MIONTUAIRISC NA FINNEACHTA
(Minutes of Evidence)
COMMITTEE OF PUBLIC ACCOUNTS
Déardaoin, 20 Samhain 1997.
Thursday, 20 November 1997.
The Committee met at 11.20 a.m.
DEPUTY J. MITCHELL IN THE CHAIR.
Chairman: We have completed paragraph 11 and propose to take paragraphs 12, 13 and 14 together.
Deputy Durkan: Have we finished discussing enforcement measures?
Chairman: Yes. It is now proposed to take paragraphs 12, 13 and 14 together; paragraph 15; paragraph 16; and paragraphs 17 and 18 together. I welcome Mr. MacDomhnaill and his officials.
Mr. MacDomhnaill (Chairman, Office of the Revenue Commissioners): My officials are Ms Josephine Feehily, Accountant General of Revenue, Mr. Dennis Power, Principal Officer in the Corporate Management division, and Mr. Paddy O’Shaughnessy, Assistant Principal Officer in charge of the administrative budget and work with the Public Accounts Committee.
Chairman: We also have Mr. Noel Kerins and Mr. Barra O’Murchadha from the Department of Finance in attendance. Before the Comptroller and Auditor General introduces paragraphs 12, 13 and 14, the Chairman of the Revenue Commissioners agreed last week to provide details of tax collection yields by Bailiwick. Is the Chairman in a position to provide such material today?
Mr. MacDomhnaill: I have given the analysis we have to the Clerk of the Committee.
Chairman: It can be circulated, therefore.
Mr. John Purcell (Comptroller and Auditor General): Paragraph 12 discloses details of the rate of compliance by tax payers in submitting income tax and corporation tax returns. It will be noted that while nearly all income tax payers ultimately comply with their obligation to submit returns, almost 20 per cent of companies fail to do so. In 1996 legal proceedings against those who failed to make statutory returns were instituted in 774 cases. This represents only a small proportion of the total number of offenders but the Revenue Commissioners feel it is impractical to prosecute larger numbers.
Paragraph 13 gives details of Revenue audit activity under a number of headings and the results in terms of revenue yield. Particular attention is given to the comprehensive audits which underpin the system of self assessment. There was a slight drop in the number of such audits, but the yield was much higher at £69 million. The increase probably reflects the more sophisticated approach to selecting and auditing cases which Revenue has been developing in recent years now that self assessment is well established.
Paragraph 14 gives information relating to back duty settlements by the investigation branch which were well down in number and yield on previous years. This reduction is a consequence of the move to a policy of selectively prosecuting tax defaulters rather than the common practice heretofore of accepting monetary settlements in all cases. I welcome this move and believe it is overdue. The settlement culture, while administratively convenient and efficient in getting in tax, did not have the required deterrent effect in terms of ensuring all tax payers complied with their obligations. I will be keeping the new policy under review and will be reporting on its effectiveness in future reports.
Chairman: Does the Chairman of the Revenue Commissions wish to comment on the Comptroller and Auditor General’s point about the lack of effectiveness of the settlement culture?
Mr. MacDomhaill: It is not my view that there was a lack of effect. Looking at the turn around in compliance since the introduction of self assessment in 1988 for sole traders and in 1989 for companies, it is clear there has been a huge shift towards compliance. In addition, substantial sums of money have been recovered every year as a result of these settlements. As in the case of the comprehensive audit, the investigations carried out by the investigation branch also underwrite the process. Therefore, it has been effective to that extent.
The Comptroller and Auditor General and a number of Members of the previous Public Accounts Committee expressed the need for evidence that Revenue is prepared to go beyond financial settlements to the ultimate sanction of a custodial sentence for tax offences. We accept this. I have been living with this for many years and was in the Dáil in 1983 when section 93 of the Bill, now section 94, became law. The attitude was such at that time that the section was watered down at Committee Stage. There has been a huge culture change and we now have an agenda of seeking prosecutions on indictment - that is criminal prosecutions - for certain flagrant offences.
It must be remembered that there will be relatively few prosecutions. Our experience - and I have discussed this matter with counterparts in other countries - is that a successful prosecution can take between one and two years to put together when dealing with white collar fraud. Also, the normal rules of the tax code, imposing certain statutory obligations on taxpayers, have to be put aside in pursuing a criminal prosecution. In such cases it is necessary to ensure all constitutional safeguards are provided for the accused. Therefore, on being satisfied that there is a case to be answered a caution must be issued, part of which is that the person may withhold the information if he/she so wishes. They cannot be obliged to give the information under statutory provision. We had a recent ruling on this in the High Court. Judgements have to be made on each case about whether there is enough evidence, notwithstanding any information received as a result of statutory compulsion, to warrant pursuing an investigation which will involve the full-time attention of an officer for up to two years. The opportunity cost has been mentioned already in the context of the significant drop in investigations, because an officer pursuing one case could be carrying out several investigations bringing in a few million pounds. Judgement calls have to be made. There is a big demand for resolute action of this kind but it will never apply to large numbers of cases. Our Corporate Plan suggests we take a few cases of this kind each year which we might successfully prosecute. This does not mean we will only pursue a few cases. However, allowance has to be made for many cases which will not be successfully pursued because the requirements of evidence are so demanding.
We have made a decision to shift resources towards prosecution and have organised training courses for our investigation staff because this is a new type of approach, A number of our officers have had intensive training and we have received enormous help from the Director of Public Prosecutions and his staff. We have reached an agreement with the DPP and the Garda that in future straightforward tax cases will be sent directly to the DPP. We embarked on a prosecution policy in 1991, but the ruling then was that the cases had to be referred to the Garda Fraud Bureau which would carry on the criminal investigation after we had highlighted the case. As a result, cases had to take their place in the list of other Fraud Bureau investigations and in some cases something more general than tax evasion came to light.
Since 1991 we have been pursuing prosecutions, although we have not been very successful.
We have now, in the last year or so, moved to this new agenda. About 600 of our outdoor staff have been trained in the identification of cases where there may be evidence. What I am saying is that we have already done a huge amount of work in response to this demand.
Chairman: With due respect, the message being emitted this morning is that anybody who wants to defraud the Revenue can do so with abandon and get away with it. Is it not very clear that measures, such as members of the fraud squad in queues, etc., are totally ineffective? Is it not also very clear that a few high profile cases would have a salutary effect on many other potential tax evaders? Have you sought any rationalisation of the process, new powers or legislation to deal with the prosecution of Revenue evasion?
Mr. MacDomhnaill: This is an ongoing process. Fraud is a general criminal offence and it is not just a Revenue offence. We have made a number of changes to the powers over the years, but you are talking about fundamental constitutional rights and not changing the law, that is, the right of the person to fair due process. That is not a matter of law; it is a constitutional requirement. Therefore, we are up against the same difficulties which the DPP encounters in any case. The DPP has actually delivered papers on this topic to the Incorporated Law Society and they have been published. It is well recognised that these difficulties exist. One must balance the right of a person to a fair trial and a presumption of innocence when one is going the criminal route, and the onus of proof is completely on the prosecution. In our case, as we will not be the prosecuting authority and as all prosecution decisions of that kind must be handled by the DPP, we simply prepare the file, produce the evidence and the DPP prosecutes. That is the situation.
I would have to take issue with you, Chairman, when you say that it is totally ineffective because, if you look at the hundreds of millions of pounds that we collect in back duty and all our audit settlements, you may say that somebody is not behind bars but all these other sanctions are very effective. It is wrong to say they get away with it. They do not get away with it. They have paid very heavy fines, back tax and interest but they have not been prosecuted in a criminal prosecution.
Chairman: Compared to what happens in Northern Ireland or Great Britain in recent years, for example, white collar criminals take advantage of your concern for constitutional rights. Of course we are all concerned about constitutional rights but that concern becomes excessive when it means you turn a blind eye or take no action against people who are grossly evading the system and thereby lump the extra tax on other law-abiding taxpayers. There must be more balance in the attitude of the Revenue Commissioners to this crime. We must be more effective.
There has been no Lester Piggott case in this country. Why? Are you saying that there is less tax evasion in this country than in Great Britain or is it just because we are softer on the Lester Piggotts of Ireland and they can ride to hell?
Mr. MacDomhnaill: No, I am not saying that. Great Britain is a very big country and you are pointing to one case, the Lester Piggott case. I could equally point to the case of Ken Dodd. Again, I must take issue with you, Chairman. You said no action is taken. You are discounting the actions which have been taken in lieu of a criminal prosecution, that is the summary route which is open to the Revenue. The Revenue have discretion to take whichever route they feel is appropriate but I would take issue with you for saying that the route we have taken and all the penalties which we have imposed amount to no action.
Chairman: Not no action but not enough action. We will not refer to the current tribunals, but there is great concern among the vast majority of PAYE taxpayers, who have no choice but to pay their tax on time and in full, that the Revenue Commissioners are soft on white collar criminals, that all sorts of excuses are given but there is no effective action. That would be the impression and pressure should be put on the Revenue Commissioners to correct that impression or to explain themselves.
Deputy Durkan: For the purposes of comparison, roughly how many of the companies with which a settlement was achieved were large companies, small companies or sole traders?
Mr. MacDomhnaill: I am afraid I do not have details of the breakdown in back duty settlements but we can get it for the Committee.
Chairman: Can you get it while we are in session?
Mr. MacDomhnaill: We will try.
Deputy Durkan: The question would apply in respect of income tax, corporation tax and VAT. In addition in relation to compliance, does a system of automatic review exist in respect of individual taxpayers? For example, all public representative would have experience of dealing with tax queries on behalf of constituents, most of whom are very small fry. We would seldom deal with the tax queries of large corporations. I would have to compliment the Revenue Commissioners for being conscious of the way in which they deal with small companies and sole traders. At the same time, however, it is necessary that we should have a profile of the degree of activity generated in each area, particularly the degree of activity generated in follow-up procedures and settlements in respect of the various categories. The point I want clarified is that larger companies have the technical and administrative staff to pursue their case unlike the smaller companies or sole traders.
Mr. MacDomhnaill: I have some figures from the details of the comprehensive audit which might answer some of the queries.
In the case of income tax settlements, which amounted to £24 million, there were 998 cases in the range of £1 to £5,000; 891 cases in the range of £5,000 to £50,000; 46 cases in the range of £50,000 to £100,000 and 21 cases over £100,000. In regard to corporation tax settlements, there were 362 cases in the range of £1 to £5,000; 468 cases in the range of £5,000 to £50,000; 61 cases in the range of £50,000 to £100,000 and 47 cases over £100,000.
Deputy Durkan: Therefore, the larger the settlement, the smaller the number of cases - it is a declining scale. How many prosecutions have been initiated in each of those categories?
Mr. MacDomhnaill: Our analysis of the prosecutions is not classified by case size. The vast bulk of prosecutions are for failure to submit returns. We give details in our quarterly report of the cases in which we were successful. The first part of the schedule lists the companies and individuals who were successfully prosecuted.
In regard to indictments, before the new arrangement was put in place we sent 29 cases to the Garda Fraud Bureau and we have since activated another 17 cases. These are largely substantial cases because those are the ones on which we are concentrating.
Deputy Ardagh: What action is being taken to investigate offshore accounts, such as the Ansbacher accounts? The associated banks seem to have extremely successful subsidiaries in the Isle of Man and Channel Islands. I do not think other nationalities would use subsidiaries of Irish banks when there are already subsidiaries of Barclays, Natwest and other substantial British and European banks in those locations. I suspect that much of the money in those offshore accounts, whether through banks in Dublin or lodged in banks in tax havens, is “hot money”.
The last amnesty provided for a 15 per cent tax rate for income which had not been declared. However, much of the money which has been generated has been extracted from corporate bodies. There was a perception that such moneys did not come under the amnesty and that if they had been declared at that time a rate far in excess of 60 per cent, perhaps up to 80 per cent, would have applied because of VAT, corporation tax and PAYE. Therefore, a great deal of money which was expected to come from the offshore accounts was not declared in the amnesty. What efforts are the Revenue Commissioners making to ferret out this money and ensure the due taxes are paid on it?
Mr. MacDomhnaill: The Deputy is correct that VAT, PAYE and PRSI did not come within the 15 per cent category in the 1993 amnesty, which meant it was not very attractive to many businesses. There was also a general amnesty concurrent with the 15 per cent one which people could avail of to pay arrears of VAT and PAYE without additional interest. They could then avail of the 15 per cent amnesty for the profits which were earned. However, company profits did not come within the 15 per cent category - it only applied to income tax.
The Revenue Commissioners must try to ferret out this money without having access to these accounts. Tax havens do not enter into agreements with other countries to divulge information: that is the whole reason for their existence. Even where tax havens come under the umbrella jurisdiction of a tax paying State, as many of them do, the protocols of double taxation agreements do not allow us access to information in such tax havens. We have an array of bilateral agreements with countries but they do not extend to the exchange of this kind of information. We have far less access to such accounts than an investigating tribunal would, for example. We must try to deal with evasion without the benefit of access to offshore accounts.
Furthermore, we do not have the benefit enjoyed by revenue authorities in many countries of automatic access to domestic bank accounts. We have very limited access to domestic bank accounts - we need an actual name for the account and either the person concerned must fail to submit a return. We then must go to court to ask for access to the account. We do not have trawling rights or automatic access to domestic bank information. We must attempt to conduct our business against that background.
We have some aids, however. Under section 230 of the 1992 Act any intermediary, whether it is a bank or a facilitating agency, facilitating a person to open a foreign bank account must notify us. However, the snag is that people can open foreign bank accounts directly without going through an intermediary.
We must examine business records, carry out our audits and look for markers which would enable us to put pressure on the business in other ways. In that way, we frequently get information about offshore accounts - we do not get it automatically. This is a great difficulty for any investigating organisation but we must do the best job we can within the existing law.
The Deputy referred to specific offshore accounts. They come into the category which I described. They were peculiar accounts in that an element of the management was from within this jurisdiction.
Nevertheless, from the point of view of the Revenue Commissioners, I would expect a bank to say that such an account was a foreign bank account and therefore an offshore one. Form F enables us to obtain the names of foreign account holders in Irish banks. As they are normally non-residents, we would not have any great interest in them.
Deputy Ardagh: I have a number of supplementary questions which relate specifically to this area. Does Mr. MacDomhnaill believe that the sanctions which can be applied to banking staff and other advisers are a sufficient deterrent to prevent them from in any way aiding or abetting people who would set up offshore accounts?
Mr. MacDomhnaill: I do not know to what sanctions the Deputy is referring.
Deputy Ardagh: Mr. MacDomhnaill mentioned that sanctions were already being applied and that bank staff could not assist people in setting up accounts without reporting that fact to the Revenue Commissioners or to the Central Bank.
Mr. MacDomhnaill: There are sanctions under section 230 for failure to notify the Revenue Commissioners. I would not expect there to be any failure on that account. We receive returns regularly. That particular power goes as far as it can but it does not really achieve very much. If I wanted to open a bank account, I would not go into my local bank and ask them to facilitate me knowing that section 230 would oblige them to refer that information to the Revenue Commissioners.
Deputy Ardagh: Many business people would not be aware of the intricacies of international finance. They become aware of these through bankers or advisers. A business person who runs a public house or a hotel might have left school at the age of 14 or 16 in order to make money. They must learn about the vagaries of international finance from someone else; people must be advising investors to put money into offshore accounts and informing them of the manner in which that can be done. Sanctions should be applied to those people. Are those sanctions in place and, if so, are they a deterrent?
Mr. MacDomhnaill: When one is dealing with offshore accounts, one is dealing with very substantial businesses. I do not think this kind of activity enters onto the agenda of small businesses at all. All large firms have financial, legal, accountancy and taxation advisers. It would be a very simple matter for those advisers to realise that section 230 would impose the obligation to disclose information on the intermediary. Anyone who has the type of funds which would be likely to be invested in offshore accounts would have that kind of advice available to them.
Deputy Ardagh: The Comptroller and Auditor General has been somewhat critical in so far as he is of the opinion that the settlement culture which prevails at the moment is not a satisfactory deterrent. Mr. MacDomhnaill has explained the position of the Revenue Commissioners with regard to the time factor involved in obtaining prosecutions. If a Principal Officer or an Assistant Principal in the Office of the Revenue Commissioners spends one or two years dealing with one particular case, a lot of other money will be lost.
The Chairman of this committee asked whether sufficient resources have been given to the Revenue Commissioners to-effect these prosecutions. It is very important that prosecutions are made; one can see form the Report of the Comptroller and Auditor General and from the comments which have been made here today that there is a desire to make people pay. It is important that the rich are not seen to get away without paying their due taxes. Could the Revenue Commissioners seek more finances or consultancy services to ensure that prosecutions against the major offenders are taken?
Mr. MacDomhnaill: I have no problem with resources in relation to prosecution. The Revenue Commissioners engage Senior Counsel in these cases and we have a substantial Revenue Solicitors’ Office.
This Committee began to exert pressure on this issue in 1996. We sought an additional solicitor then who could concentrate on criminal prosecutions. We have still not obtained that additional solicitor. In 1996 the staffing numbers of the Revenue Commissioners were capped; we were asked to reduce our numbers from 6,380, the figure agreed with the Department of Finance in August 1995, to 6044 by July 1997. That was a reduction of more than 300. Revenue staffing numbers have decreased from 7,500 - the figure sanctioned ten years ago - to 6,044 today. Our budget was cut correspondingly. We must operate within the numbers we have. I have put resources into the area of prosecution by taking them out of investigative work.
Chairman: Would a representative of the Department of Finance like to comment on that? Why has the Revenue Commissioner’s request for a prosecution solicitor not been granted?
Mr. Kerins: The Department of Finance made an arrangement with the Director of Public Prosecutions to provide a senior official to assist with the prosecutions effort. The Revenue Commissioners also have access to the services of the Revenue Solicitors’ Office. We think that is sufficient until such time as some results begin to emerge as a result of the provision of those resources.
Chairman: It is very clear to me that this committee is not happy with the current situation. We will return to this issue at the end of our summation.
Deputy Mc Cormack: The Comptroller and Auditor General has expressed concern about the collection rate. As regards non-compliance, could we get assurance that another tax amnesty is not being planned? An expectation that there will be an amnesty seems to be building up among the public and that would not augur well for the collection process. It might prove helpful if the Chairman of the Revenue Commissioners could assure us that will not happen?
Mr. MacDomhnaill: The introduction of legislation on tax amnesties is a policy matter and I can only deal with the implementation of the law as enacted by the Houses of the Oireachtas.
Deputy Mc Cormack: I anticipated that answer when I asked the question. I am merely trying to help the Office of the Revenue Commissioners in relation to the collection process. It would be helpful if an indication were given that the expectation which seems to be abroad is false. If people expect an amnesty, particularly those taxpayers who are self assessed, they will simply sit back and decide to wait another few years for one.
Chairman: The Chairman of the Revenue Commissioners is correct. A decision on whether or not there will be a tax amnesty is a policy decision to be taken by Government; it is not appropriate to discuss it at this committee.
Deputy Mc Cormack: That does not stop me asking the question.
Chairman: I am stopping the Deputy now.
Deputy Foley: I want to comment on the failure to file income tax and corporation returns at the end of January. On 1 January 1996, 242 cases were outstanding and the figure increased to 654 on 31 December 1996. Is the Chairman of the Revenue Commissioners concerned by the increase in these figures?
Mr. MacDomhnaill: The prosecution of non-filers programme was suspended in 1993 due to the tax amnesty. It recommenced in the latter half of 1995 and was extended to include the pursuit of corporation tax cases. By the end of 1995 the programme was really only getting off the ground and therefore only 242 cases were awaiting hearing on 31 December 1995. In 1996 a full programme was carried out and more than 2,000 warning letters were issued.
By the end of that year, 362 cases had been heard and a further 654 cases were awaiting hearing.
The business of prosecution for non-filing of returns was only cranking up to its normal level after being in suspense for a while.
Deputy Foley: The reduction in the overall number of revenue audits in 1996 compared to 1995 is due to a change in strategy under which some resources were switched from single tax head audits in the VAT and PAYE areas to comprehensive audits. Audits were moved to a larger case which would take more time to audit. This has led to a higher yield on average per case. Mr. MacDomhnaill made a recommendation to the Department of Finance in connection with the appointment of a solicitor. The numbers have been reduced from 6,380 to 6,044, leaving a shortfall of 336. Is this matter of major concern to you, Mr. MacDomhnaill?
Mr. MacDomhnaill: We will operate with whatever resources are given to us. I am not really complaining about this. All I am saying is that within that resource, if I have to take on new work, I necessarily have to switch from other work. The argument goes both ways. There is an opportunity cost in going for prosecutions but against that there is a feeling abroad that maybe a few high profile prosecutions will do more for compliance than the actual investigations. I firmly believe that voluntary compliance in an open democracy is the only way that will successfully bring results. We have demonstrated that since 1988. By putting a lot of effort into winning voluntary compliance and providing a good service for the taxpayer and those who have to operate the system, the result is a buoyancy of revenue which you see today.
I was glad to see that the latest ESRI report, which commented on the performance of the economy, mentioned tax buoyancy and improvement in collection as two major factors. It is not just the Revenue Commissioners who say that. The policy we have followed has been successful.
We have now moved fully into the prosecution agenda. We have switched our major investigative resource, our top class investigators, into that. You could provide me with extra numbers tomorrow but I would not be able to undertake the investigations because it takes many years for somebody in the Revenue Commissioners to become the sort of investigator we have in our Investigation Branch. I would need to get the numbers now in order to get the investigations back up in three or four years time. It is a long process to develop that type of skill, which is not purchasable on the market. That explains the reason we have to switch resources from one area to another. While investigations will go down, hopefully successful prosecutions will go up.
On the question the Deputy raised, it is correct to say that we have switched resources from smaller audits to larger ones. They take longer to carry out and sometimes a team of auditors is required to carry out the audit. Furthermore, the auditing business is in a state of evolution. One cannot take any year - whether it is 1993, 1994 or 1995 - as a benchmark for where we should be. We have tried some things out but decided they were not successful, so we are moving on to other things. You can expect that switches will occur in auditing.
I must give credit to the staff of the Revenue Commissioners who have taken on huge changes since 1988 with very little by way of claims for compensation. However, another factor in all this is an outstanding claim from Revenue staff. The final segment of the PCW is not yet in place for some of the main staff in Revenue. Due to this fact, that it is taking longer to move people from single tax head audits to more comprehensive type audits, which we want to do, because we need to have agreement with the unions as to what degree of change is covered by the PCW and by Partnership 2000. The matter has gone to the adjudicator from whom we are awaiting a result. We hope we will have success there. If so, you will see a further shift away from single tax head audits towards larger case audits and into comprehensive audits. We find that they are more productive of the end result we want to achieve.
Deputy Foley: Additional training reduced a number of available days during 1996. As part of the 1996 programme of comprehensive audits a total of 52 random audits were completed according to the report of the Comptroller and Auditor General. Additional liabilities of £68.860 million, including £17.760 million in respect of penalty and interest charges, were assessed in 14 cases. The returns of other main taxpayers were accepted. My point is that in 26 per cent of the cases in which you did a random audit, you found deficiencies. If you had more staff would you be in a position to do more random audits, which seem to be successful?
Mr. MacDomhnaill: Most of our audits are as the result of risk analysis, so we are pursuing some particular aspect of the business. It is fair to point out that a Revenue audit is a fairly intimidating thing for many businesses. It takes time and resources to respond to such an audit. We like to keep the audit in the targeted area as much as possible. However, it is recognised that you need to have random audits for two reasons: 1. to show that any case, no matter how apparent the perfection of the accounts might be, is still liable to audit; and, 2. to give us a measure of the level of compliance.
You cannot draw any conclusions from targeted audits. You expect to get extra revenue or results from a targeted audit. On the other hand, the random audit is selected at random and so provides a measure of the sort of results you would get from random audits if they were extended generally. Some 65 per cent are non-yielding, while 35 per cent are yielding. It is the opposite of targeted auditing where the result would be the other way around. In addition, the number of cases where the results were positive the amount was quite small. In five cases out of the 22, less than £1,000 was recovered.
All in all, the random audit is showing us two things: 1. that our targeting is good because we are getting a much higher result from our targeted audits, but, 2. it is also giving us an indication that compliance is improving. As the random audit sample moves along we find that more and more of the random cases are producing no liability. We can detect a trend that a higher degree of compliance is coming about as a result of the programmes.
Chairman: We will be here for several days if we continue to have long questions and answers.
Deputy C. Lenihan: I will try to be brief. First of all, as regards these Ansbacher accounts you spoke about earlier on, to what extent have you devoted resources to investigating these? I think it is fair to say that most ordinary compliant taxpayers were outraged at the very existence of these type of accounts. Have you dedicated staff to the tribunals that have already occurred - the McCracken Tribunal and now the Moriarty Tribunal in Dublin Castle - to take careful notes and ensure that taxpayers get back whatever moneys are due to them us the result of the ongoing work of those tribunals? Have you dedicated staff to that?
Mr. MacDomhnaill: Our investigation and audit branches are directed at evasion by whatever mechanism it is brought about. I pointed out that there are limitations of access as far as overseas bank accounts are concerned. This is a matter which is actually being given to the Moriarty Tribunal to look at. It will examine that and will get total co-operation from us as to what powers and resources we have. It will, presumably, make recommendations on that very issue. However, we operate with the law as it is. I do not think we are ever likely to get a degree of international co-operation which will give us unfettered access to overseas accounts, either through the agency of another tax administration or in any way.
The obligations imposed on your domestic banking system must be weighed up when there is an external banking system over which you have no control.
Deputy C. Lenihan: To return to my main question is there dedicated staff to listen to the evidence as it is read? From an investigative point of view I suspect material and evidence would be read in a tribunal which would be of material benefit to the collection of taxes due to the taxpayer. Is there dedicated staff to continue to investigate these ongoing matters at the Dublin Castle tribunal? It is a public tribunal and staff should be available to listen to the evidence read in public testimony.
What solicitors are available to the Revenue Commissioners for criminal prosecutions of serious tax evaders?
Mr. MacDomhnaill: We have allocated substantial resources.
Deputy C. Lenihan: Yes, but is Mr. MacDomhnaill satisfied there is sufficient staff at his disposal and with the level of resourcing to investigate thoroughly any evidence or matter of public testimony that arises from those tribunals?
Mr. MacDomhnaill: Some of our best investigators have been put on that job.
Deputy C. Lenihan: There was mention earlier about an additional solicitor for criminal prosecutions. I agree with Mr. MacDomhnaill that the Revenue
Commissioners are in a prosecution mode in regard to serious tax cheats but what level of legal staff, such as solicitors, barristers and so on are available within the Revenue service to handle dedicated investigations of a criminal kind where someone will be pursued through the courts and could possibly be given a jail sentence?
Mr. MacDomhnaill: As the Deputy is aware the Revenue Solicitor’s Office is a type of a chancery office more than a criminal one because up to now the criminal work was dealt with by the Chief State Solicitor’s Office. A case went to the Fraud Bureau or the Chief State Solicitor’s Office or the State Solicitors for criminal prosecution. What we are now dealing with is an arrangement where cases can be sent directly to the DPP. The advantage of that is to eliminate a situation where an investigation is carried out by the Revenue Commissioners and then passed to the Fraud Bureau to be restarted. The Chief State Solicitor must be briefed to eliminate those delays. Many of the 29 cases dealt with by the Fraud Bureau did not get through due to the lack of time available. When they eventually reached the DPP he felt too much time had run; the reason being, as I have outlined, the case having gone so far in Revenue had to be restarted in the Chief State Solicitor’s Office, the DPP and the Fraud Bureau. We are trying to eliminate that situation.
One of the advantages is that the Revenue solicitor would have carriage of the case in court. We would like to have a senior person, a grade below the Revenue Solicitor, to have that responsibility.
Chairman: What precisely are the Revenue Commissioners looking for?
Mr. MacDomhnaill: We are looking for a solicitor, say at principal officer level - first assistant solicitor, it is a professional grade - who would be assigned the task of seeing cases through the courts, liaising with the DPP, with the investigators—
Chairman: And the Chief State Solicitor’s Office?
Mr. MacDomhnaill: In requisite cases.
Deputy C. Lenihan: I know exactly what the Revenue Commissioners are looking for but is Mr. MacDomhnaill telling us that a dedicated solicitor is not at his disposal to carry a case through the Chief State Solicitor, Attorney General, DPP and so on and get into court with that case?
Mr. MacDomhnaill: The Revenue Solicitor is giving a great deal of her time to this and so too is the deputy solicitor. As so much other work has to be left aside we feel a case can be made. It is additional work. I understand if one looks for a new post there is a very strict regime but I feel a case can be made for an additional solicitor at this level to concentrate on that work with the direction of the Revenue Solicitor.
Deputy C. Lenihan: Is Mr. MacDomhnaill saying there are two solicitors who handle the normal day-to-day humdrum legal business but there is no one in a position to take up, say, a criminal prosecution that Revenue might wish to begin and follow it through to the court to advise lawyers who would not be entirely acquainted with the intricacies of tax and ready to support the legal case being taken? Is that what he is looking for?
Mr. MacDomhnaill: There is such a person and there is the capacity to do it but as there is additional work now I do not feel I can take away all the other work because we have appeals and a huge agenda of legislation. I should point out there is an ongoing and very successful regime of prosecution and imprisonment on the customs side for which I can detail a substantial list of successes. I am only talking about the inland revenue side. There is the question that if you do one thing you cannot do another and I would like to have a solicitor at this level to concentrate on inland revenue prosecution work.
Deputy C. Lenihan: We should table a motion to that effect and communicate it to the Department of Finance.
Chairman: That matter can be discussed when considering the summation on the Vote.
Deputy Cooper-Flynn: We are in a position to get a list of non-residents with offshore accounts in this jurisdiction. Presumably that is also available in other jurisdictions. Is there co-operation between Revenue here and Revenue in other jurisdictions to exchange lists of people who have non-resident accounts and, in particular, between Ireland and the UK?
Mr. MacDomhnaill: We have received some co-operation but it is not on a reciprocal basis because we are unable to reciprocate with that type of information. We have received some assistance but not from a tax haven or from any of the countries in which we would have an interest. We have received very valuable assistance from normal regimes but not from tax havens.
Deputy Cooper-Flynn: How is that information received? Do you get computer listings of Irish residents who have offshore accounts in the UK for example?
Mr. MacDomhnaill: The UK accounts would not be described as offshore.
Deputy Cooper-Flynn: In another jurisdiction.
Mr. MacDomhnaill: Very many of the foreign accounts opened are for legitimate, genuine business.
Deputy Cooper-Flynn: I accept that.
Mr. MacDomhnaill: In many cases the information is already known to us. Sometimes we get new information, but relatively seldom.
Deputy Cooper-Flynn: People might channel money into these tax havens where I understand it is very difficult to get the necessary information but they might channel it through a bank in another country that might be traceable. Can access be got to that type of information to trace the money trail?
Mr. MacDomhnaill: It is most unlikely.
Deputy Durkan: How are the targets selected on the random audits? For example, if I decided to write to the Revenue Commissioners and suggest a certain company be audited would that be sufficient or would it require something further? In regard to the requirement of an additional solicitor which has been outlined by Mr. MacDomhnaill, the Department of Finance believes that the number of staff at present is sufficient. Who should determine the requirements at this time? Deputy Lenihan has already referred to this matter and it must be addressed?
Mr. MacDomhnaill: When information is received that would not be a random audit, but a targeted audit. Sensitive information can be received but we must be careful as not all the information is reliable. It is used only as information, not as evidence. The random audits are selected by a computer process - the numbers are selected at random. We hope to develop a more sophisticated selection where the random numbers could target different sub-groups within the total register but at present it is a crude random number and many cases that arise on the random audit are cases that are already on our lists for investigation.
Deputy Durkan: Do random audits affect large and small companies equally in terms of ability?
Mr. MacDomhnaill: Yes, it is just a crude random audit across the register.
Deputy Durkan: Is the number evenly spread between large and small companies? From whence has the greater result accrued to the State?
Mr. MacDomhnaill: As can be seen from the random audit, 65 per cent of cases did not yield any extra liability. However, settlements in five were in the range of £1 to £1,000, nine cases were in the range of £1,000 to £5,000, four in the range of £5,000 to £10,000 and four over £10,000.
Deputy Cooper-Flynn: Does the information that comes to the attention of the Revenue from other jurisdictions come from other revenue agencies or banks directly or individuals?
Mr. MacDomhnaill: It comes from the tax administration, the equivalent of the Revenue Commissioners.
Deputy Cooper-Flynn: Do the Revenue Commissioners ask for this information or is it volunteered?
Mr. MacDomhnaill: We have reciprocal arrangements for exchange of information so we can ask for information on specific cases but we are not normally aware in advance of information that is fruitful in terms of investigation and would not ask for it.
Deputy Cooper-Flynn: How far does the reciprocal arrangement extend?
Mr. MacDomhnaill: We have reciprocal arrangements with the countries with whom we have double taxation agreements but the information we get is very limited depending on the country.
Deputy Cooper-Flynn: Do the Revenue Commissioners volunteer information to other jurisdictions as they do to it?
Mr. MacDomhnaill: We are not in a position to reciprocate because they have greater powers of access to bank information than us.
Deputy Cooper-Flynn: When such information is obtained the name of a person who holds a non resident account can be found. Is there access find out how much is in the account or is it only names and addressed that can be accessed?
Mr. MacDomhnaill: That is all. We have no information on what is in the account.
Deputy Ardagh: I refer to compliance and the income tax table on page 12 of the annual report. 1995/6 showed a good improvement with 84 per cent on time, particularly when one sees that the number of returns has increased by 20 per cent over 1992/3.
Chairman: The percentage is less. The figure was 84 per cent compared to 87 per cent in 1992/3.
Deputy Ardagh: 1992/3 must have been a vintage year but the percentage is improving. Are the Revenue Commissioners receiving improved compliance on returns?
Mr. MacDomhnaill: We expect the figure of 84 per cent to go up into the high 90s by the time the process is finished.
Deputy Ardagh: I refer to the new revenue audit programme. There is a perception that incentive schemes apply for inspectors. In the financial section of the annual report, incentive payments were made up to £3,000. Is there any incentive for an inspector to maximise the amount he or she can get as a result of a revenue audit?
Mr. MacDomhnaill: We have no incentive payments for our auditors or investigators in regard to the results. We are very careful not to introduce quantitative targets for audits or prosecutions. An investigation is ongoing in the IRS in America where revenue officials have been giving evidence that they felt under pressure to achieve results and there was arm twisting of taxpayers. We do not want any of that. We want a professional audit to obtain the correct amount of tax. That is the signal to our auditors.
There are a number of mechanisms in place to make sure there is that degree of objectivity and professionalism. For example, the audit is not selected by the person who carries it out as the audit selection process is separate. There is also an internal review mechanism whereby if the person being audited is dissatisfied he or she can look for a second opinion without going to the Appeal Commissioners. Guidelines on the audit process have been published and made available to practitioners. We are against having awards for success of that kind. However, we have exceptional performance awards which are part of the SMI. The head of the department is given the opportunity if there is exceptional performance in any area to make an award. There were also awards in the customs section where seizures were made and Gardaí were given awards for the seizure of illicit stills, etc.
Deputy Ardagh: Are they awarded on the basis of exceptional performance in a revenue audit?
Mr. MacDomhnaill: There was one for an exceptional performance but mostly they apply to other areas. The manager must recommend the particular performance to a superior which must be endorsed. It ultimately comes to me as head of the office. I read the report and if I am satisfied that this is a performance over and above the call of duty for the level of the officer concerned, an award will be given.
Deputy Ardagh: Is the fact that visits of a revenue auditor are a traumatic experience for many people who are not familiar with tax affairs taken fully into account? Is the amount of money available for training sufficient to ensure the trauma suffered by the taxpayer is minimised?
Mr. MacDomhnaill: We are very conscious of that aspect of auditing. We have set out a number of situations in our guidelines where we would expect the auditor to withdraw, such as when encountering domestic stress. We also give adequate notice so that if the person is not able to take the audit at a particular time we will do our best to arrange another time. We also make it clear that the person being audited can have their accountant present if he or she wishes. We have a review and selection mechanism to keep our auditing as professional as possible but we are aware of the stress it causes which is why we want to keep random audits to a minimum.
We want to keep those to a very low percentage of the total audit.
Deputy C. Lenihan: We have talked about rewarding compliance. Obviously you reward your staff if they perform well and that is only right but have you ever thought of rewarding the compliant corporate or individual taxpayers who actually pay their taxes on time over a prolonged period? Private industry, the ESB for example, incentivise people to pay their bills on time.
Mr. MacDomhnaill: I would like to be in a position to do that but the law works in reverse. If you are not compliant you suffer interest - a surcharge of 10 per cent if your return is late - and this can go on into the settlements with penalties and interest, prosecution and jail. There are situations where we can give recognition for complying. This is our customer service arm. We devote great resources to customer service, to helping new businesses and taxpayers to comply. Where a really good and compliant taxpayer finds through, for example, an industrial dispute or some catastrophic decision in relation to stocking that he/she has a cash flow difficulty we try to give an instalment arrangement. We would have some proposals to make because the rate of interest we charge is a penal rate of interest and I feel that there may be scope for having simple commercial restitution in those cases. That is a policy matter but we would be making a case for that. We certainly take any suggestions, such as the one you are making, on board and we look for ways of giving recognition to the compliant taxpayer. After all, 97 per cent of the 1996 revenue was collected in 1996, mostly as a result of a first demand, without recourse to enforcement of any kind.
Deputy C. Lenihan: Would you favour a system where taxpayers, including PAYE taxpayers, could get money back if they paid their taxes over a ten year period?
Mr. MacDomhnaill: The tax is usually spent by other people by that time and it would be a policy matter anyhow.
Chairman: I want to clarify a few items. How much of the fall in numbers in the Revenue Commission arose from the coming about of the single market and the effective abolition of customs duties in the EU?
Mr. MacDomhnaill: There was a contraction in the customs side of our operation before the single market was introduced. We identified the surplus but we have taken on a great deal of extra work. We deal with vehicle registration tax; we have taken on mutual assistance for the Central Statistics Office; we have put a large number of people into what we call the customs national drugs unit which we did not have before and we have restored the idea of local collection. All the staff that we identified as being surplus to requirement because of the single market have been more than used up. In fact we did not do ourselves justice in relation to the single market. The volume of third country trade is now nearly as high as the total trade was before the single market. Furthermore, cargoes do not come discretely. They are coming in mixed cargoes because ships go to Rotterdam and take on cargo so that we have internal European cargo mixed with third country cargo. We operated on the basis that only 20 per cent of the trade would be operating after the single market. We were totally wrong in that and there is pressure on all our customs collections for extra staff which we do not have. We thought it would work out differently from the way that it has. I would say that the single market is a negative quantity at this point.
Chairman: That is an interesting point. We talked about exchange of information with overseas tax authorities. You mentioned that you are not in a position to reciprocate fully because you have less access to bank information here than tax authorities elsewhere in the European Union. Would you like to elaborate on that? Are you advocating having extra powers in relation to access to bank accounts.
Mr. MacDomhnaill: No, that is a policy decision. I was merely making a factual observation.
Chairman: Is it a policy decision or something that happened by default? Is it something that we deliberately do for business reasons?
Mr. MacDomhnaill: I can give you an example. We had a limited amount of information about deposits and the interest on deposits. Through the return of interest on deposits we could detect where deposits were but the decision was made some few years back that retention tax would be imposed on deposit interest. That retention tax fully satisfies the tax demand. Fifteen per cent is regarded as the full tax. In the old days that would be coming in at the top marginal rate of tax in many cases. It is now 15 per cent. Because these accounts are now fully taxed the rule about returning untaxed interest is effectively neutralised. That was a direct policy change at the time.
Chairman: May I ask you about exchange of information with other statutory bodies? Can you tell me if you are happy with the co-operation you receive from the Criminal Assets Bureau?
Mr. MacDomhnaill: I am completely happy with the co-operation we receive from the Criminal Assets Bureau. We have six revenue staff permanently on the Criminal Assets Bureau. We have a number of other staff dedicated to liaising with the Criminal Assets Bureau and we are considering a request to assign more staff to the Criminal Assets Bureau.
Chairman: Are there any rules of confidentiality binding either you or them that prevent a flow of information between the two bodies?
Mr. MacDomhnaill: In the legislation that was enacted in 1996, section 1 provided that Revenue could make information available to the Criminal Assets Bureau.
Chairman: Let me talk about you relationship with the Central Bank. I was very disturbed to read newspaper reports - and I want to see if they are accurate - that the Central Bank has had information in relation to bank accounts - typically accounts such as the Ansbacher accounts - which they refuse or fail to tell you about. Is that correct?
Mr. MacDomhnaill: I cannot comment on what information the Central Bank had about the Ansbacher accounts. I only know that we do not have information about them. The only information we have about those accounts is what we have gleaned from the McCracken Report.
Chairman: Did you ask the Central Bank for information relating to bank accounts at any stage?
Mr. MacDomhnaill: I do not think there is provision for that. The Central Bank is not a tax paying entity except for the fact that they pay PAYE on the remuneration of their staff.
Chairman: You will be appearing before the tribunal looking at the Revenue Commission’s performance in relation to recent revelations. Is there any substance to reports that you did not get information which you believed the Central Bank to have?
Mr. MacDomhnaill: It would be fair to point out that we are only dealing with two cases, as far as the Moriarty Tribunal is concerned, and not with bank accounts in general.
Chairman: For that reason we will not deal with those accounts but - dealing with bank accounts in general - does the Central Bank have access to information in relation to bank accounts in general which you do not have and which it would be helpful if you did have?
Mr. MacDomhnaill: I am fairly certain that they could not carry out their role of supervising the financial institutions without having a great deal more information than we have.
Chairman: And why would they not give that to you? Why can there not be an exchange of information between the Central Bank and the Revenue Commissioners? Would such an exchange of information not have obviated many of the problems that have become apparent in recent times?
Mr. MacDomhnaill: I have not looked this up but I imagine that there are confidentiality provisions in the legislation governing banking.
Chairman: Do you know if there are similar provisions in other jurisdictions?
Mr. MacDomhnaill: I have no knowledge of that.
Chairman: I would like if we could get some clarification of the relationship between the Revenue Commissioners and the Central Bank specifically in relation to its knowledge of bank accounts. What is the position here and in other European Union countries? I do not expect the answer to-day
I do not expect the answer today but perhaps on the next occasion we visit Revenue we could have them or four weeks from today.
Deputy C. Lenihan: On a point of information, there is the provision within the Central Bank to allow the reporting of suspicious transactions in relation to laundering drug money of one kind or another. The Revenue is saying that it does not have day to day oversight of bank accounts.
Chairman: Newspaper reports in the last few weeks appear to indicate that the Central Bank has information which could have exposed illegal accounts long before there were any tribunals. The reports go on to say the Revenue was refused a submission. Is there is any substance to these reports and if so is there is any way of overcoming that problem in the public interest? Perhaps it is something we could have a note on in four weeks.
Mr. MacDomhnaill: We will approach the Central Bank and send you a note but what we will be able to tell you will depend on the outcome of that.
Chairman: We may talk to the Central Bank as well. There may be good reasons for existing arrangements but we want to establish that there are good enough reasons and we are not omitting to do anything that we could reasonably do. Is the number of very wealthy Irish people who live abroad a matter of concern to you as Chairmen of the Revenue Commissioners?
Mr. MacDomhnaill: These people are called tax exiles. The laws of residence have been clarified. The original position regarding residence was that if a person had an abode in this State and spent one night in it he/she was technically resident. That was felt to be unsatisfactory in the modern context of the European Union and the broader movement of people. The laws of residence were codified in Part VII of the Finance Act, 1994. As a result, a person can visit the State a number of times and remain non-resident. The significance of non-residence for tax purposes is that residents are liable on their world income. If they are non-resident they are liable on Irish sourced income. In addition, if they are resident, but non-domiciled, only the income received in Ireland can be taxed. If someone has a job here we can tax that income even if that person is non-resident. However, under the double taxation agreements there are special considerations, for example there is a provision in all our double taxation agreements that diplomats are taxed in their own country irrespective of where they are resident. There are other provisions for United Nations personnel and others like them. As a general rule a person who is non-resident can still be taxed on Irish sourced income.
Chairman: Do you consider it desirable that successful people have to leave this State for tax purposes or would you favour some changes that would obviate the need for tax exile?
Mr. MacDomhnaill: Many successful Irish business people are dealing with multinational companies so their businesses straddle the globe. We have seen multinationals locating in Ireland, sometimes moving their headquarters staff here as well. Free movement of people applies in the context of the EU. People cannot be prevented from moving abroad and operating their business from there.
The inducements may be commercial. Some may be tax related. Tax exiles usually base themselves in tax havens. There is no way to compete with a tax haven in terms of making the economy attractive because tax havens operate on a basis of nil or very low tax on incomes and profits. In order to give people the incentive to stay here it would be necessary to achieve a tax regime which could compete. That is not justifiable.
Chairman: When you appeared before the Committee last year you made a point about an additional solicitor. The Committee will seek a note on the Revenue Commissioners prosecution process to elaborate on what you told us about the Chief State Solicitor’s office, the Revenue Solicitors, the DPP and so on. Perhaps we could then have a note on the alternative proposal - an additional Revenue solicitor to co-ordinate this. We would do a great service if we could rationalise this matter. You mentioned that many cases fail because of the lapse of time. Today’s newspapers report that certain tax cases collapsed because of the ruling on the appointment of District Court judges.
Mr. MacDomhnaill: That is already happening with the co-operation of the DPP. We have moved on to a new basis and are managing, but we would like the extra solicitor.
Chairman: You are managing but obviously not managing well enough.
Mr. Kerins: A misunderstanding appears to be creeping in about an extra solicitor. The proposal before me, which I considered some weeks ago, was that a solicitor in the Revenue Solicitors office be upgraded to handle these prosecutions in addition to the official from the Office of the DPP. The Office of the Chief State Solicitor is prepared to handle criminal prosecutions at all levels of solicitor. We see no reason why criminal prosecutions should become a case for upgrading particular people in the Revenue Solicitors office. I am not aware of any case for an extra solicitor.
Chairman: According to the official report of the Committee dated 23 January 1997 Mr. MacDomhnaill stated: “In that regard, we have made a submission to the Department of Finance for the recruitment of an additional solicitor with a criminal prosecution background.” Was that incorrect?
Mr. Kerins: The situation has moved on since January. As far as I can recall, the arrangement with the Office of the DPP has been made since then.
Furthermore, the proposals we have discussed regarding solicitors have been dealt with within the last month or two.
Mr. MacDomhnaill: We have obtained great assistance from the DPP. However, he does not have carriage of a case through the courts. His decision is to prosecute or not to prosecute. He is not even part of the examination process. We have a dedicated person in the Office of the DPP who looks after Revenue cases. That has enabled us to move in this direction.
To carry cases through the courts a solicitor is required, separate from the DPP. We should have that extra solicitor. We have made a move and are sending cases to the DPP. A senior official in the Office of the DPP is giving priority to Revenue cases. We want to eliminate the process whereby the Chief State Solicitor must start from scratch. Our solicitor will be involved from the outset and the case will run smoothly.
There is a reference to a review of the DPP. I have seen his report. The report states the Revenue Solicitor will remain and Revenue is not brought into that envelope. This will enable us to continue what we have been doing, even in the light of that review, where the DPP will otherwise have complete responsibility for the prosecutions.
Chairman: This is an obvious area of concern to the Committee. I propose that we ask the Revenue to elaborate on the proposal, for the Department of Finance to react to it and that we note the paragraphs with a view to discussing them again in four week’s time.
Paragraph 15 of the report of the Comptroller and Auditor General reads:
“15.Management of the Collection of Outstanding Taxes
The Revenue Commissioners’ management of the collection of outstanding tax was reviewed by my staff. The review established that the information available to management to monitor the level of the debt and the collection effort was deficient in a number of respects. Specifically
•Regular reports were not produced of the amount of debt dealt with under the various collection enforcement measures and the success achieved. The management information system could not show the proportion of the total debt that had been subjected to the various collection enforcement procedures employed by the Commissioners and the proportion of the debt that had not been pursued due to factors of time, cost, prioritisation of cases, or other reasons.
•While management reports were produced showing period to period reductions in arrears, in respect of specific tax years, they did not show the extent to which the reductions were due to debts having been paid rather than having been written off or discharged.
•The computation of the total tax arrears outstanding at any particular time required the manual computation of a large number of figures produced by computer and were only produced twice each year.
•An unquantifiable but apparently large amount of debt which had been processed by sheriffs or in the courts was shown as being under demand, which is the initial stage of the collection cycle, as there was no post-legal enforcement category for outstanding debt.
The Accounting Officer informed me that the current collection systems were old and were being replaced by a new system (Integrated Taxpayer Processing) which would eventually process all taxes in one integrated system and would replace the separate systems that operate at present for the different types of taxes. The project is the largest computer development ever undertaken by Revenue. He stated that management information systems, originally introduced to support these now ageing systems, were equally old and inflexible. To overcome the many deficiencies already known with the current systems a separate management information system (Collection Information Facility) was being progressively developed and was currently used to provide management information on the debt on a monthly basis. While specific information may not have been readily available to plot the progress of individual arrears through the management information system, more general information on the levels of arrears currently at the various collection stages was readily available and was sufficient to allow management decisions to be taken.
He was satisfied that while it was not possible to provide a definitive analysis of the tax arrears at post-enforcement collection stage, taking account of available resources, all arrears that had failed one method of enforcement were reviewed and referred for alternative means of enforcement, where necessary, and that the absence of a post-enforcement collection stage had not in any way prevented an effective follow up where tax charges were returned unenforced by an enforcement agency. He also stated that the Commissioners were satisfied that, notwithstanding the deficiencies in the present computer system, which are being addressed, there were no serious weaknesses in the collection process.
I also asked the Accounting Officer whether the high level of long outstanding tax debts - approximately £800m at the end of 1996 in respect of tax outstanding for more than five years - was in any way attributable to the lack of time standards for the completion of the various collection enforcement measures.
He assured me that all cases where tax arrears are outstanding were reviewed sufficiently frequently to ensure that no liability was overlooked for an extended period. He stated that the time taken to complete enforcement measures was monitored and any exceptional delays were investigated, and that procedures involving sheriffs were being tightened under a proposed new agreement with them on a revised remuneration package. He also stated that where civil action was employed specific deadlines were not practical as the pace of activity was determined by the Courts, but that cases which had been with the Commissioners’ external solicitors for some time were being reviewed.”
Mr. Purcell: Paragraph 15 deals with the range and quality of information available to Revenue to assist it in its management of tax collection. A review by my staff concluded there was scope for improvement in a number of areas, especially in the post-enforcement phase, where there appeared to be a danger that outstanding taxes could end up in a limbo. It will be seen from the paragraph that the accounting officer points out that the current computer collection systems are old and that the management information systems originally developed to support these ageing systems are also old and inflexible. These shortcomings have already been recognised by Revenue and a separate management information system is being developed to overcome these difficulties. That said, the accounting officer did not believe the existing shortcomings materially affected Revenue’s ability to manage the collection of outstanding tax in an effective manner. I am not at odds with the accounting officer on this point. Many indicators testify to the success of the commissioners’ efforts, but others suggest better management information and action would improve Revenue’s record of timeliness in pursuing arrears.
Mr. MacDomhnaill: I agree with the Comptroller and Auditor General that the computer system is very inflexible in obtaining management information for resource allocation and policy decisions. It selects individual cases by reference to criteria which are inputted into the computer and whatever cases with those characteristics which require attention will be selected, individual cases by reference to criteria which are inputted into the computer and whatever cases with those characteristics which require attention will be selected, be they for solicitor enforcement or sheriff enforcement. Management information for the numbers of the various categories is missing. We also pointed out the last day that some categories are missing, for example, we do not have a post enforcement category, so cases tend to drop back again into pre-enforcement categories. This leads to inefficiency and we have recognised this for some time. Our main thrust in computer redevelopment is to overcome those difficulties and to make the system more user-friendly. These are major obstacles to Revenue staff dealing with the arrears process. We have had to live with them, but we hope, when the first of the new systems comes on stream in 1999, that matters will run more smoothly and that we will have much improved exception case tracking, which is the essence of what we are trying to achieve in the new system.
Deputy Ardagh: Cash flow is the life blood of any business and debtor collection is an important aspect of it. The Comptroller and Auditor General has stated that the timeliness of the collection is probably not up to standard and could be improved. Is it being improved? Is Revenue operating a “caseload” system whereby a number of people who do not pay their taxes on time are allocated to an individual? Could Mr. MacDomhnaill expand on the system being adopted to improve the timeliness of the collection and improve the cash flow for the State?
Mr. MacDomhnaill: There has been an enormous increase in the timeliness of tax payments and this is reflected in the buoyancy of the revenue. It is safe to say that hundreds of millions of pounds rely on timeliness. If it were to falter, the Exchequer could lose out to the tune of more than £1 billion. I am satisfied that one of the major achievements in recent years has been a huge improvement in timeliness.
Chairman: Are you telling me the annual accounts benefit to the tune of £1 billion by timeliness alone?
Mr. MacDomhnaill: That is the amount we collect every three weeks on average. Timeliness only has to fall behind for three weeks to lose that amount of money. The cash flow has improved dramatically and we have augumented this by reintroducing the concept of local collection, which I mentioned in connection with customs and excise. We have 100 staff throughout the country dedicated to local collection. They are in greater contact with their local taxpayers and that information is also available to the Collector General. I have taken 30 plus staff from the Collector General’s resources in the Dublin area to give a corresponding local collection service in Dublin. We have 50 or so staff in the Chief Inspector’s Office reviewing cases of old arrears, for some of which we suspect the estimates may be faulty. Some 80,000 cases have been reviewed over the past five or six years. That is an ongoing process and part of our agenda.
We are also introducing technological support. We have a system which the Comptroller and Auditor General mentioned, Active Intervention Management, where every night the payments of each day are included in taxpayers’ files, so that each day the files are up to date. Some years ago, it might have taken six weeks of laborious clerical work to input that information on the computer, which meant we were always operating six weeks behind. We are now operating on information inputted the night before, having been automatically downloaded to the intervention management system. Those people doing casework have access to this information on cases in arrears. We have not managed to address the numbers of cases on the system that we would like, but the Comptroller and Auditor General is aware of that. We are pursuing the matter, but it does mean that certain operations have to be discontinued to allow people to be assigned to the system. Our target is to deal with as much casework as possible so as to reach a situation where every taxpayer knows someone is dealing with his/her their case. We are aiming at that in the Collector General’s Office and in local collection.
Deputy Ardagh: What potential does Mr. MacDomhnaill see for reduced time lapse for this collection? Is it 80 to 90 days at the moment and can it be reduced to 70? Mr. MacDomhnaill said there was potential for improvement in the system. He also said that three weeks’ tax collection represented £1 billion. By how much does Mr. MacDomhnaill reckon the Exchequer’s cash flow will have benefited by the end of 1998 as a result of improvements made by new systems being installed?
Mr. MacDomhnaill: All major money is paid on time. One can see the couriers arriving every day at Apollo House, after the banks have closed but within the working day. It is that fine. People are employed to sort through post every morning to isolate large cheques so that we can get same day value for those cheques. The degree of timeliness is such that we are now working on the basis of days. Arrears moving into weeks are exceptions. They are usually because people are experiencing cash flow problems and they normally seek instalment arrangements. These are marginal amounts of money and constitute no more than 2 per cent of Exchequer revenue in any year. Nonetheless, they involve large numbers of people and arrears can drift into weeks.
In those cases it can take weeks. We have a large case operation, as I described, where the money is received on the due date or interest accrues. We are trying to enlarge that tranche of cases to reach the middle range and that is what we mean by the active intervention management facility. There will be a case working operation to cover almost 90 per cent of the revenue received. Then we have local collection and the other processes to try to speed up the rest, in addition to the interest charges that apply.
Deputy Ardagh: What will the improvement be in quantifiable terms? Have you a target? What benefits do you anticipate as a result of the implementation of this system?
Mr. MacDomhnaill: The big money will not be paid on time if the taxpayers believe the people below them are not paying on time. We must apply a great deal of resources to less significant amounts of money simply to maintain a level playing pitch for everybody. That is the big problem. With regard to the cashflow, I believe we have squeezed the cashflow to the extreme at this point but there are arrears of £500 million. That figure was outstanding in May and much of it will be paid by now although another £500 million or £600 million will have replaced it. That is the type of money in the system which goes over a few a days and possibly runs into weeks. The question is how far we can squeeze that. We are aiming to squeeze another £150 million from that.
Deputy Durkan: I understand a decision has been made to proceed with such a system. We can look forward to an enhanced level of control in that respect.
The purpose of paragraph 18 is to give information on how stamp duty on share transactions is administered and controlled and in particular to outline the new electronic system introduced in October 1996 for equity settlement and the way it impacts on the collection of stamp duty.
Chairman: Are you embarrassed by this report?
Mr. MacDomhnaill: No,
Chairman: It seems mundane. Someone can go into the Revenue Commissioners, pay stamp duty and no record is kept. Am I misunderstanding this?
Mr. MacDomhnaill: This system has operated for over 100 years. The stamp is dealt with as the item which is being delivered. That document does not qualify as a legal document, whether it is a transfer title or whatever until it is stamped. The problem is we apply the stamps, which were recognisable and not reproducible until the advent of modern technology. Modern technology aids management but also aids the criminally-minded. The old system which was perfectly intact is no longer so. As the Comptroller said, we got a favourable decision from the Department of Finance for a substantial investment in new technology which will enable us to adopt a different approach.
Chairman: This seems to be simple. Is it possible to have a revenue officer in the land registry, so this business can be conducted on site? There will then be an automatic and immediate check. Is this too simplistic?
Mr. Mac Domhnaill: The system depended on land registry staff not accepting documents without a stamp. The problem is that through modern technology, the stamps have been forged so they pass through that system. Courtesy of the land registry, we send people to spot check the stamps, which we did before the fraud was uncovered.
Chairman: How many transactions are we talking about in a week? Can you give me a ball park figure? What about the new technology? Is it 3D?
Mr. MacDomhnaill: We are trying to locate the numbers you requested.
Chairman: While your officials locate those numbers, we can proceed. Is 3D laser technology used for the stamps?
Mr. MacDomhnaill: Laser technology adds substantially to the cost. Technical advice showed it would not add to security because laser technology can be duplicated even more readily than the embossed stamps we used previously. We have to depend on a different system which will have an audit-trail, a unique number and other technical aspects to provide security.
Chairman: Will there be a system of recording stamp duty in the Revenue Commissioners? Can this be done on a computer system which is also accessible to the land registry?
Mr. MacDomhnaill: We are moving in that direction. At the moment, the machine has certain stamps which automatically clock up the money. It does not record anything else. In future, a computer will keep tabs on all the information an auditor and management might want.
Chairman: Will the Land Registry have access to that?
Mr. MacDomhnaill: Yes.
Chairman: So they will be able to check.
Mr. MacDomhnaill: Yes.
Chairman: How much money has been lost as a result of this fraud.
Mr. MacDomhnaill: The fraud did not occur in Revenue. These documents never reached us. The forgeries were detected in the land registry.
On the question you asked earlier, the annual number of deeds presented for stamping is about 350,000.
Chairman: That is about 7,000 a week.
Mr. MacDomhnaill: The daily number of stamps impressed by each stamping machine is about a 1,000 per machine. The value is £254 million.
Chairman: Does that mean £254 million in stamp duty comes in?
Mr. MacDomhnaill: That is the figure for 1996.
Chairman: Is there any estimate of the possible loss as a result of this fraud?
Mr. MacDomhnaill: A trawl has been made of documents. We are in the process of tracking any documents in which the legal agent, acting for a number of solicitors, was involved. When we track down all the deeds, each one will have to be visually examined to see whether it is a forgery.
Chairman: There no estimate of the loss to the Revenue Commissioners. How did the fraud come to light?
Mr. MacDomhnaill: It came to light in the land registry, where someone became suspicious of an embossed stamp. Our people were called in and recognised it as a forgery, although a good one. In the process of checking other deeds presented by the same agent, more were uncovered.
Chairman: I hope the official who spotted it is getting a performance award.
The Committee has received the figures I requested.
Last week you invited us to visit the cash office in Limerick to see the changes and Members are anxious to take you up on that invitation.
Mr. MacDomhnaill: I suggested visiting Apollo House, Tara Street in Dublin where we have the same system on a smaller scale.
Chairman: We will take you up on one of the offers. We will make arrangements with your office through the Clerk of the Committee.
The Committee would like to have the two notes it requested from the Revenue Commissioners and the Department of Finance before 18 December. These relate to the prosecution of Inland Revenue cases, the pros and cons of your request and the Central Bank. The Clerk will communicate with you about this. We would like to be in possession of those documents so we can discuss them on 18 December. We will finalise the Vote on that date.
The witness withdrew.
The Committee adjourned at 1.20 p.m.