs. This means more than half of the landlords receiving rent supplement through the Department are getting away with it. The Revenue has no way of tracing them because it cannot match the State money being paid out to landlords with individual taxpayers or companies.

Mr. Frank Daly

May I respond to that? The fact that we cannot match them does not necessarily mean that the landlords are not returning the income.

Revenue does not know whether that is the case.

Mr. Frank Daly

We do not know but that does not mean they are not returning the income. The matching rate is increasing all the time. Even though the PPS number is not available, we have people working to try to match it and our objective is to try to match as near to 100% as we can.

I put it to Mr. Daly that if one takes the category of landlords who are receiving State subsidised rental income, these landlords are in the system. If Revenue is capturing slightly more than 40% of this group, its performance is abysmal. I do not ask Mr. Daly to defend the Revenue in this regard but I must make the comment. He can address it if he wishes.

Mr. Frank Daly

As I do not agree that we are only capturing 40%, I cannot leave the matter like that.

That is the information Mr. Daly provided.

Mr. Frank Daly

No, automatic matching is achieving a rate of 40% and we have a team working right now to try to match the remainder.

Revenue does not know about the others.

Mr. Frank Daly

We will know.

Revenue may have a team trying to match the information but it does not know at this point. The rent supplement scheme has been in existence since at least 2000 and Revenue simply does not know the correct position. To inform the committee that it does not know about more than 50% of this particular category of income is not good enough.

Mr. Frank Daly

We will know.

When will Revenue know? It is not good enough to state it will know at some point in the future. Why does it not know at this point, eight years after the scheme commenced?

Mr. Frank Daly

Until the 2007 Act was introduced, there was no requirement in the legislation for the PPS number of the landlord to be captured. That was the fundamental defect. We have tried to work around that. We have had the law changed and it will work from now on.

Why is it only now that the law--

Mr. Frank Daly

We are not writing off or ignoring what happened in the past. We will try to match as much as we can. It is probably not fair to assume that because we are not matching the information from the Department of Social and Family Affairs with Revenue, landlords are not returning the income. I do not know.

Given the scale of rental income involved, it is not good enough for Mr. Daly to say he does not know. Moreover, that is only one category.

Mr. Frank Daly

We are very serious about landlord rental income.

That is not the way it comes across. Given that Revenue has had the power since 1999, will Mr. Daly tell us what action he has taken to improve information systems and the quality of information made available to him, for example, from the Department of Social and Family Affairs?

Mr. Frank Daly

We have engaged regularly with the Department of Social and Family Affairs. Increasingly, the quality of information made available to us has improved. There will be a quantum leap in improvement from this year when we have the PPS number. We initiated this change in the Finance Act last year and are working on the new scheme with the Department of the Environment, Heritage and Local Government to make sure we receive full information. We expect the scheme to work very well. There are other ways by which we are trying to identify landlords. Every time there is a tax relief claim relating to rental income, for example, the tenant is required to supply the landlord's details. I do not think it is right to say we are not serious about this issue; we are very serious. It is one of the areas on which we have focused extensively in recent years.

How would Mr. Daly assess Revenue's performance?

Mr. Frank Daly

I would assess it as good and improving.

An explicit condition of the rental accommodation scheme initiated in 2005 is that a landlord must be tax compliant. The Departments of the Environment, Heritage and Local Government and Social and Family Affairs seek the advice of Revenue on the tax compliance of landlords before they can participate in the scheme. If, as Mr. Daly said, Revenue's figures for 2006 show that 24% of landlords had invalid PPS numbers, how could they be participants in the scheme?

Mr. Frank Daly

I am not quite sure I follow the Chairman.

If a request is received from the Department of the Environment, Heritage and Local Government, the Department of Social and Family Affairs or a local authority regarding the tax compliance of a landlord and the landlord is one of the 24% with an invalid PPS number, what is the response of Revenue?

Mr. Frank Daly

I am not sure about the mechanism to which the Chairman refers whereby the Department of Social and Family Affairs comes to us.

I refer to the mechanism in place for issuing a tax compliance certificate.

Mr. Frank Daly

A tax clearance certificate.

Mr. Frank Daly

A tax clearance certificate is issued where a landlord or anybody else in receipt of income from the State comes to us and asks for a statement that his or her tax affairs, returns and payments are up to date at the time. It is the normal tax clearance approach. It is not a scheme specific to the Department of Social and Family Affairs. The mismatching of PPS numbers is at a different stage in the process.

Perhaps we can return to the matter of understaffing in the PRTB. Mr. Daly has indicated that information can only be requested on a case-by-case basis. What steps are being taken to ensure Revenue has access to the full register, to which Mr. Daly stated he would like to have access? Regarding tenants who claim tax relief, Mr. Daly has indicated that the PPS number is requested. If that is the case, what data-matching exercises have been conducted and what has been the outcome?

Mr. Frank Daly

On the PRTB, as I indicated to Deputy Curran, we would certainly value access to the full register but have to make a persuasive case to gain such access.

Mr. Frank Daly

I presume to whoever sponsors the PRTB legislation.  We will certainly examine that issue.

Have the Revenue Commissioners made recommendations on it to the Minister?

Mr. Frank Daly

Not as yet. We will consider it.

On the rental scheme, the level of compliance is good where tax relief is claimed by the tenant and the landlord's details are produced. As I stated, I would not have a handle on whether there are tenants who did not claim tax relief simply because the landlord was not willing to supply his or her PPS number.

What do Revenue's statistics indicate in respect of those who do apply with PPS numbers?

Mr. Frank Daly

They show that the level of compliance is good.

What does Mr. Daly mean by "good"?

Mr. Frank Daly

The landlord is returning--

About what percentage are we talking?

Mr. Frank Daly

I do not have a percentage but can certainly verify it. My view is that it is approximately 90%. Almost by definition, the cases in question are ones in respect of which there is not a compliance issue.

It is very difficult to determine from the replies given the level of compliance in the various categories. I am not satisfied that this area is receiving adequate attention and would like the committee to return to it at some stage during the year.

Perhaps we will examine aspects of it when representatives from the Departments of Social and Family Affairs and the Environment, Heritage and Local Government appear before the committee in the next six weeks. They are party to this matter.

I was to ask about the alcohol tax warehouse but my question has been dealt with adequately.

Let us consider passenger controls at airports and the smuggling of drugs and cigarettes. Cigarette smuggling seems to have become a major black market industry considering the number of cigarettes being smuggled into the country. I cannot understand why we are not making greater use of sniffer dogs. Occasional reports show how effective they are in sniffing out illegal drugs and cigarettes. Why are we not training a considerable number of dogs such that they can be available around the clock? This, I hope, would shut off the importation of drugs and cigarettes through airports. A report on television showed a person who had been arrested for smuggling cigarettes into the country. His bag was packed with carton after carton of cigarettes. Surely this should have been evident when his bag was put through a scanner at the airport of origin. If the smuggler cannot be stopped at source, can relevant information not be forwarded to his or her destination such that customs officials would know he or she was entering the country with a highly suspicious package and could, therefore, target him or her on arrival?

I have more questions on passenger controls at airports, including smaller airports such as the one in Waterford. How is the system policed? When scheduled flights arrive, are targeting measures implemented on a random basis? In doing so, are local officials used or must they be brought in from elsewhere?

Mr. Frank Daly

There are 11 sniffer dogs in Customs and Excise.  We are always evaluating whether we need more and how they should be deployed.  They are one of our most effective tools and are well deployed.  There are dogs permanently based at Dublin, Cork and Waterford airports and other places.  With scanners, they are successful in detecting suitcases full of cigarettes, principally at Dublin Airport.

Goods pass through scanners at the originating airport where there is an awareness of smuggling. The level of co-operation with customs services in some east European countries is good and we receive a significant amount of intelligence from them on what is coming in on a particular flight. Under EU legislation, it is not possible for them to stop the cigarettes leaving the country of origin but they pass the intelligence to us. This has enabled us to target flights and individuals successfully.

At Dublin Airport in 2007 there were 2,500 seizures of cigarettes to a value of €14 million, more than double the amount seized in 2006. It is a successful operation. We are concerned about organised cigarette smuggling, particularly through Dublin Airport, which presents a problem but our success rate is good and there are seizures almost every day. Earlier this week, for example, there were some particularly successful seizures. There are generous tobacco allowances for passengers travelling within the European Union, within which we must work.

At Waterford Airport we have full access to flight data, to which we match our attendance, mainly using officers from Waterford and our local compliance units. There is also a sniffer dog available there.

Are there officers there for every flight?

Mr. Frank Daly

No, they are allocated on a random risk basis.

What checks are made to detect illegal diesel use in which paramilitaries are said to be involved? Does this lucrative industry result in a significant loss to the Revenue Commissioners?

Mr. Frank Daly

We have a continuous programme of checks to monitor diesel use, particularly marked diesel from which the marker has been removed, but fewer in respect of smuggled diesel. This results in a significant number of seizures, court cases and prosecutions every year. The marking is mostly removed in Northern Ireland, where we have successfully detected several oil laundries. Contrary to the impression given from time to time that we do not co-operate with our colleagues in Northern Ireland, there is excellent co-operation. On Monday or Tuesday of this week the House of Commons Northern Ireland affairs committee met the Revenue Commissioners at Dublin Castle. We are positive about the degree of co-operation between the two agencies. In 2007 there were 1,089 marked mineral oil detections and 221 convictions. There were 33 laundered oil detections, involving nine retailers, 11 hauliers and 13 others. There were 18 convictions for the use of laundered oil. It is an area that we are active in. Northern Ireland is suffering more than this jurisdiction in this regard. We have very good co-operation with our counterparts there.

Does Mr. Daly believe individuals are involved or are such activities organised?

Mr. Frank Daly

I do not believe it is an organised paramilitary operation as such, but there are certain indications that people who were engaged in the past in paramilitary activities might now be involved in this, but on a private enterprise basis, to do with their individual operations.

I welcome Mr. Daly and the other officials from Revenue and the Department of Finance to the committee.  On the shopping blitz, I note that ISME estimated that something like €1 billion was spent abroad in third countries in the run-up to Christmas, and there may have been a very significant loss of €300 million to the Exchequer as regards goods imported.  How does the Revenue know that is not the case?  It appears significant, given that other businesses, not perhaps represented by ISME, were promoting Christmas trips to New York and so on.  It was quite interesting that when NBC News was doing a profile of New York in the Christmas period and looking at foreigners shopping there, everywhere they turned, there were Irish, mainly women, parading like an army through the city's stores.  Obviously, the shops in Limerick, Cork and Dublin were not doing so well.  Was there not, perhaps, a significant loss?  Are the Revenue controls as effective as during the blitz of 2006 as regards the numbers of people stopped in the green channel, etc.?  Did Revenue really get a grip on this particular phenomenon, because that is what it is?

Mr. Frank Daly

I thank the Deputy. It is a frightening thought, that parade of--

--rampant Irish women. They all had Irish accents.

Mr. Frank Daly

I am well aware of the statement by ISME and the encouragement by others of this type of trade.  I am not sure when estimates of €1 billion spent in the US are put out, what exactly this means.  Does it mean €1 billion spent on goods that are brought in here, or is €1 billion spent by the people who go there and sometimes, perhaps, go to shows, restaurants, etc.?  I am not sure what the basis for the €300 million lost to the Exchequer is.  Again, one has to take account of the reality that there are allowances, and people are entitled to travel and shop abroad, while there are limits.

The allowance is very low, is it not? One could be wearing it on one's wrist, neck or whatever — or on one's body.

Mr. Frank Daly

It is very low, but as I explained to the committee earlier, on top of the basic allowance is another one of €350 where there is a minimum customs charge of 3.5%. Much of the clothing that is brought back, I understand, certainly in the children's clothing area, is exempt from VAT, and this must be taken into account. We mounted a fairly intensive operation this year. We checked 635 flights in a two and a half month period and challenged nearly 7,000 passengers. At the end of the day--

The Comptroller and Auditor General's report, however, said there were no records, or was that in reference to last year?

Mr. Frank Daly

No, that was last year. We have very good records this year. We always learn from the Comptroller and Auditor General's reports. At the end of the day we collected €23,000 in VAT and duty. When we intervene we do check the bags. When there is duty to be collected, it is collected. I do not know how we bridge the gap between the €300 million loss and what we found over a couple of months. I was at pains to assure the committee that we will continue with this because the law must be applied.

The Deputy mentioned that the allowances are quite low and that is true, but there is a proposal to increase the amounts fairly substantially, although I am not sure how happy ISME will be at this. That proposal is somewhere in the EU system at the moment. If that comes to pass, the allowance will be increased from €175 to €430 for air and sea travellers, which is a fairly substantial increase. It will also be increased from €175 to €300 for travellers by land. In the future, this may not be as big an issue as it is now.

I notice that the previous committee gave the subject of private airports much attention. How many days would Revenue officials be present at any one of the 27 private airports in the State?

Mr. Frank Daly

I do not have individual figures per airport, but I know that in 2007, we paid 422 visits to those airports. Inevitably, we would have paid more visits to some than to others. Some of those airports are just airfields, or aerodromes or parachute clubs.

In Mr. Daly's last visit to this committee, he had admitted that there had been a very significant importation of heroin through one of those airstrips.

Mr. Frank Daly

That never actually happened. It was intercepted on the Continent and the allegation was that it would have come through one of those airports. That particular aerodrome had its operations severely restricted for all of 2007 because the licence for it from the Department of Justice, Equality and Law Reform stipulates that it can only take flights from the UK and that only UK nationals can be on those flights. In so far as there was a threat, it has been vastly diminished. That is not to say that we no longer visit that airport. We visit it quite regularly.

Of the 422 visits, the vast majority would have been unannounced because that is probably the most effective operation. The number of detections that resulted was quite minimal. We got 170,000 cigarettes. For some reason, all of those were seized in Kerry airport and Knock airport. We seized €340 worth of drugs and there were 11 seizures for personal use. We have significantly increased the attention we are paying to these aerodromes. We make unannounced visits and we bring sniffer dogs. We have good relations with airport managers and with locals.

Mr. Daly said that Revenue would implement a series of new recommendations.  What are those recommendations and what has been done?  Would it be possible to monitor them permanently in order to remove this risk?  We must remember that drug importation has such a savage impact on our communities.  Would there be a benefit in monitoring them permanently?  Has Revenue any input into the licensing of those airports?

Mr. Frank Daly

We obviously would liaise with the authorities who license the airports in the first place. Apart from the licensing, there is also a Revenue approval process that must be completed separately. Each one of those would have an approval from the Revenue Commissioners.

Would the Revenue Commissioners take any action against the owner or operator of an airport? Has any action been taken against those airstrips through which contraband has passed?

Mr. Frank Daly

The amounts involved would be very small, but in the cases where seizures took place, we would have discussed it with the airport managers and we would have warned them. Their approval would be at risk if this---

Has Revenue prosecuted anybody?

Mr. Frank Daly

No. Given the quantities involved, I could not see--

In its recommendations, has Revenue insisted on new management or security systems at those 27 airports or aerodromes?

Mr. Frank Daly

That would have been part of the approval process. I would prefer for operational reasons not to say exactly what type of controls we operate at these airports. Part of the approval process would relate to security, notification and liaison with Revenue.

On the Deputy's other point as to whether a full-time presence at these airports would be warranted, we examined this matter and found it would be extraordinarily bad value for money. Staff would be permanently based at 27 airfields and aerodromes around the country and, almost by definition, if they were there permanently, one can be sure illegal importations would divert somewhere else. The long-standing and very successful approach of unannounced visits, risk rating and good liaison is the most effective approach and is in line with best international practice.

I wish to raise a matter that is not covered in the report. Many members would have a gut feeling that serious amounts of contraband, in particular dangerous and illegal drugs, enter the country by sea despite the efforts of the coast guard and the Department responsible for the marine. I have been and remain, more or less, the parliamentary spokesman for my party on marine matters. How does Revenue operate in this regard? There are six major ports and six national fishing ports, one of which is in my constituency, but there are thousands of smaller ports and landfalls. The Chairman referred to the operation of Border controls, or perhaps non-controls, with Northern Ireland. What is the role of Revenue in this area?

Mr. Frank Daly

We have a permanent presence at the major ports, with fairly significant numbers of customs officers at Dublin, Cork, Rosslare and the like.  As the Deputy is aware, we acquired a scanner a couple of years ago which is deployed between the major ports from time to time and has been successful in detecting contraband.  We are currently debating whether to invest in another scanner and will make a decision on this fairly soon.

This relates to the discussion on bonded warehouses.  Up to four or five years ago, in parts of my constituency it was common to see large amounts of cigarettes being sold door-to-door.  I have never smoked but I noted that one of the brands which seemed to be widely available was John Player Blue in green packets without a stamp.  I imagine some of those cigarettes had to come here by sea, which also applies to the drink which was allegedly being sold very cheaply.  Is it the case that much of this contraband was imported by sea?

It was argued by The Economist magazine at that time, four or five years ago, that the American cigarette industry was basically geared to producing massive numbers of cigarettes for contraband — one of the companies allegedly doing this was Philip Morris. The cigarettes were being produced in the United States and then flooded into the European Union, where they were then available for illegal sale outside the control of member states or Revenue here. This was a major issue and constituted disgraceful behaviour by the American Government in allowing this contraband to be exported. Was that the case and is it still the case?

What is Revenue doing about it, particularly in regard to ports?

Mr. Frank Daly

I will finish the first point. The Deputy asked about the general ports. I explained about the major ports. In regard to smaller ports, fishing ports and harbours we have a coastal patrol, Coastwatch, Customs and Excise and local compliance officers involved in all of those on an intelligence risk assessment basis.

During the run-in to the general election we discussed on the floor of the Dáil a number of major attempts to import drugs by sea and the difficulty, given that we have a very small navy and coast guard, of protecting a huge coastline.

Mr. Frank Daly

Our own cutter, which we acquired a few years ago, has been very successful.  The discussion in Revenue centres on whether we need to build on that maritime capability.  We will make a decision in that area fairly quickly.  We have excellent relations with the Naval Service and with the coast guard in terms of the coastal patrol.

On the question of cigarette smuggling, there was a problem in Ireland some years ago in terms of cigarettes being sold on the streets and around housing estates. We got on top of that and successfully ended that practice. Unfortunately, it has begun to emerge again in recent years, not so much on the main streets in Dublin but in housing estates. Our evaluation is that not a huge amount is arriving by sea. Much is arriving by air. We had a discussion earlier in regard to Dublin Airport in particular where we are seizing enormous quantities of cigarettes. However, some are getting through. We need to be clear that there are very generous allowances for people to bring cigarettes legally into the country. If one is returning from any of the established member states one can bring 800 cigarettes for personal use and we cannot challenge that unless we have obvious reasons to do so. Many of the cigarettes which do not have the Irish tax stamp are probably those.

There is a growing area of cigarette smuggling about which we are quite concerned and which we are tackling in a number of ways. The Deputy mentioned in particular the production by the US companies, and not only US companies but other companies worldwide. Major cigarette manufacturers have in the past been criticised for the way in which they produce cigarettes which they allegedly knew would eventually end up being smuggled somewhere or other. One of the more positive developments in the past year or two, sponsored by the European Union and in which Ireland has played a very active part, has been an agreement between the major companies — Philip Morris and the Japanese Imperial Tobacco Company were mentioned — and the European Union to the effect that if we find their products being sold as smuggled products those companies will have to make a contribution equal to the revenue loss in regard to those cigarettes which will eventually find its way into the Exchequer. That is a significant development which will, I hope, lead to a very responsible approach on the part of those companies.

Could Mr. Daly estimate the amount of illegal smuggling into Ireland?

Mr. Frank Daly

It is very difficult to do that because if we find cigarettes that do not have the Irish tax stamp, we then have to distinguish between the ones somebody brought in legally within the allowance of 800 and the ones that were brought in illegally. Last week I agreed to a proposal to work with the Office of Tobacco Control to do a survey over the next few months which would give us a handle on the amount of illegal cigarettes there are. It will be difficult to do, but it will probably be the first very focused attempt to get a handle on this.

There is one tiny addendum. The Comptroller and Auditor General mentioned that spirits are not stamped specifically. There was a proposal in the Oireachtas that we should try to stamp everything. Does the Revenue invigilate off-licence outlets for possible breaches of the law in regard to illegal spirits and alcohol?

Mr. Frank Daly

We do. It would be part of our normal control. We have close contact with the drinks industry and its representative bodies and that works well in terms of them pointing us towards areas where there might be a problem. Whatever about cigarettes, in terms of alcohol there is no great evidence of any extensive smuggling or abuse in Ireland. It is an area we appear to be on top of. Regarding the tax stamps issue mentioned by the comptroller, because it had been seen to work successfully on cigarette packets there was a proposal that we would require it in regard to alcohol. It is a heavy burden on the drinks industry to apply--

I would not accept that. I do not believe any member here would accept that.

Mr. Frank Daly

They say it is. One would have to evaluate whether it is useful. It was applied in the United Kingdom some years ago but it did not work. In a situation here where we do not have a serious alcohol smuggling problem--

We have serious problems with alcohol.

Mr. Frank Daly

We have serious problems with alcohol but that is a different matter. There is not a serious alcohol smuggling problem.

To follow on from the reference to the shopping excursions to the United States in November and December and the statement from the Irish Small and Medium Enterprises Association, ISME, would be better engaged trying to match the prices in the US because there would not be the exodus of Irish people heading there.  Most of us hear first hand stories of items costing €70 in the US while the same products cost €200 in the shops here.  The fact that Irish people are being ripped off by all and sundry in that the same products are on the shelves in New York at much lower prices is a far more serious issue.  We should start by taking account of the interest of the individual.

We had a long discussion about aspects of the rental income taxation position and the fact that with regard to the rent supplement, there was not adequate matching of the PPS numbers of the landlords versus the Revenue. It is wrong for someone to suggest that because 40% are not matched, 40% might not have paid tax in the first place. That is an awful assumption. I would not like comment to go from this room that because a PPS number has not been matched between two computers people do not pay tax. We have a self-assessment taxation system. We work on the basis that people pay their tax. There are strong checks and balances in place but a long time ago the Oireachtas moved from the presumption that people do not pay their tax to the view that they pay through the self-assessment system. I would not subscribe to the view that this problem is as wide-scale as might have been suggested, although I accept there are some cases that must be monitored.

Regarding chapter 3.10 of the report, perhaps Mr. Daly or Mr. Purcell might give us the information. On the main chart, table 22 indicates that the yield from individuals in taxation terms in 2003 was €255 million and from companies, in corporation tax, it was €120 million, giving a total tax take of €375 million. That is only the tax take, however. It would be far more helpful to this committee to know the gross revenue that resulted in that tax take, which is probably 30 or 40 times that figure. A company may have only paid 12% tax on the net profit resulting from the gross income, and presumably the net profit was only a fraction of the gross income. I realise that with self-assessment people may only return on the net income but has Revenue a concept of the total amount of gross rental income that would be accounted for in terms of tax returns? Is it possible to get that figure or does Revenue only have net figures?

There is an assumption that there is a great deal of unpaid tax, and I am sure there is, but there is a great deal of tax and landlord rental income being accounted for in the system.

The figure of €375 million is the net tax after all the allowances at the tax rate. It is a very small proportion of the amount of money in the system about which we are talking. Perhaps a chart which could work the figures back up to gross levels would be helpful.

Mr. Frank Daly

On the point the Deputy made about the 40% or 50% matching--

I am not sure of the figures.

Mr. Frank Daly

--not necessarily meaning the tax was not being paid, I made that point earlier but it is important.

I agree with Mr. Daly.

Mr. Frank Daly

I do not have the gross revenue figure. It is not really easy to work back from these figures here to that figure because it depends on the rate of tax. It also depends on the fact that certain deductions would be allowed, as the Deputy would know. I am not sure whether we can work back to it.

Obviously, in the case of individuals, it comes from the forms. Revenue knows whether those individuals were paying the 20% or 42% rate. The corporation tax figures are more clear cut. I am sure, like in every industry, Revenue has ratios. If somebody shows a net income in a return, there is a presumption that the gross income is within a certain range. I am not saying it is scientific but using Revenue's own internal intelligence and from its margins in which it would expect people in an industry to operate, could it estimate whether we are getting a reasonable return? An estimate would be helpful, although it may not be accurate. This chart refers to residential property only. We are not talking about non-residential property.

Mr. Frank Daly

That is right.

The figure could be billions. Does the Central Statistics Office have information from the last census on how many people declared themselves to live in rented property? I know Revenue does not have that information but the census provides a myriad of information. I would be shocked if that figure was not in the public domain. It should give us some indication. By and large, rent supplement and the rental accommodation scheme only deal with people on local authority housing lists, which is a fraction of the entire population. While they might represent 2% to 7%, over 90% live in private rented accommodation and they are not in the local authority rental accommodation scheme. It is important for us to know the proper regime is in place to capture tax from the rental income of that 90% plus.

I know a specific issue has been highlighted here, which is important. I appreciate the work which has been done. I was shocked to read about the lack of matching but there is a bigger issue in terms of private rental income which is not in this chapter.

Mr. Frank Daly

I made the point earlier that this is only a subset and that our objective is to get a full picture of landlord income. We are working on that in various ways. Part of that is the Department of Social and Family Affairs and Department of the Environment, Heritage and Local Government list.

On the other point the Deputy made about the macro figures, one of the areas on which we are working in general terms — I am not talking specifically about rental income — is trying to look at macro data available elsewhere, whether from the CSO or otherwise, to do some analysis of that and to ensure there is a reasonable alignment with the macro figures in terms of what we are getting in tax from a particular sector or area. That is the focus of some work in Revenue.

I was making general observations rather than specific ones.  I do not believe I received the form I get each year relating to tax credits and reliefs.

Mr Frank Daly

It is on the way.

I will expect it.

I refer to a general Revenue issue. Obviously, there has been an improvement in regard to individuals claiming relief for refuse collection, trade union subscriptions, medical expenses, etc. I was on a committee during the last Dáil which addressed that issue. I hope the forms being sent out will inform people who are still not aware of their entitlements in respect of tax reliefs.  Is there good progress in that regard to ensure people are not paying tax they should not be paying? I see my headed paper arising in Mr. Daly's file.

Mr. Frank Daly

I have a long letter from Deputy Fleming and an even longer reply.

I have read it three times and I am still struggling with it. I will come to that in a moment.

Is the Revenue doing something to encourage the general public? While the committee wants to ensure that all taxes due are paid, as public representatives we all would want to ensure taxpayers are not unwittingly paying taxes which they should not be paying — we wear the other hat as well. I hope the Revenue is working on that side of it. I am aware it has been improving on that area.

Mr. Frank Daly

I can assure Deputy Fleming that we have no wish that anybody should pay any more tax than he or she must. As he acknowledged, we have put considerable focus on that in the past couple of years.

In the past year or so, as he will be aware, we have run publicity campaigns and targeted issues of reminders on claiming tax reliefs to ensure people are aware of them, that they claim them and that they are encouraged to claim them, and we have made it easier for them to claim. In the past year or so we have automated some of that process.

For example, the DIRT relief for those over 60 is now totally automated and the banks do not deduct it. That is one simplification that has been promised and delivered within the year. Similarly, age relief is now automated on the basis of information we get from the Department of Social and Family Affairs. When somebody goes over 65, he or she automatically gets that. This also was promised and delivered within a year.

There are a couple of other initiatives on the way, the most significant of which would be in respect of the €85 that everybody pays for the drugs scheme. Shortly, we will get to a stage where we will prompt a person by stating that we think he or she should be claiming back this money. That will be on an individual basis. Something will come fairly soon on that. We are also anxious to automate trade union subscription relief and are in discussions with the trade unions on that.

Deputy Fleming mentioned he had not received his tax credit certificate.

That is not a criticism. It is only due about now.

Mr. Frank Daly

It might be useful for the information of the committee to state that those will begin to issue this weekend and all 2.2 million of them will be issued by the first week in February.

Mr. Frank Daly

I hope the committee will find the new leaflet and certificate much more user-friendly. It even contains a few cartoons. We did not want to go overboard. No doubt we will now be accused of not taking the matter seriously but one must try something to see does it work. It will be interesting to get the feedback.

I acknowledge people can get some of these allowances amended over the telephone. They need not even put pen to paper, apply a stamp and put it in the post. The system has improved greatly. It is one of the areas where the on-line systems and IT are working. I will move on to my second last issue.

The four year rule introduced a while ago caused problems last year where if people did not claim tax that they were due for a four year period, they lost their entitlement to claim it. I asked a simple parliamentary question and we entered into longer correspondence, but the Revenue still was not able to state how much people were told they were owed last year but could not get because of the four-year rule. I have submitted another series of parliamentary questions to work around that and perhaps they have made their way to Mr. Daly.

I was surprised that following the change in legislation we were unable to quantify what I would call the loss to the taxpayer. There is probably some Revenue initiative to make life a little easier rather than to be going back continually over the years. We found ourselves in the situation where persons owed €1,000 or €2,000 due to mistakes received a letter to that effect, the last paragraph of which stated that the Revenue is prohibited from issuing a refund because of the new four year rule.

Mr. Daly will be aware of the correspondence of which I speak.  The Revenue stated its IT system could not aggregate the value of those cases.  I still do not believe that because I am sure there is a limited number of offices issuing those letters and they must have a computer file of the types of letter issued.

It is part of the legislation we passed.

Mr. Frank Daly

It is.

That is the answer before I start. I was disappointed Mr. Daly was unable to provide the information in this regard because if it was significant, the four-year rule should be re-examined to give people an opportunity.

Mr. Frank Daly

As the Deputy pointed out, he passed the legislation, not me. However, it is two-way, as it also prohibits Revenue from going back more than four years.

Barring suspected fraud.

Mr. Frank Daly

Obviously. I mentioned the last time I appeared before the committee that we were being pursued for repayments in dubious circumstances in regard to vehicle registration tax. The four-year rule is very valuable in protecting the State from spurious claims and I would not lose sight of that aspect of it.

I wrote to the Deputy and, after much work, we established 2,400 claims were disallowed for people on self-assessment and I explained the reasons. I still cannot give the Deputy a figure for PAYE claims. However, I provided figures that indicated almost 80% of claims made by PAYE workers relate to the previous two years and, therefore, it is highly unlikely that significant numbers have been caught by the four-year rule. It is diminishing as an issue as time moves on.

Mr. Daly commented during his last appearance before the committee on a spurious claim by a firm of accountants on behalf of a range of car dealers. What is the up-to-date position on that?

Mr. Frank Daly

The total of the claims has reached €200 million, as I predicted at the time. We have received legal advice on defending them. It is a strong case and we are very confident. We are in the process of dealing with the claims on a case-by-case basis but this will run and run.

What is the claim?

Mr. Frank Daly

The claim relates to legislation in 1992 that contained a definition of "motor vehicles", which exempted vehicles that were in the opinion of the Revenue Commissioners designed for off-road use from vehicle registration tax. That ambiguity has meant that a number of claimants have suggested that as the ordinary SUV, four-wheel drives that we see every day on the road were manufactured for off-road use, they are exempt from VRT. The argument will hang on the primary purpose and construction of these vehicles and we are pretty confident we will see this off.

On behalf of the taxpayer, I wish Mr. Daly well.

Did Mr. Daly refer specifically to one firm of accountants that was behind that attempted scam? Was the same company involved in promoting other questionable advices to people trying to avoid paying significant tax?

Mr. Frank Daly

I did not name a company but I made the point that this was being promoted by one company.

Does the company have form with the Revenue?

Mr. Frank Daly

I could enter into a debate about what is legitimate tax planning and what we regard as unacceptable tax planning.

Mr. Frank Daly

It would be unfair to pick out a particular company. All accountants legitimately feel it is part of their business to engage in good tax planning for their clients. Sometimes we differ with them along the way regarding what represents acceptable tax planning.

Most of my questions have been covered to my satisfaction but I refer to the taxation of rental income.  This committee must be fair to the Revenue because the number of landlords means this market has exploded over the past seven or eight years.  Mr. Daly referred to a large portion of the PAYE sector having second or third properties and this must be dealt with by Revenue.  We have all raised concerns about PPS numbers not being given to the Revenue.  Other Departments such as the Department of Social and Family Affairs and the Department of the Environment, Heritage and Local Government, must link up so that the procedure becomes easier.

Reference was made at an earlier meeting of the committee to the systems which are available for public use, such as the Revenue on-line service. It is very different from the service provided seven or eight years ago. The Revenue service is customer focused whereas formerly many Departments would not have been regarded as being customer focused. I believe cartoons are now being used. This is a good move forward.

I note the extra number of staff resources, 14 in total, being given to customs control at Dublin Airport.  I live about ten minutes away from the airport and it is in my constituency.  I am a frequent visitor to the airport.  I refer to the issue of the visibility of the customs control.  Anecdotal evidence is that anyone travelling regularly through the airport would not see a customs official at the desk or in the channels.  There does not seem to be a visible deterrent and people may take a chance.

I appreciate that Revenue prioritises the illegal smuggling of drugs, cigarettes and contraband but I ask how the extra 14 officers will be deployed within Dublin Airport in the context of an increase in passenger numbers which will tip 30 million in the next few years.? The airport is undergoing expansion and the second terminal has been approved and a second runway is planned.? Will the customs facilities which Revenue requires be provided?

Deputy Broughan referred to Dublin Port and the ports. A documentary was broadcast before Christmas which featured the scanning equipment at the port. I am glad to hear the single scanner for use at the ports has been successful. An allegation was made on that programme that information about the location of the scanner has been obtained by those smuggling contraband. How can this be counteracted? This is an island nation. Mr. Daly mentioned that the purchase of a second scanner for use in the ports is being considered. Does Mr. Daly believe the allegation about information on the location of the scanner allowing smugglers to change their port of destination is factually correct?

Mr. Frank Daly

The number of staff at Dublin Airport has been increased by 14 or 15 in the past few months. On the question about the expansion of Dublin Airport, Revenue is very conscious that staffing must be considered in the context of an increase in numbers. We have a good liaison with the Dublin Airport Authority and with the airlines with regard to facilities in an expanding airport so I do not have any worries in that regard.

The public visibility of customs staff is variable. I passed through the airport last Monday night and they were very visible. I have come in at other times and they have not been as visible but this does not mean they are not there as they could be out at the baggage carousel behind the scenes. They have access to CCTV. Many of the detections at Dublin Airport happen when an experienced customs officer examines the behaviour of a passenger on a screen or from behind the scenes. I take Deputy O'Brien's general point that visibility can be useful as a deterrent or reminder. He has rightly said we have just one big mobile scanner, although there are other minor scanners at places such as Dublin Airport. The mobile scanner which was purchased a few years ago is operating successfully. We are in the final stages of evaluating whether we should purchase another mobile scanner. We will make that decision soon.

I do not accept the argument made during the documentary that everybody knows where the main scanner is located. It is a conspicuous vehicle, by definition — it is not easy to hide it. It is deployed covertly and at short notice. Information on its deployment is made available on a need-to-know basis. There is no widespread indication of where it will be located at any particular time. We have been conscious, right from the beginning, of the need to counteract those who might be keen to undertake surveillance of the scanner. I found some of the allegations made in the television programme a little hard to understand. The suggestion that a container ship on the high seas can be diverted from one port to another at short notice, when it is learned that the scanner has been moved from Dublin to Rosslare, is a little unbelievable.

Mr. Frank Daly

That was the only part of the programme in which an actor was deployed. I drew some conclusions from this.

Does Deputy Shortall wish to ask another question?

I have two short questions. I would like to ask about non-resident landlords. The most recent estimate was that there were approximately 1,000 such persons. The taxes owed by them should be deducted at source but there is no system within the Department of Social and Family Affairs whereby this can be done. What are the proposals of the Revenue Commissioners for tackling that problem? The huge difficulties associated with the transfer of information between various State agencies and the Revenue Commissioners make the collection of taxes on rental income less than satisfactory. Do the Revenue Commissioners intend to make proposals for amendments to the forthcoming Finance Bill?

Mr. Frank Daly

The Revenue Commissioners are working with the Departments of Social and Family Affairs and the Environment, Heritage and Local Government to ensure the appropriate arrangements for dealing with rents paid to foreign landlords are implemented. The scale of the possible tax loss in this area is not significant. Data published by the Department of Social and Family Affairs in 2005 indicated that 916 landlords of Irish properties were living outside Ireland and payments totalling €3 million were made to them each year. Payments are made directly by the Department to landlords in respect of just 149 of those properties. If there is a "tax loss", if I can put it like that, the Revenue Commissioners calculate that it comes to approximately €200,000. That is a gross figure — as the Deputy is aware, landlords can offset costs, allowances and deductions against their tax liabilities. The potential tax loss is not great. The objective is to ensure the system works and will be worked by the relevant Departments.

We should be more interested in the principle. There is no system in place to collect this tax.

Mr. Frank Daly

No system was in place then, but there is a system in place now. I suppose it is something on which we need to keep an eye.

Is there a system in place now?

Mr. Frank Daly

Yes. We have drawn the attention of the two Departments to this problem. If one pays rent to a landlord who is resident outside the country, one deducts withholding tax. The Departments will do this.

Did that start to happen last year?

Mr. Frank Daly

I do not know if it is actually happening, but we will certainly ensure it is working. What was the Deputy's second question?

Given the difficulties with the transfer of information, do the Revenue Commissioners intend to propose amendments to the forthcoming Finance Bill?

Mr. Frank Daly

The amendment made in last year's Finance Bill to require the giving of the PPS number is the key that was necessary for us.

Mr. Daly has stated he would love to get his hands on the register in the PRTB.

Mr. Frank Daly

Yes, I would. I said I would look at this matter and whether there was a valid case for doing this. Revenue never wants to overdo its intrusion to obtain information from other bodies unless there is a real value to it. If there is a real value to this, we will pursue it. Whether we will have time to do so in the context of the Finance Bill, I am not sure.

Deputy Shortall suggested that we keep open chapter 3.10 and not dispose of it until we speak to officials from the Departments of Social and Family Affairs and the Environment, Heritage and Local Government. I am sure Deputies will agree to her proposal.

I offer Mr. Daly some information, on which I do not seek a comment from him. He indicated that the Revenue Commissioners were working closely with the Department of Social and Family Affairs on its payments to landlords. I do not know whether a new practice has emerged as a result of Revenue's attention but I have noticed in my area — I suspect a similar trend will be evident elsewhere — that cheques are increasingly being made payable to the tenant rather than landlord. I hope this is not being done to leave Revenue with deficient information. While it is not the problem of the Revenue Commissioners, I am flagging it to Mr. Daly because Revenue is in negotiations with the Department. A couple of years ago virtually all cheques were made directly payable to landlords. However, I have observed an increase in the number of cheques being made payable to tenants. I wonder what is the reason for this. It is a matter for the Revenue Commissioners to investigate in their negotiations with the Department.

In Mr. Daly's appearances before the committee we often discuss events that occurred in the past, risk analysis and how Revenue has deployed its resources. I will flag another emerging issue, as I do not know whether Revenue is dealing with it. This matter has come to my attention more and more in the past 12 months and relates to the import of goods by private citizens, either through courier companies or directly through An Post. The items in question are usually IT and computer related goods such as digital cameras. It has been suggested to me by those in the trade that the goods entering the country from specific parts of the world — I suspect Revenue will be familiar with them — are often falsely declared. For example, a box arriving in the postal sorting office containing a camera might be marked as a repaired item valued at €20. The practice has been brought to my attention and while I do not know its scale, I suggest Revenue needs to be aware of it. People can shop locally and internationally. On-line shopping and the import of certain goods have tax implications. I do not know how well developed Revenue's procedures for dealing with the practice are but in the past 12 months the evidence I have received is that people know how to deal with the system and where to buy goods. It seems that in certain countries it is easy to ensure goods are shipped in a particular manner.

Mr. Frank Daly

We are aware of that risk. I had a figure but cannot lay my hands on it now. We have a two-pronged approach to this issue. First, we have customs staff in the major postal depots, that is, those into which all the incoming mail from outside Ireland is channelled. These staff have been successful. I have a figure in my mind of €2 million for the charges imposed in the past 12 months but I may be wrong. There are many seizures and quite an amount of money is collected. Customs staff are aware of the scam about which the Deputy is talking.

If a sum of €2 million was successfully collected, what does this represent in terms of the scale of the practice? That is my concern. To return to risk analysis, a figure of €2 million would be substantial. On-line shopping is a new development and the sector will probably grow significantly. Before it becomes the subject of a specific chapter in the Comptroller and Auditor General's report, it should be--

Mr. John Purcell

It was the subject of a chapter in the 2005 report because I also like to look and see what is happening around me. We had a chapter on e-commerce and tax which dealt with the difficulties in imposing and enforcing taxation on e-commerce.

Mr. Frank Daly

The second part of the response, as I recall, is the work we are doing in interrogating the Internet and using a sophisticated search engine technique that identifies particular patterns of trade and commerce at which we believe we should be looking.

I have a list of all the tenancies in Dublin 17 and Dublin 13 in my constituency on which information is available on the PRTB website. Does the Revenue have to avert its gaze from such alarming information or is it possible in any way to interact with it?

As of 31 December 2007, the Private Residential Tenancies Board stated 202,000 private residences are registered. That is a significant portion of the housing stock. What is the situation in this regard?

The Revenue has still not integrated the information it received on tax relief in terms of taxation of landlords. According to the Comptroller and Auditor General's report, Revenue does not appear to have done that.

In the value for money report No. 56 which is attached to chapter 3.10, reference is made to the use of sheriffs and solicitors in the collection of taxes. The Comptroller and Auditor General has an interesting comment to make about repeat offenders which goes right back to where we started in this discussion. A significant number of people do not appear to give a damn about paying taxes and the Revenue has to keep chasing them. Has anything been done to address the issues identified by the Comptroller and Auditor General in the value for money report?

I contacted the Revenue about a complaint regarding a golf club in Dún Laoghaire which is indicative of a pattern in respect of sports clubs with private or limited membership that sell off land to major property developers.  These transactions can realise millions of euro and members make large gains.  There has been speculation about another golf club on the north side recently that may go this route and where members will get a lucrative return.

Mr. Daly indicated that this golf club is one of 1,800 sporting bodies that are granted tax exemption under section 235 of the Taxes Consolidation Act 1997. That exemption extends to income tax, corporation tax, and especially capital gains tax, among others. Similar to the issue raised by Deputy Curran, is it possible that this can happen in future in terms of bodies that were originally charitable organisations or purely sporting organisations? Mr. Daly stated matters would be kept under a periodic review on a risk basis by Revenue. Is that something about which Mr. Daly is concerned?

Mr. Frank Daly

Did Deputy Broughan say he has the register there and he could give it to me?

It is on the website.

It is partially available. One can read the properties that are rented on the website. One does not necessarily know the name of the tenant and the landlord.

Mr. Frank Daly

It is the landlord I need.

No, the identity of the landlord is not given but the properties are known.

Mr. Frank Daly

I have a figure that the number of landlords registered with the PRTB was 53,070 at the end of 2005.

It will be 92,000 at the end of 2007.

Mr. Frank Daly

On property tax relief, as mentioned in the Comptroller and Auditor General's report, the information we have is essentially the information that is picked up from the taxpayers' returns and sometimes it is aggregated in such a way that we cannot disaggregate it into particular reliefs. This is something of which we are very conscious over the years. We have had debates in this committee previously about the lack of information that was available on the cost of reliefs. One of the consequences of those debates has been many more questions on the annual tax return to the good effect of giving us a sounder basis for the cost of reliefs.

In regard to sheriffs and solicitors, in general terms, there are repeat offenders in any area. We keep a very close eye on them. The performance of the sheriffs and solicitors in terms of enforcement has increased immeasurably and very positively over the years. The Comptroller and Auditor General commented on this in his report.

To return to a discussion we had previously, we would now probably have the lowest outstanding debt of any tax administration worldwide. This is an indication that we are having success. There is a long-standing tradition of never commenting on any individual tax affair, and that includes those pertaining to golf clubs. There is a sports tax exemption and there are conditions attached thereto. There are particular conditions attached to what happens if one disposes of assets or land. We are very much on top of this in respect of any activity in this area. I can give the Deputy a general assurance in this regard in so far as that is possible.

We have had a very comprehensive discussion and Mr. Daly has been very forthcoming in his responses. We have agreed that there is significant unhappiness over the issue of rental income taxation. Representatives of the Department of Social and Family Affairs and the Department of the Environment, Heritage and Local Government are to appear before the committee in the coming six weeks and it is proposed that we do not dispose of chapter 3.10 until such time as we hear their evidence. Is it agreed to note chapters 3.7 to 3.9 of Vote 9? Agreed. I thank Mr. Daly and his colleagues for attending today, in addition to the representatives of the Department of Finance. Although the latter have been silent, their presence is most appreciated.

At our next meeting we will consider the 2006 annual report of the Comptroller and Auditor General and appropriation accounts, namely, Vote 32, chapter 8.1, pertaining to the Department of Transport. We will have an update on the integrated ticketing scheme and consider relevant chapters from Value for Money Report 56 of the Comptroller and Auditor General, Improving Performance: Public Service Case Studies.

The witnesses withdrew.

The committee adjourned at 1 p.m. until 10 a.m. on Thursday, 31 January 2008.