COMMITTEE OF PUBLIC ACCOUNTS
SECOND INTERIM REPORT ON THE APPROPRIATION ACCOUNTS 1996
TABLE OF CONTENTS
ORDERS OF REFERENCE
1. STANDING ORDER AND TERMS OF REFERENCE - FIRST REPORT OF THE STANDING SUB-COMMITTEE ON DÁIL REFORM ON ESTABLISHEMENT OF COMMITTEES IN THE 28th DÁIL
Standing Order 149
“(1)There shall stand established, following the reassembly of the Dáil subsequent to a General Election, a Standing Committee, to be known as the Committee of Public Accounts, to examine and report to the Dáil upon:
(a)the accounts showing the appropriation of the sums granted by the Dáil to meet the public expenditure and such other accounts as they see fit, (not being accounts of persons included in the Second Schedule of the Comptroller and Auditor General (Amendment) Act, 1993) which are audited by the Comptroller and Auditor General and presented to the Dáil, together with any reports by the Comptroller and Auditor General thereon:
Provided that in relation to accounts other than Appropriation Accounts, only accounts for a financial year beginning not earlier than 1 January 1994, shall be examined by the Committee:
(b)the Comptroller and Auditor General’s reports on his or her examinations of economy, efficiency, effectiveness evaluation systems, procedures and practices; and
(c)other reports carried out by the Comptroller and Auditor General under the Act.
(2)The Committee may suggest alterations and improvements in the form of the Estimates submitted to the Dáil.
(3)The Committee may proceed with its examination of an account or a report of the Comptroller and Auditor General at any time after that account or report is presented to Dáil Éireann and
(4)The Committee shall have the following powers:
(a)power to send for persons, papers and records as defined in Standing Order 79;
*(b)power to take oral and written evidence as defined in Standing Order 78A(1)
(c)power to engage consultants as defined in Standing Order 78A(8); and
(d)power to travel as defined in Standing Order 78A(9).
(5)Every report which the Committee proposes to make shall, on adoption by the Committee, be laid before the Dáil forthwith whereupon the Committee shall be empowered to print and publish such report together with such related documents as it thinks fit.
(6)The Committee shall present an annual progress report to Dáil Éireann on its activities and plans.
(7)The Committee shall refrain from-
(a)enquiring into in public session, or publishing, confidential information regarding the activities and plans of a Government Department or Office, or of a body which is subject to audit, examination or inspection by the Comptroller and Auditor General, if so requested either by a member of the Government, or the body concerned; and
(b)enquiring into the merits of a policy or policies of the Government or a memberof the Government or the merits of the objectives of such policies.
(8)The Committee may, without prejudice to the independence of the Comptroller and Auditor General in determining the work to be carried out by his or her Office or the manner in which it is carried out, in private communication, make such suggestions to the Comptroller and Auditor General regarding that work as it see fit.
(9)The Committee shall consist of twelve members, none of whom shall be a member of the Government or a Minister of State, and four of whom shall constitute a quorum. The Committee shall be constituted so as to be impartially representative of the Dáil”.
“Go ndéanfar de bhun Bhuan-Ordú Uimh. 149 de na Buan-Orduithe i dtaobh Gnó Phoiblí, an Coiste um Chuntais Phoiblí a cheapadh.
That, in pursuance of Standing Order No. 149 of the Standing Orders relative to Public Business, the Committee of Public Accounts be appointed.”
“go ndéanfar na comhaltaí seo a leanas a cheapadh ar an gCoiste um Chuntais Phoiblí:—
that the following members be appointed to the Committee of Public Accounts:—
Deputies Seán Ardagh, Beverly Cooper-Flynn, John Dennehy, Seán Doherty, Bernard J. Durkan, Denis Foley, Thomas Gildea, Conor Lenihan, Pádraig McCormack, Jim Mitchell, Pat Rabbitte and Emmet Stagg”
“go ndéanfar an Teachta Emmet Stagg a urscaoileadh ón gCoiste um Chuntais Phoiblí agus go gceapfar an Teachta Micheál de Bheil ina ionad;
that Deputy Emmet Stagg be discharged from the Committee of Public Accounts and Deputy Michael Bell be appointed in substitution for him”
The Committee noted the following accounts:
Vote 9, Office of the Revenue Commissioners.
JIM MITCHELL T.D.
15 October 1998
MINUTES OF EVIDENCE
COMMITTEE OF PUBLIC ACCOUNTS
Déardaoin, 13 Samhain 1997.
Thursday, 13 November 1997.
The Committee met at 11 a.m.
DEPUTY J. MITCHELL IN THE CHAIR.
Also in attendance Mr. J. Purcell (An tArd Reachtaire Cuntas agus Ciste).
Chairman: Members have the agenda before them. The minutes of the previous meeting have been circulated to Members. Are the minutes agreed to? Agreed. Are there any matters arising from the minutes? Does the Committee wish to take correspondence now?
Deputy Foley: Yes.
Chairman: The Committee will go into Private Session to deal with correspondence.
Mr. Cathal MacDomhnaill (Chairman, Office of the Revenue Commissioners) called and examined.
Chairman: We will now commence hearings on the 1996 Annual Report of the Comptroller and Auditor General and Appropriations Accounts. Today we will deal with Vote 9, Office of the Revenue Commissioners. I welcome the Chairman and Accounting Officer of the Revenue Commissioner, Mr. Cathal MacDomhnaill.
Mr. MacDomhnaill: I am accompanied by the Accountant General of Revenue, Ms Josephine Feehily, Mr. Dennis Power, Principal Officer in the Corporate Management Division dealing with the Committee of Public Accounts among other things and Assistant Principal, Mr. Paddy O’Shaughnessy.
Chairman: I propose we have a preliminary general discussion and then deal with paragraphs 6 and 7 of the Comptroller and Auditor General’s report together, paragraphs 8, 9 and 10 together, paragraph 11, paragraphs 12, 13 and 14 together, paragraph 15, paragraph 16 and paragraphs 17 and 18 together. Is that agreed? Agreed. How long have you been Accounting Officer at the Office of the Revenue Commissioners?
Mr. MacDomhnaill: This is my eighth year.
Chairman: I note in the paragraphs several references to the fact that new computer systems are being developed. I have been a Member of the Dáil for 20 years and continue to hear that. Is this an ongoing process or an excuse?
Mr. MacDomhnaill: The Chairman is right in that this is an ongoing process. The current update has been taking place since 1990. As you will appreciate, the work must continue and we must use the existing system and bring it up to date for budget reasons and in terms of available technology. This enhancement is at a different level to previous ones. As a result of professional advice in 1989, we decided continuous changing of existing systems would not give us the flexibility and the power we needed and that we had to rewrite almost from the start 3 million lines of custom built code to give us that and to keep existing systems up to date at the same time. We might have taken action elsewhere were we not doing that. This was done purely for value for money reasons. Updating an old system when a new system is coming on stream is unproductive but we had to try to manage it so it would carry out essential functions. We are a long way down the road towards a new system.
The central registration part is completed which has taken a huge effort. This is where all the information relating to the various tax systems such as income tax and corporation tax have been combined in one system, whereas previously they were separate.
We have also brought some of the productivity tools such as active intervention management on stream. In early 1999 we hope to introduce integrated taxpayer processing, where calculation of various taxes can be brought together. This should be ready for user-testing by the end of 1998 and in spring 1999 we will have our first tax head locked onto that which is the PREM, the biggest tax head which brings in several billion pounds every year. At six month intervals we will lock on other tax heads until some time in 2001 when this will be completed.
One of the advantages of this system is that any new tax which comes in will only need a six month development process. The system is capable of taking on new taxes at short notice or disposing of old taxes. This is a huge ongoing investment. A substantial number of staff is involved and we are also paying millions of pounds annually for technical expertise from a leading consultancy company who have done work in Singapore, New Zealand and New Jersey and advise many tax administrations. We are at the cutting edge of technology. However, when this is completed, there will still be ongoing developments beyond 2002.
Chairman: I studied computer science and I am always amazed at the capacity of officialdom to use computers as an explanation for current failure - the computer is down or a new system is being installed. It does not impress me. Is the Revenue Commissioner’s computer system co-ordinated with those of other Government Departments, notably the Department of Social Welfare?
Mr. MacDomhnaill: This computer produces a lot of information for the Department of Social Welfare but it is a separate and independent development. We operate on a different basis. We have a central enterprise server or mainframe which does all the central processing. We have output for other Departments. There are other minor systems which we are active in developing. These are common to other Departments, but do not involve the tax processing system.
Chairman: Is the Revenue Commissioner’s computer system now compatible with the Department of Social Welfare system? For years I was told I could not do necessary cross-checking because the two systems were not compatible, but that compatible systems would be introduced.
Mr. MacDomhnaill: Technically, we are on open systems. We provide a substantial part of the Department of Social Welfare register from the employer returns we receive. This has been improved immensely and we have had a number of letters from the Department commending us on the achievement of higher targets each year. When one talks about compatibility on a wider scale with Social Welfare, which would include non-taxpayers, one is back to the old chestnut of a single identifier which can be used across Departments. This is where problems are encountered with the Data Commissioner. Some balance will have to be struck between data protection on the one hand and the efficiency of public administration on the other. That is the ongoing agenda.
Chairman: The Committee will return to that subject later.
Deputy Foley: On the write-off procedures and the £587 million arrears which are more than 10 years old, was a stop placed on records at some point or have the taxpayers involved been subject to continuous pursuit?
Mr. MacDomhnaill: That residue of ten year old tax has gone through every process - from sheriff to revenue solicitor - without effect. We do not have a category for post-enforcements although there will be one in the new system. They appear under different headings in the list of tax outstanding, but they have all been through a collection process and are now under one stop or another to indicate the process was not successful.
Deputy Foley: What records are kept of ongoing debts? When an individual is identified as a defaulter in another company, what action is taken?
Mr. MacDomhnaill: The procedure for write-off has been very strict up to now. Every case is submitted to me and then passed on to the Comptroller and Auditor General. There has been a restrictive approach to the writing off of taxes. However, the last meeting of this Committee, under Deputy Foley’s chairmanship, indicated we were perhaps too strict in that regard.
When we write off a tax, we still retain it on record. It can be retrieved if circumstances change. We do not come across this often, but theoretically if it did change we could restore the charge and seek to recover it. The prospects of recouping taxes from the categories of ceased business, gone abroad, company liquidated or wound up are not very strong. Theoretically, the possibility does exist.
When we write off a tax, it is usually in relation to a business which has ceased. It is fair to point out that all these categories - whether PAYE or VAT - usually relate to the business sector. All tax is paid to us by the business sector, even though it is deducted from employees and customers. When a business ceases, these taxes are included in the write-off category. This is an unfortunate part of economic life.
Deputy Ardagh: It appears that the system of controls and reconciliation is in a total mess. The Comptroller and Auditor General has asked specific questions of the Accounting Officer and the answers have been general - similar to the answers TDs receive to parliamentary questions.
Under the heading of taxpayer remittances on page 5, it states that the carrying out of a reconciliation would impede productivity and seriously delay lodgements to the Exchequer. As far as I can see, the Comptroller and Auditor General has received no impirical evidence that this is so. It also states that procedures had recently been revised. I wonder whether the Comptroller and Auditor General received a copy of those procedures. If he had, would this have been included in the report?
There was a significant increase in the number of post-dated cheques yet no figures have been given. It is also stated that the format of the records has now been revised.
Evidence should be given to the Comptroller and Auditor General that the revised records format will make a difference. It is too fluffy at present. There is also the question that the Collector General’s and the Accountant General’s records are not reconciled. I am concerned that money payable to the Revenue Commissioners could be misappropriated, as happened in the past. It seems the system of control and reconciliation depends on the honesty, integrity and dedication of the civil servants under your control. They and the inspectors with whom I have dealt are excellent. However, a system should be put in place to ensure that controls are not breached so that civil servants and the people are protected.
Chairman: These matters arise in paragraphs 6 and 7. We should have a general discussion before we debate specific paragraphs because we must enable the Comptroller and Auditor General to introduce the paragraphs first. That might answer some of the questions raised.
Deputy Ardagh: My general remarks relate to control and reconciliation in the Revenue Commissioners.
Mr. MacDomhnaill: Revenue is under perpetual audit. We could have three of the Comptroller and Auditor General’s auditors doing audits during any working day. This is only the tip of the iceberg. Everything the Deputy mentioned is put before the auditors, including the specifications for the computer design change. There is tremendous support and views are exchanged between the Comptroller and Auditor General and my staff. A rigorous audit of Revenue records and reconciliations is also carried out. If anything was misappropriated, it would be detailed in this Report. The media’s impression about the reconciliations does not reflect what is happening.
I invite any Member of the Committee to visit our cash office - we have one in Apollo House in Dublin as well as in Limerick - to see the system at first hand because it is impressive. Financial people come from other countries to see it. It is the leading edge of technology for cheque handling. There is also the possibility of a physical count of cheques to match what the machine shows. Every cheque is accounted for. The system in the cash office is designed to ensure that incoming post goes to the cash office so that every cheque finds its way into the system. Not only does the machine count the cheques, but they are sorted into lodgement bundles and a machine code is written on them for sorting purposes. Every cheque gets individual attention and they go through the system twice. I have no hesitation in saying the system is secure. We are talking about audit trails for the purposes of checking certain transactions against primary documentation, not the actual control of the cash process. I hope the Comptroller and Auditor General endorses what I have said.
Deputy Doherty: Perhaps Mr. MacDomhnaill should invite the new Committee, as he did the old one, to view the state of the art technology and the efficient and effective way the Revenue Commissioners operate their systems. One would have to see it and have it explained thoroughly to fully appreciate what has been achieved and the difficulties which have been eliminated.
Personal cheques with stamp duty liabilities are being returned to persons who submit them with the request that they resubmit them through their solicitors. This has often resulted in penalties being imposed. It is difficult to understand why this is the case because nobody, including the Revenue Commissioners, would be wise to refuse money. Why do the Revenue Commissioners return personal cheques and then penalise the person because they were not sent in through the specified channels?
Mr. MacDomhnaill: We have moved a long way towards implementing the wishes of the Committee. We now accept cheques throughout our offices. There was a time when we insisted that cheques had to be sent to the Collector General. There was much debate here over the years about cheques being sent back because the interest was not added on. We have changed our position in that regard.
Stamp duty is slightly different because we give immediate value in many such cases. It is like selling a stamp over the counter in that immediate value is given once the stamp is appended to the document. The difficulty is that once that document is stamped, cheques can bounce. We try as far as possible to accept cheques when they are presented to us by the legal profession. We have an arrangement so that if they give us a cheque we do not have to match it against documents. It is like an over the counter service. However, we ran into trouble with that in the past year or two.
Reference is made in the Report to new technology but this is an ongoing situation. The crooks are improving their technology all the time and systems which were valid for 100 years are no longer adequate. If the person can guarantee the cheque, it will be accepted straight away. Otherwise we must wait until the cheque is presented. However, sometimes people cannot wait for that to happen as they want to take the documents with them.
Deputy Doherty: You will look at the situation in the context of a legitimate presentation.
Mr. MacDomhnaill: Yes.
Deputy Cooper-Flynn:The report states that post-dated cheques put a considerable strain on existing manual systems. Why do the Revenue Commissioners accept post-dated cheques? Are they always honoured? Given that there is no reconciliation between cheques which come in through the post room and those which go through the accounting system, how can you be sure that cheques are not lost in the system?
Mr. MacDomhnaill:I do not accept that we do not reconcile cheques. The post room and the cash office is a self-contained secure area. If someone opens the letters and gets the cheques, they do not count them before passing them on to the next stage. They all go through the system and are accounted for.
Post-dated cheques were used in the past for instalment arrangements. This method has mushroomed in recent years because the tax clearance system has been widened. The thresholds have dropped and licences and grants- originally confined to contracts- have been brought into the clearance system. Many people need certificates and licences to continue in business, such as subcontractors and publicans, and the system catches up with them.
There was so much pressure in that regard that we agreed that if people gave us a satisfactory instalment arrangement we would give them the tax clearance certificates. This was urged upon us by the Committee.
The second question was whether all those cheques are honoured. As might be expected, many of them are not honoured. It is a huge chore to keep track of those post-dated cheques. For that reason, about two years ago we made a definite policy decision to insist in those cases on payment by direct debit. However, it is a long process. We have had systems in operation for several years for disc exchange and so on, but getting people to avail of them is a slow process. We have found in recent years that people who did not make any arrangements have been sending in bundles of post-dated cheques.
Deputy Doherty asked about the refusal of cheques. In such cases, we try to get the interest on the instalment arrangement but we do not turn down the post-dated cheques. We are trying, as far as possible, to move away from post-dated cheques to direct debits. Bounced cheques really mess up the system. If a person forgets they have given us a post-dated cheque, when we try to cash it there might not be any money in the account and the cheque could bounce. However, we would have already put that cheque through the exchequer account.
Deputy Ardagh referred to the reconciliation between the Accountant General and the Collector General. It comes down to bounced cheques and refunds. The system has to cater for a deluge of cheques, including bounced cheques, refunds and set offs.
Another bugbear for us is that many practitioners put Tippex on the accounting documentation we send out and resubmit it for another client. However, they overlook the fact that there are machine codes on those documents and the machine reads the document as relating to the original client. This is causing a great deal of trouble for us. We depend on those who open the post to recognise the documents which are unsuitable for the automatic system and to put them into the ORP system. Irrespective of which systems we implement, at the end of they day we must rely on the integrity of the staff.
Chairman: I call on the Comptroller and Auditor General to introduce paragraphs 6 and 7 of his report.
Mr. Purcell: Paragraphs 6 and 7 of the Report of the Comptroller and Auditor General read:
Paragraph 6 is merely for the information of the Committee. It sets out the basis for my audit of the Revenue Commissioners and summarises the tax yield for 1996 under the various tax headings.
Paragraph 7, some of which has been covered already, outlines the finding of an audit of the system for receiving tax remittances in the Office of the Collector General. Members will appreciate that there is an enormous throughput of cheques, as the accounting officer stated, and that there is a complex set of procedures designed to ensure all moneys are properly brought to account. In general, the controls and operations seem adequate to meet the demands imposed.
I should explain that matters tend to be summarised in my report and, by its very nature, it is almost a report of exceptions. I have often been criticised by accounting officers and others for not listing the good with the bad. However, if I were to do so the report would be the size of a telephone directory, for which I would not be thanked either. The paragraph sets out a number of areas where I felt the system could be tightened up and improved.
Some of the points raised concern matters which can be put right immediately, such as the control over the unallocated cheques and the opening of all post at the point of receipt. I am glad to note the accounting officer has taken remedial action in those areas. The other matters are not conducive to a quick fix, such as audit trails and overall accounting reconciliations, particularly in the environment in which the Revenue operates. Perhaps these can best be addressed by better and more sophisticated computer systems. I know that is the intention of the Revenue Commissioners.
In this context, the Committee will note that a major new computer system is being developed. Working groups, with a consultancy input, have been reviewing the accounting and reporting arrangements during 1997, with a view to establishing best practice. I understand they recently completed their work but, as far as I know, no decisions have yet been taken in relation to their recommendations.
Chairman: Is it a practical objective to phase out post-dated cheques? Will we ever get to the stage where post-dated cheques are not accepted?
Mr. MacDomhnaill: You are right to bring up the issue of practicality. Ideally, we would not need many of these systems if everybody responded to our demands. The old systems would work perfectly if that were the case. The reason they do not is that we must bring it all together in a customer friendly way. It is very complex for people to have to deal with VAT every two months, PAYE and PRSI every month, preliminary corporation tax and capital taxes. We are trying to develop a consolidated billing system which would be more straightforward.
We take the view at the moment that good businesses which are solvent but which have cashflow problems should be given an instalment arrangement. If such businesses cannot get a direct debit should we deny them the instalment arrangement or should we give them a chance to send in post-dated cheques? We have been trying to insist on direct debits for two years but the post-dated cheques keep arriving.
Chairman: Is there any penalty if a post-dated cheque bounces?
Mr. MacDomhnaill: The penalty is that the payment is late and the instalment has not been met. Two things can happen. If we were satisfied with the explanation that it was a mistake we would not collapse the instalment arrangement. However, if we thought they were failing to meet the instalment we would collapse the arrangement and return to the enforcement area. Every instalment arrangement will carry a certain amount of interest because of the delay element.
Chairman: However, it is not a specific offence to bounce a post-dated cheque. There is, in reality, no additional penalty for someone who deliberately bounces a post-dated cheque.
Mr. MacDomhnaill: In such situations there has been a failure to meet the payment date, the usual penalty for which is interest.
Chairman: However, would Mr. MacDomhnaill not agree there is a strong case to make the deliberate bouncing of post-dated cheques an offence in itself which is subject to additional penalties, in order to make the system more practical and effective?
Mr. MacDomhnaill: There might be if it were possible to prove the cheque was deliberately bounced. However, in most of the cases we deal with we have people pleading with us to still accept the cheque and giving us millions of reasons. The necessary mens rea would be absent in terms of bringing a prosecution.
Chairman: Consideration should be given to making it a specific offence. There is no reminder system to notify people in advance that their post-dated cheque is about to be cashed.
Mr. MacDomhnaill: You are correct that there is no reminder system. Perhaps that should be considered.
Chairman: Sending out reminders might overcome the problems caused by such cheques for the system, especially where cheques are bounced inadvertently.
Deputy Ardagh: The post-dated cheque facility helps many taxpayers. For example, without that facility the Revenue Commissioners would receive no payment at all from a taxpayer who received a bill for £5,000 but had no money in the bank. That would then become a bad debt in five or six years’ time. It is a very necessary facility and without the facility of post dated cheques the Revenue would get nothing at all. That would then become a bad debt in five or six years time so it is a very necessary item. On the question of the bouncing of the cheques, the people who give post dated cheques are, of their nature, not in a position to afford extra penalties and interest and a caring attitude should be adopted to that whole situation. The attitude that the Revenue is at present adopting is very good and is appreciated.
I am sorry that the Comptroller and Auditor General had not already included in Item 7, the statement that he felt that present system was, in general, good and satisfactory because the impression comes over that it is a can of worms and that the whole system is weak. I accept what the Comptroller and Auditor General has said in his report and also what the Chairman of the Revenue Commissioners has stated.
On the question of practitioners who come along and Tippex over the magnetic coding, this is a practice that occurred in the past and I have seen even tax inspectors, in the past, use forms of that nature. This is being addressed and every tax briefing that comes out contains a paragraph advising against using other people’s tax forms. That would happen only in a very small number of cases. It is not fair to brand practitioners as inept and non-compliant with the requirements of the Revenue Commissioners.
Finally, Item 6, which deals with the question of Preliminary Tax. I wonder if the economy is still in a healthy state and is the amount of Preliminary Tax paid up to the due date which is November, equal to, or higher or lower than, the amount paid in 1996?
Mr. MacDomhnaill: I would agree totally with Deputy Ardagh in relation to practitioners. Only practitioners do this because a single tax payer gets only one document. I only mention it in that context. The vast bulk of the money comes in through the ARP system without any requirement to put it through the system personally. There is a small residue of these cases which gives us trouble because of that and, of course, it works its way through the system.
As regards the Preliminary Tax for 1997, I am glad to report that it is well ahead of the Budget estimate at this point. We had an advertising campaign because there was a query last year about a slight rolling back on Preliminary Tax but not only is that rolling back completely caught up with, because we had a lot of money coming in in October, but we are well ahead at this stage.
Mr. McCormack: I note that the Comptroller and Auditor General notes that the control of post dated cheques was weak and that no record was maintained of the receipt and subsequent possession of such cheques. If that matter was corrected so that there was a record of post dated cheques would it help in forming this register of when post dated cheques would be coming up? Is there a limit on the length for which you can post date a cheque? Is it a fixed period? When a person’s car tax or television license is due he gets a letter the week before giving warning that this bill is coming up and he makes provision for it in his next week’s finances. Could a similar system be put in place for post dated cheques. Would it not be very helpful if taxpayers were notified that the date on their post dated cheques was coming. If that register was established when post dated cheques are received could that system be put in place?
Mr. MacDomhnaill:This is close to the same point made by you, Chairman, about notifications for post dated cheques. We do have a system where the instalment arrangement is marked out by the case worker on a computer so that it can be checked and a date will come up to us. What you are saying is that we should anticipate that and send out a note to the taxpayer. It is a point that we will take on board. As regards notification we do give a number of days notice. Our demands are not peremptory. You have a certain length of time in which to pay. We send out demands well ahead of due dates so that they do have advance notice of the amount being due. For the instalment arrangement cases I take your point.
Mr. McCormack: You did not answer the point about the length of time that a cheque can be post dated. What period of time do you allow in a post dated cheque?
Mr MacDomhnaill: As regards the timing for an instalment arrangement this is one of the very difficult areas for a collection organization like us. We have to get the revenue in within the year. It is not like a business. If 1996 revenue does not come in in 1996 it falls out of the 1996 budget. We have that constraint on us all the time. Within that constraint we will give instalment arrangements but each case is looked at on its merits. What we have to look at is this. Is there a basic solvency in the business? If, for example, our people - looking at the balance sheet and the cash flow - come to the conclusion that this company is already insolvent we would be failing in our duty if we gave an instalment arrangement in that case. There are other cases where we can say yes, there is a viability here. There is a cash flow problem and we look at the size of the cash flow problem but if we entertain the idea that this business is viable we must, at least, give a year or maybe even two years in exceptional cases. We have to look at each case and see what is justified to enable the business to survive and meet tax obligations. There is also an interest element in the instalment arrangement.
Deputy McCormack: Do you mean that at the beginning of the period you set out what is owed and take post dated cheques for all of that amount coming in at different times?
Mr. MacDomhnaill: The post dated cheques will cover all the instalments plus the interest. We do not compound the interest. If you look at the tax law you will see that it says “simple interest“. We respect what is in the legislation. We bring the earlier instalments against tax and then the interest is not compounding. That is the only easement that we have in the instalment arrangements. Otherwise the cheques match the dates of the instalments.
Deputy McCormack: I presume that post dated cheques cause a perpetual problem because if you post date cheques for a year or two years to clear a £5,000 liability by the time that period is up there will be another recurring liability for the two years in between. Are we not only postponing the bad day of decision.
Mr. MacDomhnaill:Part of any instalment arrangement is that current liabilities have to be paid on an ongoing basis. The instalments come in addition to current liabilities. You are quite right. It is a huge chore to manage these post dated cheques. At the risk of annoying the Chairman again we are developing a case management computer programme for this particular area to try to reduce the huge clerical input in managing post dated cheques. Our policy would be, if at all possible, to move over to direct debits.
Deputy Cooper-Flynn: I wish to ask how post dated cheques are treated. Do you do up a computer listing to remind you that a post dated cheque has to go through the system? It is not attached to an individual file which has to be gone through manually? Secondly I want to comment on something mentioned by Deputy Ardagh. While I appreciate that the post dated cheque system is a great facility for someone who owes a large amount of tax. I think it should be ruled out altogether, given the time consumed and the burden it places on the Revenue Commissioners. It is as easy for someone to sign a direct debit as to sign post dated cheques. Why can we not just rule them out of order altogether.
Mr. MacDomhnaill: I could agree with you 100 per cent from a theoretical point of view. However it is different when one comes up against the actual cases, as any practitioner will describe. There are jobs at stake. We treat this as part of our customer service. In some of these cases, the State is doing too well because we charge a rate of interest of 15 per cent which is non-deductible in the computing of profits and is the equivalent of 28 per cent. No-one in business is paying this penal rate of interest. In some of these instalment arrangements, commercial restitution would probably be a better approach. There has to be a penal rate of interest otherwise no-one would pay on time. There are circumstances where commercial restitution is justifiable and could be based on the ongoing rate of gilts. At the moment, someone entering an instalment arrangement pays penal interest.
Chairman: We should not give the impression that the Committee says this should be abolished. A practical approach is necessary and a judgment has to be applied. We are concerned that it is applied properly with a follow-up.
Deputy Rabbitte: Will Mr. MacDomhnaill comment on the Comptroller and Auditor General’s remarks that a visible policy of prosecuting of under criminal law should be an effective deterrent to those who evade tax? He made these remarks in the context of the fact that no criminal proceedings were initiated by the Revenue Commissioners against individuals who failed to make their returns from 1992 to 1996.
Chairman: We are discussing paragraphs 6 and 7. Deputy Rabbitte is referring to a later paragraph.
Deputy Rabbitte: I am on a tight schedule.
Mr. MacDomhnaill: We agree with the Comptroller and Auditor General that there should be a visible sign of prosecution to demonstrate that this ultimate deterrent will be used. I will elaborate further when we get to the relevant paragraph.
Chairman: Now you are vexing me. I represent a working class constituency where it is the widespread feeling that prisons are working class institutions. No white collar criminals are ever imprisoned in this country.
Deputy Rabbitte: I will not abuse the Chairman’s indulgence on this but I hold similar views. It is difficult for the ordinary compliant taxpayer to appreciate that from 1992 to 1996 no-one was prosecuted.
Part VII of the Finance Act, 1994, relates to foreign residents. Is there any reason why the Revenue Commissioners cannot provide simple figures for the number of individuals availing of that provision?
Mr. MacDomhnaill: I am not aware this question has been raised.
Deputy Rabbitte: I raised it by way of a parliamentary question on 4 November and I was told the Revenue Commissioners do not keep records to quantify either the number of persons who may have been affected by the provisions of Part VII of the Finance Act, 1994. We are entitled to know how many wealthy individuals use this facility. I am not asking how much they pay. Can Mr. MacDomhnaill examine this and come back to the clerk of the Committee?
Deputy Foley: The method of paying by post-dated cheques and direct debit is a good one. How many individuals avail of this system? Has the number increased in the last number of years?
Mr. MacDomhnaill: Yes, it has increased considerably because of the need to give tax clearance to those who could not meet payments. People have presented post-dated cheques, without any agreement from us. We are faced with the problem of whether we should accept them and look for the interest or send them back. While we would like to do this and request payment up front, the general impression we get from the Committee is that cheques should not be refused for these reasons when a remedy exists to collect the interest subsequently.
Deputy Foley: Where a sole trader seeks a C2 certificate, will a post-dated cheque be accepted?
Mr. MacDomhnaill: Many instalment arrangements apply to sole traders. We have to look at the viability of the business. We can come in for criticism if a debt is allowed to accumulate and we have not been quick enough off the mark. It is a judgment call when one moves from facilitating the taxpayer to heavy enforcement and liquidation.
Deputy Foley: I accept that. Where it benefits a sole trader or self-employed person to seek the renewal of a C2 certificate, will he be given the benefit of the doubt if his business is capable of honouring post-dated cheques?
Chairman: Working groups and ongoing reviews are mentioned in this paragraph? When will they report on the issues raised in this paragraph?
Mr. MacDomhnaill: One report is focussing on the Collector General and the other on the Accountant General. The working groups have finished the reports but they have to be endorsed. I have not seen them yet, but their publication is imminent.
Chairman: Who must endorse them?
Mr. MacDomhnaill: The steering committee. The groups looked at the ways we can change procedures relating to our new integrated taxpayer processing system and thus avail of the technology.
Chairman: The points raised by the Comptroller and Auditor General in this paragraph are significant. I hope the Revenue Commissioners can satisfy his concerns quickly. There is an implicit excuse that cross-checking cannot be done because of the scale of the number of cheques coming in. What do the British or American revenue do? There must be some advanced systems of cross-checking and tabulation.
Mr. MacDomhnaill: When we installed the automatic system, the deputy Collector General visited the Cumbernauld collection centre in the UK. He also visited Manhattan to examine the American system, which we have. The people from Cumbernauld visited Dublin to look at our system. Nothing in our system is behind the times.
The counting of cheques must be seen in the context of a person handing in a bundle of cheques in a bank. The teller does not count the number of those cheques; they pass into the system. Every cheque we get is accounted for. It is a question of when they are counted as they pass through the system.
Chairman: That may be so and one can eventually check whether any have gone missing. What about the audit trail to which the Comptroller and Auditor General refers?
Mr. MacDomhnaill: If a cheque goes missing, the chances are it will not be counted either. If a cheque does not get into the system, it is missing. Even if cheques received are counted, it will not show a cheque is missing.
Chairman: How many cheques go missing each year?
Mr. MacDomhnaill: We are not aware of any cheques going missing because the taxpayer gets a receipt. If they did not get one, they would wonder what happened to their cheque. Stolen cheques were intercepted in the past but it was never established they were stolen after they reached Revenue. It is likely it happened before that.
Chairman: Did you tell me that 16,000 cheques are received per week or per day?
Mr. MacDomhnaill: Per day. We receive some 1.4 million payments per year.
Chairman: Are you saying there is absolutely no fraud in the system? How can you be satisfied no cheques ever go missing?
Mr. MacDomhnaill: That is the system and it works. In past meetings with the Committee there were detailed discussions about stolen cheques which were intercepted and the names changed on them. We cannot account for how the taxpayer draws up his cheque. If he puts down VAT, for example, that is a dangerous thing to do. He should put down Collector General or Revenue Commissioners because VAT can easily be changed. Those cheques came to light when we sent out demands and taxpayers replied by saying they had sent in their cheques and were surprised we did not receive them. It is a self-proving system.
Deputy Ardagh: It is a self-proving system if the Accountant General issues a receipt and, if within his office the tax demand to which it refers can be shown to have been paid. The paragraph states there is not a full reconciliation between the Collector General’s office and the Accountant General’s office. Is there a possibility that cheques may have been sent to the Collector General, that the Accountant General would have been informed of the amount and the payer, that a receipt would have been issued and yet the cheque went missing because of the lack of reconciliation?
Mr. MacDomhnaill: It is totally wrong to say there is no reconciliation between the Accountant General and the Collector General. There are daily balances. At the end of the year there must be a reconciliation between what the Accountant General has transferred to the Exchequer and what the Collector General has collected. There is a time lag when cheques, which should be in the Exchequer receipt according to the Collector General, are bounced by the Central Bank and are therefore not in the Accountant General’s bank account. That is where reconciliation comes into play.
Mr. Purcell: I accept Deputy Ardagh’s point but, while the system is good, there are problems. Some of them do not rate as highly important but there is a risk involved in cheques addressed to individuals such as tax inspectors being sent to them unopened. I do not want to overstate the problem and I would not refer to it as a can of worms as the Deputy did, but there are some serious problems within a complex system.
Mr. MacDomhnaill: The cheques were sent to a secure area, the post room-cash office, and some were not allowed to be opened where they were addressed to managers. The reason for that is that most post going to managers does not contain cheques but some does contain sensitive information about staff. The cash office is mainly staffed by junior personnel and we did not want sensitive documents being opened. We have made arrangements that the envelopes can now be opened while still preserving the confidentiality of other correspondence.
Chairman: We have given ample time to these paragraphs and they are duly noted. Paragraphs 8, 9 and 10 of the report of the Comptroller and Auditor General read:
8. Write-Offs in 1996
The Revenue Commissioners have furnished me with details of taxes written off during the year ended 31 December 1996.The total amount £90,733,258 is made up as follows
The distribution according to the grounds of write-off is:-
I have made a test examination of the cases and I am satisfied with the action taken.
It should be noted that the amount written off may overstate the actual liability as some of the items included in the arrears represent estimated assessments.
9. Proposed Change in Write-Off Procedures
Outstanding tax (including PRSI) in respect of all tax years up to 1994/95 amounted to £1,431m at 31 December 1996. The collectability of this tax is affected by a number of factors viz.
•£587m of the arrears relates to periods prior to the introduction of self assessment for Income Tax, is now more than 10 years old and has been the subject of the collection and enforcement cycle but nevertheless remains uncollected. The lapse in time, the reliability of the records and the basis on which assessments were raised can give rise to doubts as to its collectability.
•The rate of recovery from post-self assessment arrears of £246m for the period 1988-1991 is extremely low. The response to the post-1993 amnesty campaign shows that only some £30m has been discharged from the record as a result of that amnesty. With the very favourable terms on offer in the 1993 amnesty, this response suggests to the Revenue Commissioners that the possibilities for collecting tax for these years have been more or less exhausted.
•Estimated tax included in the overall arrears is £488m. Owing to the unsound nature of many of the pre-1991 VAT estimates raised, estimates raised for these years are regarded by the Revenue Commissioners as speculative rather than as quantified assessments. Similarly, they are of the view that pre-self assessment estimates for Income Tax may be overestimated.
•£401m is due from cases which have been cancelled by Inspectors of Taxes. A major share of this element of the arrears is uncollectable as the bulk of cancelled cases will have ceased trading.
The outstanding tax shown in the books of the Revenue Commissioners is therefore much greater than that which will be ultimately recovered. The Commissioners’ very strict guidelines on the write-off of tax debts, which necessitates arrears being individually reviewed and other criteria being satisfied before amounts can be deleted from the records, also contribute to the high level of outstanding tax on the books.
As the Commissioners felt that there was no realistic chance of recovering much of the outstanding tax, they decided in early 1997 that the commitment of the level of resources necessary to pursue this tax would not be justified. They therefore proposed to revise their write-off procedures so that much of these old uncollectable arrears would be deleted from the records. The main changes included the use of automation to write off small amounts, enhanced efforts to be put into the task of reviewing doubtful debt, and the write-off of cases involving company liquidations at the beginning rather than at the end of the liquidation process.
The Commissioners informed me that they are hopeful that these measures will result in a significant reduction in the level of old book arrears and will provide a greater focus on the collection of current taxes and collectable arrears and lead to a more planned approach to debt management.
In response to a request by the Accounting Officer for my views on the Commissioners’ proposals I stated that I was in broad agreement with the action proposed but pointed out the following
•The key risk associated with any widening of the write-off policy is that tax which is capable of being collected may be written off and therefore be lost to the State. The obvious aim should be to minimise if not eliminate that risk by designing control procedures for the different categories of arrears. There are a number of ways of classifying arrears. At one level a distinction should be made between arrears which arise as a result of unsubstantiated estimated assessments and those which represent real liabilities. In the latter category a distinction would have to be drawn between tax which is uncollectable by virtue of the financial status of the individual or company and tax which is uneconomical to pursue.
•Having regard to the sharp initial increase in write-offs, internal audit be given a role in reviewing a defined percentage of cases for adherence to procedures and the increase will also call for a more extensive examination of write-offs by my staff.
•The Revenue policy of reinstituting collection action on written-off tax arrears should continue where circumstances change to an extent that the debt can be satisfied.
•It is important that the write-off procedures are not seen as giving the message that if Revenue demands are ignored for long enough they will go away. It will therefore be necessary to devise new headings under which write-offs can be classified to ensure that Revenue’s actions are, and are seen to be, fair, equitable and reasonable. These are to be agreed with my Office with a view to facilitating their inclusion in my Report.
I noted that the proposals provided for the documentation of write-off procedures and the keeping of records for audit examination.
10. Outstanding Taxes and Levies
Table 1 was prepared on the basis of information furnished by the Revenue Commissioners and reflects the activities and transactions in the twelve month period ended 31 May 1997 - the latest date for which data was available at the time of finalising my Report.
Table 1 - Outstanding Taxes and Levies
a.The increase of £28m between the closing balance in the 1995 report and the opening balance for 1996, is accounted for by the inadvertent omission of outstanding balances due from certain VAT traders who operated the direct debit payment system or the annual remitter scheme.
b.Net of write-offs.
c.Includes Deposit Interest Retention Tax, Withholding Tax, PRSI for the self-employed, Health Contributions and Levies.
d.Net of discharged estimates.
e.The estimate of the amount likely to be collected takes into account factors such as:
▸anticipated reductions of estimated amounts included in balances brought forward from previous years.
▸the level of liquidations and business closures.
▸historical collection patterns.
Mr. Purcell: The amount of tax outstanding which can be classified as arrears stands at around £1.5 billion today. Although a huge figure in its own right, it should be viewed in the context of the £3.5 billion shown as outstanding some ten years ago; credit where credit is due. The tax outstanding figure provokes a voluble reaction from both public and media each year when my report is published. The focus it provides helps to give an impetus to the need to reduce the arrears on the books even further.
Revenue has been analysing the make-up of this figure to establish the nature of the underlying arrears so that the most appropriate ways of addressing them can be determined. My office has been carrying out its own similar research and its findings correspond with those of Revenue. The results are summarised in the first part of paragraph 9. They show the amount of tax outstanding in Revenue’s books is much greater than that which will be ultimately collected. There is a combination of reasons why this is so, the main ones being the age of much of the debt, the fact that many of the cases involved will have ceased trading and the unsound nature of many of the old VAT and income tax assessments. Revenue reckons it will eventually collect £500 million of the amount nominally outstanding and the details are in paragraph 10.
The Accounting Officer consulted with me during the year about proposals to change the procedures for writing off uncollectable arrears. His objective was to enable resources to be concentrated on pursuing collectable arrears by automating the write-off for small amounts of arrears, and by writing off tax due in cases involving company liquidations at the beginning rather than at the end of the liquidation process. These moves would also have the effect of significantly reducing the amount of tax arrears in Revenue’s books. The Committee will see in paragraph 9 that I was in broad agreement with the proposals provided the revised procedures were operated in a fair, equitable and transparent way. My office is currently in discussion with Revenue about how best this might be achieved. The new procedures will not in any way absolve the Revenue Commissioners of the responsibility of devoting sufficient resources and effort to the task of collecting arrears, however old, which are properly due as a matter of equity and to ensure that revenue is not lost to the State. Compliant taxpayers deserve no less. Paragraph 8 shows that £90 million in outstanding taxes were written off in 1996 under the old procedures, although it should be noted that some of this would represent estimated assessments which would tend to overstate the real tax liability.
Deputy Ardagh: It is important to realise and accept that four out of five businesses fail.
Chairman: Four out of five fail?
Deputy Ardagh: That is a generally accepted statistic. All the resources of the State are used to collect VAT and PAYE from these business people. Although they may be due, any available money to pay it has probably gone with the business. The rewards for the entrepreneur in such cases are minimal.
In most cases they have lost money and have overdrafts from the banks. At the same time the Revenue Commissioners continue to pursue them for moneys due in VAT and PAYE.
There must be an overall examination of when to write off debts. Much of the £1.431 million which is outstanding from 1994-1995 is probably made up of these taxes. They are not collectible and the people who incurred them lost huge amounts of money in doing so. However, these are the people who have built up the enterprises. One in five of them have built the economy to today’s level. They have created employment. A kinder attitude should be adopted to those who are in dire financial circumstances with regard to the taxes for which they are being pursued. I am not suggesting that people who have an above average standard of living should not be pursued. If they have spent the money, they have done wrong and should be pursued. However, those who have a normal or subsistence standard of living are still being pursued for these moneys and action should be taken to ensure the debts are written off as soon as possible.
The Comptroller and Auditor General said one of the main changes will be the use of automation to write off small amounts. That is a good idea. He also referred to enhanced efforts to be put into the task of reviewing doubtful debts. This is the type of general answer Deputies receive to a parliamentary question and I do not understand what it means. The suggestion that in the case of company liquidations write offs will take place at the start rather than at the end is good. Liquidators are controlled and regulated and it is to be expected that if there are funds available for the Revenue Commissioners as preferential creditors the money will be forthcoming.
In the same paragraph the Comptroller and Auditor General suggests the internal audit be given a role in reviewing a defined percentage of cases. It is important that there be a strong internal audit team within the Revenue Commissioners. Apart from the Comptroller and Auditor General, the audit team should report directly to the Revenue Commissioners. That is a most important staff function. What is its position in the Revenue Commissioners and how can it be strengthened and improved?
There is also the issue of how the Revenue Commissioners deal with cases in general. It would be useful if an inspector or collector got to know the people in the various businesses and organisations with whom he or she is dealing. If inspector A and his staff regularly deal with 5,000 cases he can phone the person concerned and say: “Your preliminary tax is due; I need it now or I will send a sheriff’s letter”. A personal approach could be adopted to the collection of taxes. It is important that such a system be established.
The penultimate paragraph deals with the methods of write off. The Comptroller and Auditor General says they must be agreed with his office with a view to facilitating their inclusion in his report. The tone of that comment is quite strong and at variance with the fluffier approach to the questions and answers of the previous paragraph. I hope there is the trust and co-operation between the Comptroller and Auditor General and the Revenue Commissioners which is essential to the efficient and effective examination of these reports.
Chairman: Deputy Ardagh has raised the crucial issue of how to reconcile the need to avoid the creation of loopholes with the need to avoid the Revenue Commissioners becoming the cause of liquidations or business failures.
Mr. MacDomhnaill: That is a judgment call in every case. Our mandate is the care and management of the taxes and we are subject to the audit and to the scrutiny of the Committee of Public Accounts on behalf of the Oireachtas. The audit is thorough and the content of the Report is only the tip of the iceberg in terms of the examinations the Comptroller and Auditor General undertakes every year.
I must express my deep appreciation of the Comptroller and Auditor General for taking a positive view and giving us helpful directions as to how we can improve the system. The Report might appear to be negative but we received a great deal of positive input from the Comptroller and Auditor General and his staff. There was a great deal of communication and exchange.
With regard to what is called the soft talk about reviewing cases, we have assigned this task to about 50 inspectors who have experience with the old system. Much of the debt dates from before the self assessment system. Eighty thousand cases have been reviewed. Sometimes that involves visiting the business premises and re-evaluating the matter. Estimates were churned out by the computer and we are trying to move from a processing system to a case working system. We let what can be done by process be done by process but try to have a case working intervention in the area of collection. It involves a shift of resources and is a slow process but it is ongoing. We are keeping pressure on the process to achieve a case working environment in relation to collection. Much of the technology is required to assist that approach and make it more efficient.
A question was asked about post-dated cheques. They come up automatically as the system points out at the relevant time that a cheque needs attention. With regard to the review, it is a positive case working review of cases in the light of their history and their current position. In many cases the businesses involved have folded. There is a traditional write off policy with regard to ceased businesses. Other people might have left the country or might even be dead. That is the information yielded by the review. Even though we have carried out reviews over a long period we still find that when we select cases for enforcement and they go back into the process the scene has changed again. A business that existed a year before, for example, might have ceased. There is no end to it.
We have a policy, as the Comptroller and Auditor General said, of identifying cases where there is liability which we should pursue. The problem is that in the midst of the numbers there is perhaps one in 20 cases where there is productive yield and an efficient means must be found to get at that case and collect the tax. That conveys the message which the Comptroller and Auditor General has given with regard to compliant taxpayers. In 1996 we collected over £12 billion. Only £270 million of the figure for charges has gone into the arrears category. We collected over 97 per cent of the taxes due in 1996 during 1996. The vast bulk of the revenue is paid in a compliant manner. What is not paid requires the attention. As the Comptroller and Auditor General said, if there is a debt of £300 million one might be lucky to collect £20 million. That is the process we must go through and it means reviewing and writing off of the rest.
I note the Deputy’s point about liquidations. In a liquidation case the ability of the Revenue Commissioners to do anything is suspended because the liquidator takes command of the case. It is negative to include these amounts in the books of arrears because very little will ever be collected and we cannot take positive, immediate action about them. That is one of the main reasons for advocating that policy and we have had positive indicators from the Comptroller and Auditor General that this will be acceptable.
Deputy Ardagh: Is it a question of strengthening the internal audit?
Mr. MacDomhnaill: The internal audit is conducted at a very high level. It is headed by a Principal Officer, which is the third highest post in the Revenue Commissioners. The internal audit Principal Officer reports directly to me, the Accounting Officer. We draw up a schedule of audits each year on the basis of inputs from the Assistant Secretaries, who are the divisional managers. The internal audit can add items to the programme in addition to the mandatory items. I can assure the Committee that it will be made mandatory in the internal audit to carry out an audit of the write-offs. They report directly to me and the year’s agenda is agreed with the Board of the Revenue Commissioners. The audits are then carried out with the Board’s authority.
Deputy Ardagh: Is there close liaison between the Comptroller and Auditor General and the internal audit section on the programme for the year?
Mr. MacDomhnaill: All our internal audit reports are sent to the Comptroller and Auditor General. He is on the circulation list.
Deputy Ardagh: Does the Comptroller and Auditor General sit down with the head of the internal audit section to agree on the most important areas where weaknesses may occur or where funds may go missing?
Mr. MacDomhnaill: I do not know if that happens on an ongoing basis but we are open to any suggestions.
Mr. Purcell: We would not try to influence the areas to be covered by the internal audit. However, we study the internal audit programme in carrying out our own tests because, due to our limited resources. we have to rely to a certain extent on the work of the internal audit. Of course, we get all their reports. We allow a reasonable period for the accepted recommendations to be taken on board. If they are not acted upon within that period they are referred to in the annual report. That has happened on a few occasions but the recommendations are generally put into effect promptly.
Chairman:I will suspend the sitting for ten minutes as soon as the division bells stop ringing.
The report states “The main changes included...enhanced efforts to be put into the task of reviewing doubtful debt, and the write-off of cases involving company liquidations at the beginning rather than at the end of the liquidation process”. Have any advances been made in that regard?
Mr. MacDomhnaill: Yes, we are working on that. It involves about £200 million. We have about 5,400 cases of liquidations and receiverships on record at the moment. As I explained, that money is not really collectible and if it could be removed from the record we would get a more realistic view of what is collectible. A great deal of the £500 million we expect to collect is fairly current tax. Given that we expect to collect £1,000 million in any three week period, £500 million represents only a week and a half’s tax income.
Chairman: Would the write-off of tax liabilities ever be motivated by a desire to save the company?
Mr. MacDomhnaill: There is a dividend at the end of a liquidation. Whatever dividend we get is done in accordance with the rules of liquidation. We have preference for some taxes such as one year’s value added tax, PAYE and PRSI but we do not have preference for the others. We come into the preferential category for those taxes which I mentioned and into the category of ordinary creditors for the balance. Secured creditors are ahead of us. However, if we get a dividend it is brought in and accounted for.
Chairman: We must suspend the sitting until after the division in the House. I ask members to return immediately.
Sitting suspended at 12.25 p.m. and resumed at 12.40 p.m.
Chairman:What does it mean to say that company liquidations are written off at the beginning rather than at the end of the liquidation process?
Mr. MacDomhnaill: When a liquidator is appointed, it can take one, two or three years for the liquidation process to go through. One of the first things a liquidator will do is set up a statement of the assets and liabilities. It will be clear from early on that it is a totally insolvent situation and that the dividend for Revenue will be small or non-existent. In the vast bulk of liquidation cases we would not recover anything. When the liquidator is appointed, there is every justification for writing it off the books because no action can be taken in the intervening two or three years, after which time nothing may be recovered. There is no point waiting for three years to write off something which is already a dead duck. There are voluntary liquidations and liquidations in situations of solvency where that rule would not be applied because a full recovery would be expected.
Chairman:If, in the case of bankruptcy where debts exceed assets and a company or person is not in a position to pay liabilities as they arise, Revenue wrote off its liability, would that company move from being bankrupt to being viable?
Mr. MacDomhnaill: That is most unlikely. Perhaps the Chairman is talking about examinership. There is an intermediary step which holds us up because sometimes we are on the point of getting a liquidation when the management looks for an examinership. There is then a period of three to six months to see if the business can be salvaged. During that period all creditors must stay their hand. We would not be allowed to take enforcement action and other creditors, including secured ones, would have to hold off. That would be the type of situation where an arrangement would be agreed. We have been in situations where less than the full tax has been accepted as part of the arrangement to help the company. That would be an examinership, not a liquidation.
Chairman: As regards companies which cease to trade, how many of these are fly by nights? Deputy Ardagh said that four out of five companies fail. I presume they are genuine failures. What percentage are fraudulent failures where people disown liabilities, including tax liabilities?
Mr. MacDomhnaill:The Chairman is right. In the midst of all these companies there are those with no assets which are wound up on a serial type basis. We call it the phoenix syndrome. The same principals, buildings and sometimes the same vehicles emerge in the name of a new company which begins trading. When company law was being passed we tried to make a case for tightening up the area of limited liability. However, a balance must be struck between generating and creating business and protecting creditors.
We have embarked on a different policy in the past year and a half. We now have a dedicated resource unit looking at these companies and identifying new ones which employ the same people who worked in those which were wound up. We have a quick response attitude to those companies. In other words, our system will be on red alert to ensure there is no opportunity for a tax debt to accumulate. We will be in quickly with enforcement action. This is a separate initiative we have set up in the past few years.
Other liquidation cases are genuine, such as those where people have lost their assets and their creditors are losing out. We would write off the vast bulk of straightforward liquidations up front. We have a unit installed with access to our register. Part of the facility we have developed with the new computer system allows us to link directors and principals to companies so that we are able to spot those cases more quickly and take the appropriate action.
Chairman: What percentage of the businesses which cease to trade are fraudulent?
Mr. MacDomhnaill: One of the questions which arises from time to time is why the Revenue Commissioners go to court and look for a liquidation separate from any other creditors. This would happen in a situation where we suspect fraudulent trading. We want to break through the veil of limited liability and secure court orders so we can recover the tax from the principals. The Revenue Commissioners might have to go out on a limb in such cases. There might be no assets in the company and we might have to underwrite the liquidator’s costs to do that. It is an expensive and time consuming business, but we do not have a large number of such cases. That is one type of situation where we would pursue a company which is trading while insolvent. The other fraudulent trading is where the principals are abusing limited liability to take full advantage of all the credit they can get and then reopening under a new name.
Chairman: They would also be able to walk away from their responsibilities under the tax laws, consumer protection laws, etc. Are the Revenue Commissioners authorised to pursue prosecutions in such cases?
Mr. MacDomhnaill: The company could be prosecuted but it would have no assets. It is a futile business. The company has not paid tax so it is in debt. We must try to get through the company and secure a court order to recover the tax plus interest from the principals.
Chairman: Is that done?
Mr. MacDomhnaill: Yes.
Chairman: What percentage of companies which cease to trade are fraudulent?
Mr. MacDomhnaill:This unit is not yet fully established so we do not know the total volume. We are probably catching up on the past. The numbers are not significant when one considers that approximately 10,000 to 15,000 companies move on and off the company register each year. We are talking about a relatively small number of companies but the amount of money they generate can be substantial as PAYE and PRSI accumulates every month and VAT accumulates every two months.
It does not take long for such an operation to accumulate a significant tax debt. The amount being evaded may be hundreds of thousands of pounds. The Deputy will see from the write-off analysis that occasionally there are companies with £200,000 being written off. Some of those would be phoenix type companies.
Chairman: Are we talking about 10, 20, 25 or 50 per cent of these failures?
Mr. MacDomhnaill: No, possibly a fraction of 1 per cent.
Chairman: It is stated that a distinction should be made between arrears which arise as a result of unsubstantiated estimated assessments and those which represent real liabilities. This is an area about which I have been concerned for some time. When Revenue’s report comes out each year, there figure of unpaid taxes is considerable and, of course, it makes headlines. In reality, however, these are estimates and the actual amount is much less. How can we address that problem? What steps are being taken to try to ensure the estimate is more in line with reality?
Mr. MacDomhnaill: That has been a huge problem over the years. One of the main mechanisms for dealing with it has been the switch to self-assessment. The problem with the old assessing system was that we had to estimate the profits, the capital allowances and each element. If, at the end of the day, a person did not appeal the assessment and the profit figure was allowed to stand but he/she then put in a claim for capital allowance and other deductions, it could reduce the tax and unless we had a discovery of new evidence, we could not increase the profits. The result was that the profit figure had to be made sufficiently high to protect Revenue against that happening.
Even with the benefit of hindsight, we were not able to get a satisfactory estimate under that system which did not produce a multiple of tax about three times the end result. With the introduction of self-assessment for income tax and then for other taxes, we are now in a position to estimate the tax only. We have narrowed it down considerably.
If one looks at the amount of debt and the proportion which we say will be collected, it has gone up from about 10 per cent to over one third. When we get rid of this legacy of debt from the old system, I hope the collectable element will be up around the 60 or 70 per cent. That is three to four weeks tax take which one would normally have as a working debt. We will always have that type of figure. If we collect £1.6 billion gross, we must clock it up as a tax charge even though the demands have only gone out. When we do the sum in May, some of those charges have only been created in the last day or two or week. By the time we come here, there would still be £500 or £600 million outstanding. It would be a different £500 or £600 million because the original tax would largely have been paid.
Deputy C. Lenihan: There is a feeling in my constituency that small companies are treated differently to larger ones when it comes to settlements or write offs from Revenue. What procedures do you apply to distinguish between a small owner managed company with a small turner and with a £20,000 to £30,000 tax liability which it wants to work out? I get the impression people are opting back into employment rather than stay in business in a small company because they believe they are being treated the same way, in terms of their arrears, as Jefferson Smurfit or other such companies which can reach settlements with the Revenue authorities and which bring in millions of pounds each year whereas small companies which are typically owner managed with fewer than three or four employees get no breaks from the system.
Mr. MacDomhnaill:That is a correct observation. In terms of numbers, there are more small companies in this category because undercapitalisation is a significant factor. People setting up in business do not have capital or access to it. It is an unfortunate fact that if a person is successful, people will throw money at him/her in terms of loans, equity, etc. If, however, a person is starting off, he/she does not have access to such funds and it is more difficult to survive. Schemes which have been introduced by successive Governments to help small businesses and various enterprise schemes provide assistance. As Deputy Ardagh mentioned, a large number of businesses do not even survive the first few years and that is evident from the figures.
Larger companies attract more attention and when they fail, the sums are very large. People ask how they can accumulate such debts. Large companies can run up £100,000 in tax quickly because of and the frequency of the cycle for PAYE and VAT. There are two sides to this. In terms of numbers, it is my experience that more small than large companies end up in a write off situation.
Deputy C. Lenihan: Do you have any ideas or procedures whereby you can distinguish between companies with low turnovers and those who greater turnovers such as giving them more time to work out the problem and to trade because it is often tax liabilities which cause the problems in the first few years of a start up company?
Mr. MacDomhnaill: We have a tax at risk policy which means all large companies are targeted systematically. If a large company is a few days late with a payment, it can expect to hear from us. Our resource works on the basis of tax at risk. Larger companies, which bring in a huge amount of revenue, receive a lot of attention from us. We send demands in the same timely fashion to other companies, but the enforcement process will not be reached as soon. It tends to have accumulated by that time. We pay more attention to larger companies but at the same time we try to preserve equity in that when we reach other companies, there is a catch up process.
Deputy C. Lenihan: You do not have a specific targeted procedure for smaller companies that might have liquidity problems through trading.
Mr. MacDomhnaill: The targeting of small companies is by default. We are targeting larger companies and the big money. We are, however, targeting the smaller companies by default. This question has arisen in relation to returns compliance as well. We have a policy in relation to small employers in that we send people out to help them. For example, as soon as a new company, which wants advice from Revenue, is registered, we tell them we have staff available to go over the PAYE and the VAT systems and the compliance obligations. That service is available for small companies.
Deputy C. Lenihan: How large is that unit? I met many people who set up businesses but who found years later, not because they wanted to defraud the system, that they owed tax.
Mr. MacDomhnaill: This is a positive policy for new companies and that expertise is available. We are available at all times to give advice and would like to get this message across to companies. We are moving to a stage where we may be able to give pre-transaction rulings, assuming we get all the facts.
This is a difficult area for us but we are moving towards it.
Deputy Foley: It was mentioned that ten to 12 years ago there was approximately £3.5 billion due in outstanding taxes. This has now been reduced to £1.5 billion. A further point was made by the Comptroller and Auditor General that the outstanding tax shown in the books of the Revenue Commissioners is, therefore, much greater than that which will be ultimately recovered. I understand only £0.5 billion of this figure will be recouped. To show a realistic figure, would it be possible to reduce the £1.5 billion by knocking off areas which are uncollectible. The Chairman mentioned that in 1996 approximately 97 per cent of tax due was collectable. That is a tremendous record and I compliment the Revenue Commissioners. Is this a record?
Mr. Mac Domhnaill: I would not say it is a record. I have not looked at it from that point of view but it is the sort of figure we aim at. There have been a number of innovations regarding write offs. There is a local collection dimension to our collection which gives us a more positive idea of the scale of the business. Many estimates were made by people in offices working on documentation rather than by face to face analysis of the operation. Local collection involves approximately 100 staff in the provinces and another 30 or so in Dublin. In addition there are approximately 50 staff dedicated to returns compliance and the re-evaluation of the arrears. They can also go out and look at businesses. The three year strategic plan has set a target of eliminating £1 billion from the entrenched arrear.
Chairman: Is that by wind up, collection or a combination of both?
Mr. Mac Domhnaill: Through all the processes - review, to get the sum down to the correct amount, write off and collection.
Deputy Foley: In fairness to the Revenue Commissioners, there is a perception that only half the people pay their tax. However, 97 per cent of the collection due for 1996 has been collected. This is a tremendous record and it should be highlighted by the media.
Chairman: Do you have a breakdown of the revenue yield per county?
Mr. Mac Domhnaill: We work on the basis of bailiwicks. Sometimes the bailiwicks coincide with county boundaries. A bailiwick is related to the judicial process and enforcement is carried out by sheriffs. However, there is a complication. There are organisations such as the ESB and the Civil Service where the entire tax due will be attributable to Dublin even though staff work throughout the country. There are even groups of companies where the entire PAYE operation is in Dublin even though there are thousands of staff countrywide. These would include banks, large supermarkets and so on. We can produce the tax per bailiwick but the committee might read too much into that.
Chairman: I can see the difficulties but let us have the details anyway. We note those paragraphs and if the committee is agreeable we will take paragraph 11.
Mr. Purcell: Paragraph 11 gives details of the enforcement measures used by the Revenue Commissioners to collect moneys from defaulting taxpayers during 1996. As usual, the bulk of the moneys collected came through the activities of the sheriffs. They collected £60 million as against £76 million in the previous year. There has been a downward trend in the returns from sheriffs in recent years from a high of £92 million in 1993. Revenue does not attribute the reduction to any lack of zeal on the part of the sheriffs, rather it is a consequence of the increasing number of taxpayers who respond to contact from the sheriff by paying the Collector General directly. The reinstitution of local collection in recent years is also a factor.
Two firms of solicitors are also used to pursue collection where it is felt that this approach is likely to be more successful than referral to sheriffs. This resulted in the collection of £8.6 million. A certain amount is also collected through the Revenue solicitor. The power of attachment was successfully used in 148 cases in 1996, yielding £1.4 million.
Chairman:Do the two firms of solicitors used have tax clearance certificates?
Mr. Mac Domhnaill: Yes.
Chairman: I am glad to hear that. Is the practice to only hire people with tax clearance certificates?
Mr. Mac Domhnaill: Yes.
Chairman: What happens to the deposit interest on amounts collected by sheriffs?
Mr. Mac Domhnaill: All the arrangements are under sheriff law not revenue law. Funds are held for a certain period of time pending claims from those concerned. There is a period during which they may have to unwind the action if there is a successful claim. There is a retention period. The Revenue Commissioners were allowed to introduce guidelines when the new revenue sheriffs were appointed. Sheriffs were allowed to retain the moneys. Moneys collected this month would be paid in the following month. Deposit interest was earned by sheriffs during that time and this was part of their remuneration package. They were paid only £400 by the Department of Justice, Equality and Law Reform. One cannot run a sheriff’s operation including staff, postage and so on without incurring costs. We estimate that the running costs of a small operation could be up to £100,000. Part of the financing of the arrangement was that the deposit interest went towards those costs.
The Committee went into this matter in detail over a number of sessions. As a result, the Department of Justice, Equality and Law Reform, in conjunction with the Revenue Commissioners and the Department of Finance, introduced a new arrangement under which the sheriffs will not retain the deposit interest but there will be a more meaningful retainer paid and a more meaningful fee per item. We have signed off on this arrangement. The sheriffs and the Minister for Finance are satisfied and it is now a matter for the Department of Justice, Equality and Law Reform to introduce the necessary legislation and make the necessary statutory orders.
Chairman: Does this require an order or primary legislation?
Mr. Mac Domhnaill: A statutory instrument.
Deputy Foley: Under the new arrangements how soon after receiving the money must sheriffs lodge it with the Revenue Commissioners?
Mr. Mac Domhnaill: They have to lodge the moneys to a special account for the benefit of the Collector General.
Deputy Foley: Within what period of time?
Mr. Mac Domhnaill: Straight away. The money does not go into a sheriff’s personal account.
Deputy Foley: Has the method of payment been agreed?
Mr. Mac Domhnaill: All of the items are acceptable. Of course the sheriffs would like better terms but they are acceptable. When the necessary legislative work is carried out by the Department of Justice, Equality and Law Reform we will enter an agreement with the sheriffs. We have a draft agreement which will be formalised. We will have an agreement with each sheriff which will set out exactly what is to happen to the money, the account it goes into, how it is to be accounted for and what constitutes an item for a fee. All of these issues will be set out in detail.
Deputy Foley: It is fair to ask what the method of payment is at the moment?
Mr. MacDomhnaill: It is 35p per certificate, poundage at the rate of 5 per cent on the first £100 and 2.5 per cent on the balance. If there is travelling involved, it is 7p a mile, although that is out of date.
Deputy Foley: It is.
Mr. MacDomhnaill: That is one-way only, so it is really 3.5p per mile.
Deputy Foley: In fairness, it looks totally ridiculous.
Mr. MacDomhnaill: It is totally unrealistic.
Chairman: Is there any way of bringing that up to date?
Mr. MacDomhnaill: This is in negotiation.
Deputy C. Lenihan: Do they offer bonuses when there are extraordinarily large amounts collected?
Mr. MacDomhnaill: Do we have bonuses for staff? No. To set it out again, it is 35p per certificate, 7p per mile one way, 5 per cent of the first £100 recovered and 2.5 per cent of the remainder.
Deputy C. Lenihan: I am talking about large amounts of money. Is there any extra bonus?
Mr. MacDomhnaill:No. That is it. The bonus is that if they recover a large amount, they have the facility to retain that money for a month to six weeks on deposit. They get a bonus that way.
Chairman: What is the bonus of the one-way ticket? I can think of other things we might use that for.
Mr. MacDomhnaill: I think it is a reflection of the way the public sector treated itself in days gone by. This is a 1926 provision.
Chairman: And it has not been updated since. We note the paragraph. I thank the Accounting Officer and his staff as well as the officials of the Department of Finance. We will resume on the remainder of the paragraphs on the Revenue Vote. If the Committee is agreeable, in future we will take private business first, including housekeeping matters and correspondence.
The witnesses withdrew
The Committee adjourned at 1.15 p.m. until 11 a.m. on Thursday 20 November 1997.
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 17cases. 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 or there must be something unsatisfactory in the 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 as 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 reveue 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 largely 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, 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.
COMMITTEE OF PUBLIC ACCOUNTS
Déardaoin, 18 Nollaig 1997.
Thursday, 18 December 1997.
The Committee met at 11.00 a.m.
DEPUTY J. MITCHELL in the Chair
Mr. J. Purcell (An tArd Reachtaire Cuntas agus Ciste) called and examined.
Vote 9: Revenue Commissioners (Resumed).
Chairman: The Department of Finance has now agreed to the appointment of a solicitor. We will not detain the chairman for long.We will also discuss whether the Central Bank should report to the Revenue Commissioners.
Mr. Cathal MacDomhnaill, Chairman, Office of the Revenue Commissioners, called and examined.
Mr. Noel Kerins, Department of Finance also present.
Chairman: I welcome Mr. Mac Domhnaill. Perhaps he will introduce his officials.
Mr. MacDomhnaill: I am accompanied by Ms Josephine Feehily, the Accountant General; Mr. Dennis Power, a principal officer in Corporate Management Division and Mr. Paddy O’Shaughnessy, an assistant principal in the same Division.
Chairman: It appears agreement has been reached between the Department of Finance and the Revenue Commissioners on the appointment of a new prosecuting solicitor. Are the Revenue Commissioners happy with this?
Mr. MacDomhnaill: Yes.
Chairman: What does it mean for the Revenue Commissioners in terms of prosecution?
Mr. MacDomhnaill: It means that the Revenue Solicitor will be able to reorganise appeals, other types of litigation and prosecution. There will be one stream - a first assistant solicitor, a second assistant solicitor and a third assistant solicitor - which will deal with prosecutions on the customs and inland revenue side and will liaise with the DPP and investigators to condense the process and eliminate delays.
Chairman: Will there be co-ordination of prosecution and the Revenue Commissioners and consultation with the DPP?
Mr. MacDomhnaill: Yes.
Chairman: Will we see more speedy prosecutions?
Mr. MacDomhnaill: We hope to achieve the elimination of delays, which caused the loss of a number of prosecutions since 1991, by telescoping the process.
Chairman: It will be interesting to see how that has worked in six month’s time and perhaps we will take note of that.
Mr. MacDomhnaill: The results will be included in our annual report.
Chairman: I am glad that is progressing and I thank the Department of Finance for their help.
On the issue of the Central Bank, the brunt of its note is that the present relationship is prudent - where they have confidential information about commercial bank accounts. If that confidentiality is breached the overall impact on the public interest will be negative. Is that a correct summary?
Mr. MacDomhnaill: It is not our area of activity but a balance must be struck between Revenue powers on the one hand and economic essentials on the other.In the Central Bank’s note it is suggested there must be parity of power and disclosure across the EU as Central Banks begin to merge and control a central European currency.
Chairman: Is there a danger that the EU has got this wrong and under a veil of confidentiality we are allowing a major loophole for tax evaders and criminals?
Mr. MacDomhnaill: Criminals and money-laundering are a matter for the police who have strong powers to access banking information. There are also reporting requirements put on the Central Bank and the banking system in relation to any transactions which might be regarded as in that domain.
Chairman: I know money laundering is exempt and there is a method of pursuing that. However, there is a psychological problem in treating tax evasion as a crime, which it is. I am anxious that we are seen to apply the law and pursue it as a crime. This is one of the reasons we strongly supported the Revenue Commissioners having a prosecution solicitor appointed. Is the Central Bank, because of the confidentiality requirement, aware of tax evasion and crime but not permitted to report it to Revenue?
Mr. MacDomhnaill: They are not permitted to report it to us under tax and banking legislation. What they know after that remains a matter of conjecture.
Deputy Foley: It says in the note that if the Central Bank has evidence of tax evasion it will disclose it to Garda authorities and can give evidence as required by a court in the event of criminal proceedings.
Chairman: Am I right in saying that is if it is approached by the gardaí?
Mr. MacDomhnaill: That information can be given to the gardaí for that purpose only.
Chairman:That is only if the gardaí go to the Central Bank when investigating a crime and ask if it has evidence about a particular person.
Mr. Mac Domhnaill: No. I think it goes beyond that. There is a proactive element.
Chairman: In other words they must report to the Gardaí if they become aware?
Mr. Mac Domhnaill: Yes.
Chairman: Why did they not report anything about the Ansbacher accounts to the Gardaí?
Deputy Ardagh: The note says that the bank is obliged to report to the Garda Síochána a suspicion that an entity is money laundering. Money laundering includes tax evasion. It is interesting to note, at the bottom of that paragraph, that in the two and a half years since the Criminal Justice Act came into force no evidence of money laundering or criminality relating to tax matters has been found by the Central Bank. Have the Revenue authorities expressed to the Central Bank the public concern about the Ansbacher accounts? Are they aware of any other body, for example the Department of Finance, which has expressed this public concern to the Central Bank? Taking this public concern into account, did the Central Bank take a proactive approach in looking for evidence in those cases of tax evasion?
Mr. Mac Domhnaill: We have not put any questions such as that to the Central Bank. We were involved in the McCracken Tribunal. We have seen the terms of reference for the Moriarty Tribunal. It is quite clear from those terms of reference that the issue of the powers of the Central Bank will be the subject of examination. I do not think the Central Bank need the Revenue Commissioners to draw their attention to this matter.
Deputy Ardagh: It is a very important item. It seems strange that a definitive statement has not come from the Central Bank or from the Department of Finance to say that, in their view, there is no evidence of tax evasion in relation to accounts which have come into the public domain.
Mr. Mac Domhnaill: You must have regard to the fact that any information disclosed to a tribunal does not constitute evidence for another purpose. Evidence is needed for a prosecution. Any information which has come to light as a result of a tribunal does not constitute evidence either for us or for the Central Bank.
Deputy Ardagh: Are you of the opinion that the Central Bank has taken on board the public concern in relation to the Ansbacher accounts? Are you of the opinion that if there was evidence of tax evasion it would have come to the notice of the Gardaí? The Gardaí would, presumably, then inform the Revenue Commissioners of evasion.
Mr. Mac Domhnaill: The information which the Gardaí can give us is not without limitation. The Gardaí have their own sources of information which they must protect. When you deal with criminal prosecutions you have to be aware of all the niceties of the legal process. I would not think there is any great flow of information from the Gardaí in that area. Their prosecutions generally go into open court and any information which comes from that will be published in the ordinary way. I do not see a need for the Gardaí to have a system of reporting to us. The information will only come to light in the prudent conduct of a case when it is presented in court. Any disclosure beforehand could compromise the whole action.
Deputy Ardagh: Are you of the opinion that if there was evidence of tax evasion within the Ansbacher accounts it would have, by this time, bubbled up to the surface and would be in the public domain? Would the system have allowed tax evasion related to the Ansbacher accounts to come to public notice?
Mr. Mac Domhnaill:I do not think people dealing with the banking transactions could draw any conclusion about tax evasion. They do not know the extent to which we have already dealt with those transactions. Many of the transactions may already be in business accounts which have been examined by us. It is only when the information becomes available to Revenue that you can say if a transaction represents a means of tax evasion.
Chairman: We will leave it at that. I propose that we send the note from the Central Bank to the Department of Finance and to the Department of Justice and ask them to consider if the balance of the law as it stands in these matters is correct or if any revision is justified. Thank you Mr. Mac Domhnaill and we wish you and your staff a happy Christmas. I hope you are even more successful in 1998.
Mr. Mac Domhnaill:I wish you every success.
The witness withdrew.
COMMITTEE OF PUBLIC ACCOUNTS
Dé Máirt, 28 Aibreán 1998.
Tuesday, 28 April 1998.
The Committee met at 2.30 p.m.
DEPUTY JIM MITCHELL in the Chair.
Office of the Revenue Commissioners: Progress in relation to prosecutions.
Chairman: The committee noted the report of the C&AG on Vote 9, Office of the Revenue Commissioner, at its meeting on 20 November 1997. At that meeting we decided to ask for a report within six months on progress on prosecutions in relation to tax evasion. The committee decided to bring forward its hearings on this issue in the light of recent events and reopen consideration of Vote 9.
I welcome the Chairman of the Revenue Commissioners, Mr. Cathal MacDomhnaill.
Mr. MacDomhnaill: Our team is reduced as the AG is abroad on an official delegation. Accompanying me are Ms Vivienne Dempsey, our senior press officer, and Mr. Paddy O’Shaughnessy, assistant principal officer. Mr. Barra Ó Murchadha, who is concerned with income tax, and Mr. Noel Kearns are attending from the Department of Finance.
Chairman: I ask that questions and answers be succinct. Perhaps Mr. MacDomhnaill will make a brief opening statement.
Mr. MacDomhnaill: I thank the committee for its support in relation to our change in prosecution policy. The new solicitor is in place and the policy is working very well. We have had a number of meetings with the representatives of practitioners. Our policy required us to switch resources, and much of the resources for prosecutions came from the investigation branch. The investigation branch is divided into three units which now specialise on prosecutions and two other units. We have also established an admissions committee, the function of which is to ensure fair and equivalent procedures in the selection of cases for prosecution. There was a case in the UK where a taxpayer contested his prosecution in circumstances which he held were similar to other taxpayers who dealt with the same accountant. The court upheld the selection of cases for prosecution provided it could be shown that fair procedures were followed. We must be very careful in this context. The admissions committee will rule on cases. So far 47 cases have been presented to the admissions committee and it has selected 20 for prosecution - I am referring to prosecution on indictment as distinct from civil prosecution. We have always had a large agenda of civil prosecutions.
Chairman: These are criminal prosecutions.
Mr. MacDomhnaill: Yes, criminal prosecutions. I can provide an update on cases if desired. We have had two convictions in 1998, one involving a seven year sentence and one involving a fine of £2,250. There is one case awaiting judgment from 1997. There is also a case from 1997 where the fine of £500 was imposed. A case has been re-entered where a ten month sentence had been suspended and has now been imposed.
Deputy Rabbitte: I have been a member of this Committee in three different Dála. How long has Mr. MacDomhnaill been Chairman of the Revenue Commissioners?
Mr. MacDomhnaill: This is my eight year.
Deputy Rabbitte: It is fair to say that over that period great improvements in the efficacy of tax collection system have been made.
Mr. MacDomhnaill: I thank the Deputy.
Chairman: You do not deny that.
Mr. MacDomhnaill: Put it this way, we like to think we have improved the situation. We carried out independent market surveys and the feedback is that there is a perception of improvement. The one area on which we have had to concentrate a little more in recent times is that of prosecution. In the other areas there is a fair degree of satisfaction.
Deputy Rabbitte: Is Mr. MacDomhnaill alarmed by what has come to light with regard to financial institutions in recent months?
Mr. MacDomhnaill: Yes, I am concerned with the revelations. However, certain information came to light in 1993 during the course of the amnesty debate in the Dáil which suggested that such activity could be taking place. My reaction is tempered by the fact that we have been engaged in discussions at EU and OECD levels and the problems of the free movement of capital since the abolition of exchange controls have been a matter of concern to all authorities. We are aware that a problem exists. If one looks at it purely from a tax evasion point of view there are opportunities for evasion. This matter was also addressed by the Commission on Taxation in its fifth report and was originally dealt with by the Income Tax Commission in 1962. We are not facing something totally out of the blue.
Deputy Rabbitte: It is not unfair to remind you Mr. MacDomhnaill that over the years you have told the Committee that the extent of evasion was being narrowed all the time. He has taken issue on a number of occasions with the figures that the Comptroller and Auditor General would advance for uncollected taxes. Against that background is not the sheer scale of what has come to light a matter of acute concern?
Mr. MacDomhnaill: There was a problem with uncollected taxes but that is not what I call evasion.
Deputy Rabbitte: I am not confusing them. I am saying that you told us two things in good faith: first, that evasion was under control and that there was no serious large scale evasion and, second, he always contested the Comptroller and Auditor General’s figures for uncollected taxes. I know the latter is a separate issue and that some of it may be considered uncollectible.
Mr. MacDomhnaill:With regard to uncollected tax, when I took over as accounting officer the nominal debt was almost equivalent to an annual budget take - it was £4.4 billion and the budget take was about £6 billion. In the last year the gross take was £18 billion and the nominal historic debt is less than £1 billion. That is dramatic progress which has come about as a result of a number of initiatives undertaken by Revenue. I do not say the problem is solved totally. We have had great support over the last number of years from the Comptroller and Auditor General in finding pragmatic ways of dealing with dud material in the accounts and not wasting valuable collection resources on moneys that are not likely to yield anything to the Exchequer. That process is ongoing and it is part of our strategic plan.
With regard to evasion, I do not think I have ever understated the fact that evasion takes place. Every year since I have been accounting officer we have been showing figures of £100 million plus for back duties collected by our investigation branch on the inland revenue side alone. We also have a customs investigation branch dealing with the investigation of evasion of excises through smuggling. I have never said evasion was not taking place.
We have a system in place and we use it to the full extent. The commitment of Revenue to tackling evasion is solid. It is dedicated and I would let down a lot of people if I did not convey that.
Deputy Rabbitte: Let us leave out the NIB which has a market share of 3 per cent. The largest bank in the country has conceded that it had 53,000 bogus accounts with about £600 million in them and it defended that in public on the basis that the practice was industry-wide. Given the size of the country, 53,000 accounts in the largest bank and an admission that the practice was industry-wide, the tax compliant citizens will want to know how that could have been going on at such a scale.
Mr. MacDomhnaill:That is what I refer to when I say that certain information came to light during the amnesty debate. These were the figures mentioned. A Deputy said in the Dáil that there were two streams of hot money - hot money which is abroad and hot money in the country. The chief special collector’s figure for the amnesty was just under £200 million and grossed up that would represent undeclared income of over £1 billion, perhaps £1.25 billion. The Deputy asks how this can happen. A Euromoney study has shown that there are trillions of dollars floating around in offshore funds. It is a worldwide phenomenon.
We have been charged by the Minister for Finance-----
Deputy Rabbitte: What was going on in the AIB or the NIB does not fit into that trillions scenario for hot money, the origins of some of which may be very doubtful. We are talking about legitimate commercial and other undertakings within the jurisdiction where products were sold on the basis that the money would be hidden from the Revenue. In other words, straightforward tax evasion by middle Ireland while hundreds of thousands of PAYE workers were on the streets. That is not to be compared with big-time hot money.
Mr. MacDomhnaill: It is seamless. The person who has international transactions can arrange to have kickbacks and discounts which do not come back into the country. There are a lot of legitimate interbank balances involved also. If one was to study the consolidated balance sheet published by the Central Bank one would see that at the last count the indebtedness to overseas bodies by Irish financial institutions was of the order of over £80 billion. That is the scale of amounts.
Chairman: £80 billion?
Mr. MacDomhnaill: Yes. Huge amounts are flowing in and out. That is not to say we do not use all means at our disposal to tackle evasion where we find it. We cannot go through the banking system to get that information but we have powers of audit for the taxpayers.
Genuine non-resident accounts are one matter but bogus non-resident accounts are another. The main culprit in the case of the latter is the taxpayer who declares that the interest on the money is beneficially the property of someone not ordinarily resident in the State.
Deputy Rabbitte: If the AIB has conceded the existence of 53,000 such accounts, you can bet your bottom dollar that Bank of Ireland is not far behind, although it has been cleverer in its handling of the media. One can extend that to the other associated banks. That is a great deal of taxpayers in this little jurisdiction so how was it not known that it was happening on that scale? Mr. MacDomhnaill referred to the amnesty debate. I remember it as being about a different type of money and not about this kind of bogus non-resident account.
Mr. MacDomhnaill: The amnesty debate started as a debate about offshore funds but the legislation deals with all funds. I was not privy to the advice given to the Government at the time as I have never had the privilege of attending a Cabinet meeting, either as an observer or adviser. However, information must have been given to the Government of the day, and this was referred to by some Deputies in the debate, that, if the amnesty were confined to offshore funds, it would create a reverse effect and there would be an outflow of funds. That was a clear recognition of hot money in the economy. It is the only explanation for it.
Every organisation responsible for tax could suggest ways of tackling evasion if it were the only matter with which it was concerned. Mr. Justice McCracken received a suggestion for dealing with some of the problems but he rejected it on the grounds that it could be easily circumvented and would drive money and business out of the country. Ireland and the Government in isolation cannot resolve this problem. There is free movement of money across the world and much cross-frontier commerce.
Deputy Rabbitte: I accept much of that but we are allying two matters. I am talking about Irish financial institutions operating in this jurisdiction which deliberately set out to facilitate tax evasion by their significant net worth clients. Is that not a different and distinct phenomenon from chasing hot money across international boundaries? What explanation can Mr. MacDomhnaill offer the citizen who does his or her best to pay their taxes as to how it could have happened on that scale? Mr. MacDomhnaill refers to the amnesty debate. I have not read it recently but I did not think it was that perspicacious. However, I will accept Mr. MacDomhnaill’s word. If some Deputies knew this was happening, how come the Revenue Commissioners did not know it?
Mr. MacDomhnaill: There is a difference between knowledge and suspicion. When I use the word “knowledge”, I do so within the framework of which we can act upon it. We have carried out analysis of the kind I am talking about. In the late 1980s and early 1990s we tried to make the financial institutions realise that the Oireachtas entrusted them with the care and management of a substantial amount of revenue in the form of deposit interest retention tax. Revenue does not have statutory auditing powers relating to that tax. This has been examined by the Comptroller and Auditor General and it has been admitted that Revenue does not have that power. We make an aggregate reconciliation between the entries in the accounts for the banks, which we receive, and information about interest, an analysis of which we can obtain. That reconciliation is carried out to assure us that the level of deposit interest retention tax is consistent with the declared analysis of deposits in the bank as declared to the regulatory authorities. However, it does not copperfasten the accuracy because it includes an analysis between relevant deposits subject to the retention tax and non-relevant deposits. A large category of the non-relevant deposits are linked to non-resident accounts. The bulk of the non-resident accounts are genuine in that they are moneys belonging to people with Irish connections which are lodged in the Irish banking system. Other people have taken advantage of that system.
It must be remembered that Revenue first obtained the power to access information from banks in 1963. The Income Tax Commission recommended in 1962 that Revenue should be given information about deposits. That was legislated for in 1963 in the form of information about interest payments on deposits which became section 175 of the Income Tax Act, 1967. That section contained a clause which stated that, if the bank obtained a declaration from the person to whom the interest was payable that the interest belonged to a non-resident or someone who was not ordinarily resident in the country, it had to be excluded from the return sent to Revenue. There was no challenging that. Once the bank obtained the declaration, it had to act upon it. The only changes made to that system were the increase in the £15 threshold to £50 in 1965 which was increased further to £70 in 1968. However, in the years coming up to 1983, Revenue’s ordinary investigative work came across instances where deposits were being spread. In one case, there were 150 deposit accounts. We brought this to the attention of the Department of Finance, who brought it to the attention of the Government, and major changes were made in 1983.
Deputy Rabbitte: There were 150 accounts?
Mr. MacDomhnaill:There were 150 accounts all under the £70 threshold so that they would not have to be reported. An amendment was made in 1983, the threshold was lowered without notice and a new regime was introduced. Under that, the banks were given authority to seek an affidavit if they were dissatisfied as to the bona fides of the non-resident declaration. That was the first opportunity the banks had of challenging it.
Deputy Rabbitte: What is Revenue doing about what has been revealed? What is it doing about the 53,000 bogus accounts admitted to by the AIB? Is the file closed?
Mr. MacDomhnaill: We can audit ordinary businesses but we cannot audit banking books. We can examine the declarations but that only produces the name, address and foreign country of the declarer. In the case of section 175, it is effectively a return made to us of the people who receive the gross interest. In 1986, the retention tax was introduced and, as a result of that, the returns of interest disappeared as far as Revenue is concerned because section 175 only relates to interest paid without deduction of tax. The interest was subject to a retention tax and was no longer caught by the return requirement. As regards the retention tax, non-residents were recognised from the beginning as being outside the return so they were also recognised as being outside the retention tax. A further declaration was introduced where people who wished to could declare themselves to be non-residents for the purpose of the retention in which case no retention tax would be deducted. The interest was gross so it came under the reporting arrangements of section 175.
Therefore, they need to have a declaration under section 175 as well and that is where the affidavit procedure can apply.
Deputy Rabbitte: Would I not feel very aggrieved if, for example, I had my savings in a credit union? Recently there was a controversy about credit unions and declarations when savings were above a certain amount. The credit union association also stated that it would be virtually certain that tax was paid on that money by the time it was deposited in its local branch. In this situation you cannot be sure that the money was ever exposed to tax.
Mr. MacDomhnaill: We know that many of the deposits are very small. For example, in one bank there are 10,000 deposit accounts of less than £100. Therefore, we know it is not always a business manifestation. From recent material that we have received we know there are ordinary PAYE employees involved, as well as business people, in these insurance bonds and it would be untrue to say it is all undeclared profit.
I agree with the Deputy that there is a strong suspicion that people who go to the lengths of making declarations of non-residence or transfer the money overseas are probably drawing that money from undeclared profits.
Deputy Rabbitte: Will you be able to track that money?
Mr. MacDomhnaill: We can only audit one business at a time. We get no information from examining the notices of any transactions on the deposit account. We know the name and address of the depositor but not the amount deposited. Luckily, section 18 of the Finance Act, 1983 allows us to access accounts by enabling us to go to the High Court and look for details in respect of the person we are investigating.
We have been trying to get the banks to adopt transparent procedures. For example, their internal audit should look at these declarations. They should also have their external statutory auditor look at them. We have no authority to insist on these measures but we have informed the banks that we would be reassured if they adopted them.
If, while conducting an in-depth investigation, we discover that some of the hidden money is in a domestic account we can ask the taxpayer to get information from the bank to produce the accounts. Unfortunately, the taxpayer will not always do that. For example, our first case under section 18 was referred to the Supreme Court where we lost because of the court’s very narrow interpretation of the section. The courts decided that the breach of confidentiality between bank and client was very dramatic in 1983 and subsequent Supreme Court action in the mid 1980s. The climate has now changed because the Revenue Commissioners have done an awful lot to bring about a culture change. The original Income Tax Commission stated: “the fundamental thing in tackling evasion is to bring about a right attitude of mind among the citizens at large in relation to taxation matters.
Deputy Rabbitte: Can the AIB’s 53,000 bogus accounts be reopened? Do you propose that they should be reopened? Can you reassure the Committee that there are no such practices or any new version of these practices underway in today’s banks and financial institutions?
Mr. MacDomhnaill: I cannot talk about a case.
Deputy Rabbitte: Fifty-three thousand will suit me.
Mr. MacDomhnaill: Since 1986 we are entitled to seek assurances along with the safeguards I have described if there is no declaration or a declaration which should have been contested.
Deputy Rabbitte: Is DIRT the only issue involved?
Mr. MacDomhnaill: In relation to a deposit account belonging to a resident or non-resident all we can get is deposit interest retention tax.
Deputy Rabbitte: If that is the case we all could use this mechanism. Why are we all giving you money when we can open such an account?
Mr. MacDomhnaill: First, to do it you must tell a blatant lie. Second, you may have to follow that up with an affidavit and swear.
That is a starting point. If a person has a business we will audit that person. When we find these accounts we will inquire whether retention tax has been deducted. If it has we will close the case and the bank has done all that is required.
Deputy Rabbitte: Can you open these accounts and examine their contents?
Mr. MacDomhnaill: Yes, if we look at these accounts and discover the retention tax has not been deducted then we can pursue the matter indirectly.
Deputy Rabbitte: That is from 1986 onwards.
Mr. MacDomhnaill: At present, whether the account dates back to before 1986 or not, if we discover an account in the name of a resident taxpayer and retention tax has not been deducted then it is either the bank who has failed to make the appropriate deductions or there is a bogus non-resident declaration. In either of these cases we will challenge the bank. We have not uncovered anything near to the amount Deputy Rabbitte mentioned, but there is information in the public domain which must be addressed. If that information turns out to be accurate then there is a lot of retention tax to be reclaimed. The substance of some of these statements is being challenged by the banks concerned. Members will have seen the chairman’s statement at a recent shareholders meeting which will mean that these figures have not been left unchallenged.
Deputy Rabbitte: I am puzzled by Mr. MacDomhnaill’s last point. Documents were available and were the source of an article by Liam Collins published in The Sunday Independent which stated what was discovered and how bad it was, etc. I am not sure how the Chairman of the Bank or anyone else can subsequently resile from that. If the bank admitted its involvement, was interviewed on the basis of that story, conceded its veracity and defended it on the basis that it was an industry wide practice, how can the problem be reduced?
Mr. MacDomhnaill: I do not know the source of this information. Like the Deputy, I also rely on the media for such information. Unfortunately, I cannot discuss confidential information which I received from internal sources. If the Deputy examines the public statement he will realise that a conflict has emerged between the two statements.
Deputy Rabbitte: Think of the success Mr. MacDomhnaill and I would have if we set up a public relations company when he retires rather than our current vocations. I am not won over by attempts to resile from what has come into the public domain.
Chairman: Can Mr. MacDomhnaill tell me where he got the figure of £80 billion?
Mr. MacDomhnaill: This is the indebtedness of the Irish financial institutions to the external market, including the IFSC.
Chairman: Have Irish financial institutions borrowed from abroad?
Mr. MacDomhnaill: Some of that money will be counter balanced by financial institutions having balances abroad with other financial institutions which could amount to £40 billion at any one time.
Chairman: That is approximately twice our GNP.
Mr. MacDomhnaill: Yes.
Chairman: It is four and a half times our annual budget.
Mr. MacDomhnaill: If one looks at the Exchequer returns and notes how the borrowings compare with current expenditure, it dwarfs them by a large measure.
Chairman: The reality is that all this has happened because of the total lack of a prosecution ethos in the Revenue Commissioners over the years. This matter has been raised by the Committee many times. No individuals similar to Lester Piggott, Earnest Saunders or Patrick Gallagher have been prosecuted in Ireland. Such people have been prosecuted in the North and in England over the years, but there have been no similar prosecutions in Ireland. There is an attitude problem in the Revenue Commissioners and among the white collar class. They consider that white collar people are not criminals and it is only a matter for the working class.
Mr. MacDomhnaill: Once again I totally reject that view. We have had a positive prosecution policy since 1991. If one looks at the history of this matter, a number of commissions have looked at the civil prosecution policy and have recommended that it should be the dominant mechanism for tackling evasion. There is not a capacity either in the courts or the Revenue Commissioners or the Garda Fraud Bureau to tackle huge numbers on an indictment basis. We get penalties in our civil prosecution arrangements which are far greater than any of the penalties we have secured by going down the prosecution route. It is not unusual for heavy penalties to be imposed. In an indictment prosecution one is looking for a custodial sentence. That is the difference.
Chairman: It is obvious no salutary lessons have been learned. People have been evading tax and that is a criminal offence. There have been no salutary cases, such as the case against Lester Piggott. The Revenue Commissioners has conspicuously failed in its duty to give those salutary lessons in the context of the widespread evasion that is crippling the PAYE sector because it is carrying the burden. Does Mr. MacDomhnaill agree the Revenue Commissioners has been in dereliction of its duty?
Mr. MacDomhnaill: It is easy to say that, Chairman.
Chairman: It is evident.
Mr. MacDomhnaill: No. I have been here on several occasions and similar statements have been made. The fact of the matter is that I have given the Committee details of the prosecutions which have been carried, the cases which are now under investigation and the success of the new prosecution policy. The Commission on Income Tax and the commission on taxation endorsed the policy that the bulk of our anti-evasion work should be through civil prosecutions. That has been endorsed by independent commissions. It is not only the position of the Revenue Commissioners.
As far as the Revenue Commissioners are concerned, we have turned around a large section of our investigative branch to deal with prosecutions. As a result, the opportunity cost of that is some millions each year. We were bringing in over £10 million a year through our in-depth investigations alone. That dropped last year to £5 million because the investigators who would have been doing that work are now doing prosecution work. One must recognise that money will be lost on this. In indictment prosecutions, one is seeking a custodial sentence. I can give an example which shows that the extremes of the penalties will be invoked where the situation deserves it.
Chairman: Where is the evidence? There is no evidence whatsoever.
Mr. MacDomhnaill: There is evidence. We secured a jail sentence of seven years in one case this year alone and other cases are coming up. It may not get publicity but it is happening.
Chairman: Mr. MacDomhnaill is testing my patience.
Deputy Cooper-Flynn: Under what legislation can the Revenue Commissioners compel banks to give information to it?
Mr. MacDomhnaill: I already mentioned the sections.
Deputy Cooper-Flynn: That may have been before I arrived. I apologise if I missed it.
Mr. MacDomhnaill: The original section 17 of the Finance Act, 1963, has been carried into the 1967 consolidated income tax Act in section 175. That relates to returns of interest paid without deduction of tax. It is now confined to pension funds and corporate bodies by and large because deposit interest retention tax has taken individuals out of the reckoning and the non-resident declarations have taken the balance. We can also look for sight of the declarations made in connection with the deposit interest retention tax which was introduced in 1986 under section 37 and a number of associated sections in the Finance Act, 1986. All these are contained in the Consolidated Act.
Deputy Cooper-Flynn: Apart from deposit accounts, how does the Revenue Commissioners compel banks to give it information about, for example, offshore insurance bonds? Is it covered by the same Act?
Mr. MacDomhnaill: That is under another section. In 1992 with the advent of the Single Market and the removal of exchange controls, there was concern that there would not be a level playing field in relation to banking and insurance. A section was introduced which obliged the intermediaries to notify the Revenue Commissioners if they open foreign bank accounts on behalf of Irish residents. In 1993 that was extended to insurance policies in a section again intended to ensure a level playing field. Under the Single Market, all life offices across the market can sell insurance policies to Irish citizens. Previous to the Single Market, one had to be licensed with the regulatory authority in Ireland to do that business. As a result it was felt that a taxing regime should be introduced. A special tax measure was introduced in 1993 to make the cashing in of such policies a capital gain for capital gains tax purposes. Attached to that section was a subsection making the reporting requirements of intermediaries applicable to this area also. That is how we have been able to get information about such policies.
Deputy Cooper-Flynn: It is entirely legitimate since the relaxation of exchange control measures for Irish residents to purchase offshore unit trusts, etc. Can the Revenue Commissioners go to any bank in the State and ask it for the name of somebody who owns an offshore insurance bond?
Mr. MacDomhnaill: There is an obligation on the banks to tell us if they acted as intermediaries. However, if the life office is not established either fully or with a branch somewhere in the single European entity, they would not have that right unless they got a licence from the regulatory authority in Ireland. A foreign insurance company outside the Single Market must get a licence from the regulatory authority in Ireland. It would not get a licence to conduct insurance business in Ireland without having a branch in the country.
Deputy Cooper-Flynn: Do many of the banks in Ireland, which have intermediaries and operate this type of arrangement under which these bonds are sold, automatically make a declaration to the Revenue Commissioners in relation to all the people who purchased the life bonds?
Mr. MacDomhnaill: If they act as an intermediary. That is the key point.
Deputy Cooper-Flynn: Are all the banks who sell products which are not their own and are therefore acting as intermediaries making declarations on an ongoing basis?
Mr. MacDomhnaill: I would not say all the banks are selling policies outside the Single Market. Most of the banks have associated insurance companies through which they channel insurance business. These are all taxed. The reason the section was introduced is that some countries have a look through for tax and gains. They only tax the gain in the hands of the final recipient. In relation to life offices, we tax the gains on the insurance company. The benefits are added to the policy net. To equate that situation a capital gains tax charge was constructed around policies which are not done through a branch of a foreign insurance company in the State or directly with an Irish insurance company.
Deputy Cooper-Flynn: What type of information is provided to the Revenue Commissioners in such declarations from intermediaries?
Mr. MacDomhnaill: We are provided with details of the person concerned.
Deputy Cooper-Flynn: The name and address.
Mr. MacDomhnaill: It is up to us to take it up.
Deputy Ardagh: Regarding the point about cases such as that involving Lester Piggott, I wish to ask Mr. MacDomhnaill about his duty to maximise and ensure that all taxes due are paid.
Does Mr. MacDomhnaill believe that the methodology used by the Revenue Commissioners has brought about their intention that everyone should pay the tax which is due and only that? If time and effort was spent on ensuring that prosecutions were brought about during the period in which the system that has now proved so efficacious was in place, would that have resulted in less compliance at this point?
Mr. MacDomhnaill: I would like to confirm that all tax is collected in civil prosecution cases. Deputy Ardagh referred to payment of the “tax which is due and only that“. We collect interest and penalties in those cases. The difference in the new prosecution policy is that we are seeking custodial sentences because this Committee and a number of people, including former Ministers, have asked that Revenue should indicate that the full rigours of the law will be applied. We achieved a conviction in a recent case in the west but the judge did not impose a custodial sentence. He took the view that the person concerned was a professional and if he were imprisoned his business would collapse and his employees would be affected. That is something we will have to resist because every business person would be in the same position.
We do not decide whether a custodial sentence is handed down. We obtain evidence, convince the Director of Public Prosecutions that there is a case to be answered and it is then the responsibility of the courts to impose custodial sentences. However, we seek custodial sentences in all of the cases under discussion.
Deputy Ardagh: That is a new phenomenon within the Revenue Commissioners and it was brought about by pressure from the public and politicians in recent years.
Mr. MacDomhnaill: The Commissioners felt that a preponderance of civil settlements was the correct route to take. However, thanks to the efforts of Members of this Committee, the attitude of mind that sees tax evasion as a crime has been achieved. Anyone who states that and promotes that idea is ad idem with Revenue. You are on the same side of the fence as Revenue when you say that. We are not contesting that. We have a commitment in law but we also have an obligation to all complying taxpayers - the vast bulk of the money we receive comes from these people - and our strategic commitment to them is that the percentage who do not comply will be dealt with via the full rigour of the law. Therefore, anyone who advocates that attitude is supporting the Revenue Commissioners and we identify with those statements.
We have dedicated resources and put in place a major training programme which includes using people in the UK with more experience in prosecutions than ourselves who operate on the same common law base and have the same difficulty in proving fraud. We are making a submission in conjunction with the Department of Finance in respect of our reconsideration of Revenue powers and our powers of information. In the area of streamlining, the Garda have done the same. Another important contribution to this is section 32 of the Criminal Justice Act, 1994. An example of the use of that section occurred in Cork in the past number of days and it involves financial institutions having to satisfy themselves regarding the bona fides of the owners of deposits. The provisions of that section will be very helpful in this area.
Deputy Ardagh: Mr. MacDomhnaill stated that the investigation branch has been separated into three branches, one of which is the prosecution branch. In addition to the solicitor, how many people are employed in that branch and what are their grades?
Mr. MacDomhnaill: There are three Prosecution units located in the Investigation Branch, each is comprised of one senior inspector and two higher grade inspectors. While traditional in-depth investigation work continues to be done in certain cases by two other units of the Investigation Branch, the balance has now shifted towards prosecution investigation work. Criminal investigation work is extremely resource intensive, being concerned with ensuring that the stringent requirements of the criminal courts as regards evidence are met.
In addition, we have a prosecution policy unit which is headed up by the principal inspector, in charge of the entire Investigation Branch. A senior inspector, a part-time higher grade inspector and a higher tax officer deal with the policy unit which examines international developments, the success of the Garda Fraud Bureau and use of section 32 of the 1994 Act to discover the extent to which we can avail of them. The policy unit will also have an input into the examination we are conducting on behalf of the Minister into Revenue powers. As part of this, we have despatched teams to visit a number of EU member states to obtain firsthand information, some of it highly confidential, about obtaining the best formula which will not leave Ireland out on a limb in terms of loss of resources without an effective remedy. There is also the admissions committee.
Deputy Ardagh: What is the total number of people employed in these units?
Mr. MacDomhnaill: The total number of investigators is 15. These are senior, highly trained and almost irreplaceable personnel.
Deputy Ardagh: Does that include the three members of the admissions committee?
Mr. MacDomhnaill: In respect of the admissions committee I counted a part-time higher grade inspector and a higher tax officer who are not part of the overall total.
Deputy Ardagh: Who comprises the admissions committee?
Mr. MacDomhnaill: The principal inspector in charge, a senior inspector, a higher grade inspector and a secretary who is a higher grade tax officer. The assistant secretary in charge of the audits and prosecutions is heavily involved in the work of the admissions committee.
Deputy Ardagh: What criteria are used to select a case to go to the admissions committee?
Mr. MacDomhnaill: The Deputy has touched on an area where a great degree of sensitivity is involved. There is freedom of information but we regard some of this as protected information. We will be releasing as much of the information as possible but the criteria have caused great concern among the practitioners. I have had a number of meetings in recent months with practitioners on this issue. The president of the Institute of Taxation has been to see me on two occasions because that body obtained legal advice concerning the status of practitioners in this area and that of voluntary disclosure.
Deputy Ardagh: Have cases been put forward to the admissions committee on a quantum basis or have they been put forward on the basis that those involved contravened the Amnesty Act? I understand that provision was made for mandatory prison sentences under this Act if total tax in excess of £100,000 was not paid of if it was subsequently discovered that payment of this amount of tax was due. Do any of the cases put forward relate to that amnesty?
Mr. MacDomhnaill: The Deputy has touched on another important point. Sentences, are the prerogative of the courts. There are full and unmitigated mandatory penalties including imprisonment in certain circumstances but prosecutions are a matter on which only the courts can decide. The mandatory part of the legislation related to the full and unmitigated penalties or imprisonment following conviction.
With regard to the criteria involved, we first consider the grievousness of the evasion.
This is not about technical interpretation matters, slip ups or once-off occurrences. It is probably structured, deliberate evasion. We would also be concerned if, having made a settlement with somebody in the past, that person turned up again. Having had the benefit of a previous civil prosecution, the person would now be a candidate for a criminal prosecution. They obviously have a wrong impression of the seriousness of the matter if, having accepted a civil settlement, they reverted to evasion. That is one of the issues we examine.
However, none of this is finalised. We are having close consultations with the Revenue Solicitor and the Director of Public Prosecutions about the matter. Initially we must set out criteria for our auditors. The criteria the auditors will look to when sending cases to the admissions committee will be more widely drawn and probably will be published. However, the criteria that will be used by the admissions committee will remain confidential.
Deputy Ardagh: It is my understanding that the banks came to an arrangement with the Revenue Commissioners some years ago with regard to DIRT payable on non-resident accounts which the banks knew were not non-resident accounts. Is that true?
Mr. MacDomhnaill: I do not wish to talk about individual cases. There is no question of the Revenue Commissioners being able to verify an amount of retention tax. We try to carry out the verification as best we can in terms of the aggregate amount. What concerns us is whether, if we come across an individual case, we can prove in relation to that case that the retention tax has not been paid and that the return has not been made. The maximum fine in such a case is currently £750. Previously the fine was £500. We have sought that fine in a number of cases from the official concerned.
The major banks have given strong instructions to their officials not to countenance bogus non-resident accounts.
Deputy Ardagh: Was a payment or settlement made by any financial institution in compensation to the Revenue Commissioners for the wrong use by their customers of non-resident accounts?
Mr. MacDomhnaill: This answer should not be misinterpreted as applying to recent cases in the news. On a minor scale, we have been paid sums of money in relation to cases where we were able to individually establish that retention tax should be paid. Our primary approach to these cases is not to give credit for the retention tax to the taxpayer concerned; we reimpose tax in full on the interest.
Deputy Ardagh: Of what magnitude was the payment from the financial institution or institutions involved?
Mr. MacDomhnaill: There are different orders of magnitude. In one instance where we were able to identify a number of evasion cases in a certain branch of a particular bank - again not to be confused with the ones that have been mentioned - the aggregate was a six figure sum.
Deputy Ardagh: In that case were the account holders also brought to task in relation to the tax?
Mr. MacDomhnaill: Of course. Penalties, interest, tax and publication would have been in order for all of them.
Deputy Ardagh: My recollection of the 1970s and 1980s was of the £50 interest. You said an individual had 150 different bank accounts. At that time there was anecdotal evidence that people with small means had bank accounts everywhere. They tended to be people who had an income of £200 to £300 in interest and who had saved hard over a period of years. They were usually hard working, PAYE workers who felt it was wrong that they were taxed so much on their savings. There was a culture whereby one could go to a local bank branch and complain. It would be suggested that, rather than withdraw the money, it could be changed to a non-resident account.
At the time, the Revenue Commissioners were like a car caught in a wind tunnel in that everything seemed to be shooting over their heads. They did not know about these things because it was not proved to them that it happened. I accept that the ethos has changed.
Mr. MacDomhnaill: The 1983 amendments were introduced on foot of information made available by the Revenue Commissioners, not the financial institutions. The other matter that must be borne in mind is that monitoring of retention tax and access to and knowledge of it is not available to the Revenue Commissioners directly from the banks. We can only get it through individual investigations.
Deputy Ardagh: The Minister for Finance said in his Budget Statement that if the Revenue Commissioners believed new laws were necessary, the Department of Finance would not be slow to introduce them. Is there a desire for further legislation which would permit the Revenue Commissioners to examine the bank accounts of individual taxpayers?
Mr. MacDomhnaill: We are looking at that. We identified all these shortcomings in terms of information powers for the Revenue Commissioners. However, we realise they are not there on the whim of the Government of the day. These measures exist. One need only look at the debates on the subject over many years. I was involved in the 1963 situation and the tenor of the debates has always been that there are other considerations. I appreciate that a problem such as this, in terms of funds, is much less soluble now with exchange controls removed than it would have been pre-1993.
We are consulting with other Revenue authorities and the matter is being debated at EU and OECD level. The Revenue Commissioners have participated in these discussions. Every revenue authority believes it should have access to more information. However, one must be able to say to the Government or Minister of the day whether that will be effective. There might be a rush of money in the beginning but, if all the funds end up elsewhere and one is back to square one, one has simply driven the money out of the economy. I must be able to give a guarantee that giving me these powers will be effective in terms of the long-term tackling of evasion without causing an outflow of funds.
Even when this comes up at European level, the opinion is that a solution cannot be found within Europe because the funds will just flow out of Europe. The same thing can be said about the national entity because the funds will simply flow out of that entity. A huge economy such as Germany tried to impose a withholding tax on non-resident interest and had to back down.
It is far less an open economy than we are. I could say yes, give me all these powers and we will unearth a huge amount of back-duty very quickly. That obviously would be the case. But what happens in the long term?
Deputy Ardagh: I accept what you are saying but I believe the excuse has been used a lot by politicians that if we bring in laws to deal with tax evaders that funds are going to flow out of the banks at such a rate that the country is going to be bankrupt. I do not accept that and the more I discuss it with my fellow politicians the less I accept it. The attitude we should be adopting is that everybody who has money in the bank should be able to state have a look there, have it available to that the revenue at any time can say that I got this truthfully, honestly and it is my money. I do not think we should be in a situation where our laws would allow any type of ill gotten funds to be in position. I accept also what you say that this is a European wide situation. I would like to see action being taken on it. I would like to see the Revenue Commissioners having a particular high placed official ensuring that this matter is brought up at income tax and revenue matters throughout Europe as expeditiously as possible and dealt with.
Mr. MacDomhnaill: I could not take issue with any of that. However the Revenue Commissioners operate within the law and if the Oireachtas members change the law we will operate that as well. I do not want to appear irresponsible and be quoted as saying revenue can use all these powers. I want to say that there is a wider picture and it is a policy question after that. It will, I am sure, because this is going to be looked at very closely in the Dáil itself, by the Moriatary Tribunal because one of the terms of reference of the Moriartary Tribunal is to assess the adequacy of revenue powers in relation to the protection of the tax base from off shore based evasion. I think it is going to come up one way or the other in the wider agenda as a major policy question and all these things will have to be brought together. I am sure progress can be made and we can get extra powers. You can be absolutely sure that if we get them they will be used. I would like to give assurance to the Committee that within the powers available to us, even by the indirect means our inspectors and investigators have not been backward in challenging institutions with whatever morsels of information they get by comparison with the figures that have been quoted at large.
Deputy Ardagh: Deputy Rabbitte mentioned they were net high worth clients generally. It would be accepted that many of the people who had these non resident bank accounts were ordinary hard working PAYE workers who were paying their tax, they saved some money and put it aside. That is was not a golden circle. It is a general malaise in the whole of the nation with regard to tax evasion and trying to avoid taxes as best they can.
Mr. MacDomhnaill: I take that point but I would come back to the point made by Deputy Rabbitte that in a lot of cases it is not the interest. I do not think that someone is going to go to an elaborate arrangement simply to avoid the retention tax on the interest especially since 1992 when you had a special, initially 10 per cent rate, for special savings up to £50,000. That would cover most of the people you are describing. For the sake of a 10 per cent rate of tax on an interest rate which is probably at the moment, even on demand deposit, five or six per cent at most. It is not a huge amount of money. The big problem in relation to evasion concerns the very funds themselves and whether they represent undeclared profits or income.
I do not mean information but evidence that will stand up and will be accepted by the Director of Public Prosecutions. That will be a big factor but, in all cases that come to notice, we will seek to address these other issues in the prosecution policy, subject to available evidence.
There might be cases where larger amounts of tax are settled in the civil process. even where reprehensible arrangements have been encountered. If we are unable to produce the evidence we might still have to settle on a civil prosecution. However, subject to that, we will try to grade it and we will have criteria for auditors in terms of penalties which they impose. All large cases come to me, as the Accounting Officer, to be countersigned and in the process they will be looked at by a number of senior officials on the way up.
Deputy Ardagh: Under the Freedom of Information Act what further information is available to the public in relation to the guidelines on penalties? What further information is available which you believe might even hamper your efforts?
Mr. MacDomhnaill: That protection is in the Act. If there is a matter whose disclosure would undermine the State’s capacity to maintain the tax base, it is exempt. However, there is a public interest question to be addressed and such questions can be adjudicated on by the Information Commissioner. The heads of Departments have had a number of meetings which were addressed by the Commissioner and by the Comptroller and Auditor General. We will try to secure an understanding in relation to what will and will not be exempt and that will only unfold over time.
We already have over 10,000 pages of information on our system for access under the freedom of information legislation.
Deputy Durkan: You mentioned a selection of cases for criminal investigation. How are they selected?
Mr. MacDomhnaill: They are selected on the basis of the normal auditing that takes place. I believe the auditors’ criteria for sending cases to the admissions committee will be published.
The difficulty is that if one is going to opt for a prosecution on indictment, one must be very careful, as soon as one recognises one is taking that route, to issue a caution before one moves any further into the investigation. There are constitutional safeguards and many cases can be fouled up in terms of procedure if they are not recognised early. We ask the people carrying out the audits to try to recognise as soon as possible if a case should go to the admissions committee. It might be referred back. Half the cases that went to the committee so far have been referred back and will be dealt with through civil prosecution.
We will also get information from third party returns and from items that come into the public domain in various ways. Recently, the Supreme Court endorsed the right of the visual media, which had received information and whose right to use it was challenged, to use that information and to make it available to the regulatory authorities. If such information involves tax evasion it should be made available to us and the Supreme Court has endorsed that fact. We expect to get information in that way more readily in future than in the past because the people concerned have the protection of the Supreme Court. Heretofore such people might have been afraid of being sued for giving the information to the Revenue Commissioners.
The culture against tax evasion has moved on tremendously in the last ten years.
Deputy Durkan: You said suspicion is not enough and that you need evidence in pursuit of a case. How do you pursue suspicions? I accept that you cannot discuss certain areas. How have you been able to prosecute successfully cases in which you suspected evasion? Can you give a rough average of such cases?
Mr. MacDomhnaill: When we began in 1989, following recommendations by the Commission on Taxation that there should be salutary criminal prosecutions, the Director of Public Prosecutions took the view that criminal prosecutions for fraud, whether it was tax or otherwise, were matters for the Garda Síochána to investigate. When we concluded that a case was suitable for criminal prosecution we were obliged to hand the investigation to the gardaí. Many cases of tax fraud will involve general fraud as well, such as forgery and so forth, and in a number of cases the gardaí investigated the general fraud rather than the tax fraud. In all, 30 cases were referred to the Garda Síochána.
Since we started our recent campaign we have been able to send cases directly to the Director of Public Prosecutions. The fraud cases referred to the Garda Síochána had to take their place in the queue for attention from the Garda Fraud Bureau. When they were brought to the point where the Director of Public Prosecutions said they could be prosecuted, the cases were referred to the Chief State Solicitor and had to join another queue. As a result a great deal of time had expired before some of the cases were brought before the court or were brought to the point where the DPP could finally sign off. A number of them failed because of the time lag.
Our answer to that problem was to eliminate the duplication and secure direct access to the DPP. This was achieved in the last few years, through agreement with the Garda Síochána and the Department of Justice, Equality and Law Reform under the aegis of the Minister for Finance, and we can now send cases directly to the DPP. We have sent 22 cases so far. Of those, three are before the courts at present, the DPP has decided to prosecute in another two, we are awaiting instructions from the DPP in another two and 15 are still under investigation.
Deputy Durkan: You referred to cases where banks or insurance companies act as intermediaries. Is it true that it is easier to obtain information and records from these intermediaries?
Mr. MacDomhnaill: We have sent out notifications under the section but in most cases nil returns are made. If a financial institution acts as an intermediary in opening an off-shore account, it must report it. However, if the person opens the account himself/herself, there is no report.
Deputy Durkan: In that case, the investor would have knowledge of the benefit of not having the bank or insurance company acting as an intermediary?
Mr. MacDomhnaill: Absolutely.
Deputy Durkan: You would have no knowledge or way of detecting what was happening in that account?
Mr. Mac Domhnaill: We have no knowledge of what is happening in an account anyway. We only know an overseas account has been opened. Any accounts opened prior to 1992 are not covered and transactions can be taking place full-time in those accounts without any reporting requirement.
Deputy Durkan: What year was the legislation on intermediaries introduced?
Mr. Mac Domhnaill: It was introduced in the Finance Act, 1992.
Deputy Durkan: Before that, was Mr. MacDomhnaill aware of the necessity to introduce legislation to assist him in his business?
Mr. Mac Domhnaill: No, the motivation behind that section was that because exchange control was being removed, people could open personal accounts, which they could not do previously.
Deputy Durkan: Mr. MacDomhnaill mentioned that third party accounts would give you information in some areas. Are there any circumstances where information from third party accounts would be of benefit to him in detecting sums likely to be lodged in offshore accounts, in the case of insurance companies and banks? I know he answered a similar question already. To what extent is the information from third party accounts effective?
Mr. Mac Domhnaill: Information from third party accounts is very effective. However, there are limitations - the biggest one being the financial sector. We can audit other accounts, pick up information and follow transactions through. This is a vital part of the examination of the commercial operation. We do not have the same power to inspect bank records. Therefore, we cannot look through the transactions in a domestic bank and follow them through offshore.
Deputy Durkan: In relation to audits carried out by banks and financial institutions, I may have read somewhere that some audits uncovered questionable practices in financial institutions. Would that have been brought to the attention of Mr. MacDomhnaill?
Mr. Mac Domhnaill: The Deputy is referring to a specific case.
Deputy Durkan: I apologise, I do not wish to refer to a specific case.
Mr. Mac Domhnaill: In 1991, we approached all the financial institutions on the basis of our own analysis of the movement in accounts. It was also mentioned in the Commission on Taxation that there was not a level playing field. The big word advertised in those days was “confidentiality“. Anybody would have known there was regular advertising by building societies of confidentiality, which was a code word for saying they did not have to make a return of interest.
In effect, building societies had a retention tax régime long before 1986. The Commission on Taxation said this arrangement facilitated evasion. In 1986, the retention tax was not removed but extended to all the other financial institutions instead. As the Commission saw it, the same type of régime can be said to facilitate evasion because it has removed the obligation on those institutions to make returns of interest to Revenue.
Deputy Durkan: Notwithstanding what Mr. MacDomhnaill said about movement of money out of the country as a result of the pursuit of particular policies, would it be fair to say that offshore accounts cater for larger rather than smaller investors?
Mr. Mac Domhnaill: One bank has nearly 10,000 non-resident accounts with less than £100 pounds in them. In the analyses I have seen, which do not give names but are done by case size, the really big accounts are relatively small in number.
Deputy Durkan: If the practices of different financial institutions are not in accordance with taxation law, notwithstanding Mr. MacDomhaill’s earlier reference to large scale movement of finances out of the country, is it within the ambit of his responsibility to pursue them to obtain knowledge to that effect?
Mr. Mac Domhnaill: Yes, we pursue banks. As I said at another committee, in one year alone, we retrieved £8 million as a result of examinations in the financial sector. As regards non-resident accounts, the main culprit is the person who makes the false declaration. In 1983, when the revenue offences section was being legislated, I was in the bull pen beside the Minister. That section was watered down on Report Stage. One now has to show that they knowingly and willingly accepted a bogus non-resident account, which is not easy to prove. The person will not say it is his/her money but that it belongs to his/her brother in Chicago or whatever. A heavy onus has been put on banks to challenge their customers. Before 1983 they had not the right to challenge them at all. They had to accept the declaration and act on it.
Deputy Durkan: As regards hot money which is generated from within the economy, from where does it originate? In the submission of accounts to Mr. MacDomhnaill’s Department, it must become obvious during audits that there some flaw in procedures. It should not be possible to siphon off sums of money on a regular basis, given that an audit takes place. In audits, has the Department been able to detect something which might lead it to believe that the kind of practices we are discussing were taking place?
Mr. Mac Domhnaill: When we examined this in 1991, we could see the trend. The associated banks non-resident deposit amount was static and the non-associated banks amount, mainly building societies, was going up at a dramatic rate. This could be juxtaposed with the advertisement of confidentiality. The Commission on Taxation commented on that. Moneys being siphoned off on audits is how we find out about non-resident accounts. It is through the audit and investigation process that we eventually unearth moneys on deposit, whether overseas or domestic, which have not been disclosed previously.
As well as dealing with that taxpayer and imposing tax, interest and penalties, we can also go to the financial institution and challenge it to see how this account did not attract retention tax. That is all that can happen at the moment. If the bank applies retention tax, the job is done.
Deputy Durkan: Will EMU make Mr. MacDomhnaill’s job easier or more difficult? As we approach the crucial date, Revenue will be concentrating on that and the introduction of the single currency and free movement. What measures are necessary to safeguard Revenue’s position as a taxation authority.
Mr. Mac Domhnaill: We have a fantastic tax yield - it has been increasing steadily and is very strong in regard to our GDP. The biggest single factor in promoting a good tax yield is a culture of voluntary compliance.
We invest a great deal of resources in servicing taxpayers and trying to simplify matters in order to make compliance easier. The quid pro quo is that where evasion is detected, we pursue it resolutely.
As the Chairman stated, we have not been successful in our prosecution policy. However, we now have a new agenda and do not have to go through the Garda Fraud Bureau or encounter delays. I am confident that we will have a substantial number of successful prosecutions over the coming years. There are problems associated with this; there is a question of whether, without the advice of practitioners, all voluntary disclosures will dry up.
Different regimes operating in a number of other countries have still not managed to eliminate evasion. We are looking at the systems in place in these countries which hold offshore investments. In turn, offshore accounts from other countries - even within the EU - are held in these countries. We are considering the measures which are in place and which, to varying degrees, are more rigorous than those which apply here. Sweden is perhaps the most far-reaching in regard to the reporting arrangements for resident and non-resident accounts.
Notwithstanding the fact that many other countries have a withholding tax, banks there are still obliged to make returns to the revenue offices. That goes beyond the system which operates here but one must consider whether these measures are successful in keeping evasion below the level which prevails here. In the end, a policy decision will have to be made.
Deputy Durkan: Is there not a danger that, when PAYE or self-employed taxpayers see that there appears to be a relatively large scale avoidance procedure in operation in some quarters, they will become disillusioned? They may perceive themselves to be discriminated against as they cannot avail of the benefits of these procedures. Is there a possibility that the system may be eroded by a lack of confidence in it?
Mr. MacDomhaill: The Deputy is absolutely correct. We tell business people and taxpayers that anyone who does not pay his/her fair share increases the burden placed on everyone else. Services must be funded and the cost of running the State will not decrease because some people are evading the payment of tax. We will use every means at our disposal to combat that evasion.
We are receiving a great deal of information from concerned citizens. While we may not use it as evidence, it can provide us with something to work on and would be a factor in selecting a case for audit and in securing evidence as we would know where to look for it. When this issue is reviewed and comes before the Oireachtas, additional powers may be provided to the Revenue Commissioners. I assure the committee that those powers will be used in eliminating tax evasion. People who evade the payment of tax take a huge risk.
I did not think people would avail of the tax amnesty in a partial way. Astonishingly, cases regularly turn up where this is the case. One can only imagine the attitude of somebody who does not take full advantage of a 15 per cent amnesty. Some people go to great lengths to avoid a small amount of retention tax; the rate initially stood at 10 per cent but increased to 15 per cent it has gone up in the last Finance Act. Large scale evasion is not numerically a large part of the problem although there are large scale evaders involved and we must consider how they can be identified.
Chairman: Is the avoidance of tax payment at all costs not a cultural attitude?
Deputy Bell: The Chairman of the Revenue Commissioners has answered a wide variety of questions and I am very impressed by the manner in which he did so.
Under the CAB, powers were conferred on the Revenue Commissioners to deal with criminal activity. It has been established, in the course of this discussion, that all tax evasion is a criminal activity of one magnitude or another. Would Mr. MacDomhnaill agree that the powers of the CAB could be extended to other bodies to deal with high-powered tax evasion?
Mr. MacDomhnaill:The Deputy is quite right; the Garda now have greater powers in this regard. For example, the Bankers’ Books Evidence Act was extended to the Garda in pursuance of their criminal investigations whereas it originally applied only to people who were parties to litigation. That is another way of gaining access to bank information. There are six revenue officers in the CAB and liaison people are in constant contact with it. Any case associated with tax evasion which is regarded as suitable for referral to the CAB is referred to it as soon as possible. The CAB makes a huge contribution in cases involving tax evasion in its most egregious form.
Deputy Bell: Does Mr. MacDomhnaill agree therefore that the CAB’s powers could be extended?
Mr. MacDomhaill: Yes, but I do not think the same constraints exist in relation to organised criminal gangs who operate on an international level. There are no havens for such criminals whereas there are 40 well established tax havens for tax evaders.
Deputy Bell: In my previous employment, I constantly encountered huge tax avoidance in cases of liquidations and receiverships. Companies can go into liquidation virtually overnight and huge amounts of money can remain unpaid to the State under PAYE, PRSI and so on. One often finds that the shareholders of such companies form other companies, buy machinery and so on back from the liquidator or receiver and start all over again. Attempts were made in the most recent Companies Act to come to grips with this practice. Can Mr. MacDomhnaill give us any indication as to what level of tax avoidance exists in regard to company liquidation and receivership and what percentage this is of the total level of tax avoidance?
Mr. MacDomhnaill: It is quite substantial but it is transparent as moneys are quantified and submitted to the C&AG to be written off. Company law reform spent years going through the Dáil and we made very strong submissions about the abuse of limited liability. We attempted to have safeguards included which would make it more difficult for companies to be floated with virtually no capital input as that is not limited liability at all; it is zero liability in some cases. We have not been very successful in this area; the most recent company law reform study group dealt with liquidations but did not treat the problem of people walking away from companies without even bothering to liquidate them. We have decided not to waste any more time seeking that type of reform but to set up a special quick response unit. With the current level of computerisation, information can be conveyed to us in a manageable form through which we can quickly establish the identity of people involved in companies.
With that information we can mount a very fast action exercise so as not to allow the normal lapse in time before we get after those people in the new companies. We also use every means at our disposal to secure liquidations. Some judges have complained about Revenue coming before the courts so frequently looking for liquidations. We try to make sure that the trading while insolvent rules are used and have the limited liability protection withdrawn from the participators. Our current policy is to use all these measures and we have set up a special unit to deal with that issue. We have also developed computer software to facilitate our people which I believe will be very successful.
Deputy Bell: You are one of our main generals in the field of battle against tax evasion. In that capacity, do you feel you have the necessary troops and weaponry to carry out an effective war against tax avoidance?
Mr. MacDomhnaill: Generally, Revenue can turn to good account any extra resources, whether staff, accommodation or computers. I guarantee Revenue will produce a net advantage to the Exchequer on any expenditure allotted to it in multiples of 30 to 100. Nevertheless, we must operate within the overall expenditure constraints. Our numbers are determined by Government order. If we get one post in addition to that, it must be justified on the basis of new and expanded work and on the basis that we cannot find an economy somewhere else in the organisation to do it. This raises the issue of prioritisation of work, customer as service against auditing, evasion, smuggling and so on. This is a huge task. We are reconciled to the fact that our numbers are now fixed at 6,044 - down from 7,500 in the early 1980s when I first became involved in the resources of the Revenue Commissioners. Business has expanded enormously in terms of numbers to be dealt with by Revenue and we have got huge productivity. We received a lot of money through the administrative budget process for computerisation and so on. However, we could collect extra money if we got extra resources.
Deputy Bell: Would it be a good investment?
Mr. MacDomhnaill: Yes.
Chairman: Has Revenue requested extra resources?
Mr. MacDomhnaill: I explained that to get even one head of staff I must show new or expanded work and that there is nowhere else in the organisation I can get that one from. This is a horrendous task and I try to live with the numbers we have. In general, if we got another 200, 300 or 500 people we would utilise them.
Deputy Doherty: Mr. MacDomhnaill what is the purpose of someone having a bogus account?
Mr. MacDomhnaill: We are mainly interested in those taking profits out of business, capital gains from disposal of property or items affected by the capital acquisitions tax legislation. We are mainly concerned with accounts whereby the actual capital represents untaxed profits, income or gains. There are others that may be big in numbers but small in amounts where people with lump sums, compensation from accidents or severance payments lodge money in the mistaken view that the gross interest would represent a huge difference. This is not so because the difference between gross and net interest is not great. We have seen such accounts whereby people retire and put their lump sums into bogus non-resident accounts. It is almost inexplicable but it does happen. In our special investigations of individual cases we do not concern ourselves to a the same extent with that type of account where retention tax is all that has been lost. If we can tax them on the full interest we do not bother about the retention tax. In order to get the bank to impose retention tax we must prove the bank was implicated.
Deputy Doherty: Is it correct to deduce from what Mr. MacDomhnaill said that bogus accounts in some instances are for the purposes of tax evasion?
Mr. MacDomhnaill: I think they are nearly all for tax evasion purposes but some of it is so minor it is almost of no consequence.
Deputy Doherty: To facilitate that tax evasion, if one acknowledges the claim made publicly by a particular bank that there were thousands of bogus accounts, would there not be complicity by the facilitator in setting up these bogus accounts?
Mr. MacDomhnaill: We are talking about a historical situation. In the beginning there was no challenge. All that was required under the original Section 17 of the 1963 Act, and remained in existence under the 1967 Act into the 1980s, was a declaration from the depositor that the interest officially belonged to a non-resident, and the bank was given no authority to challenge that. In 1983 the banks were given the right to look for an affidavit if they were dissatisfied with the bona fides, but the bank had to challenge the person as to his/her bona fides in order to get an affidavit. So you are asking bank staff to challenge a customer and say that they do not believe what the customer is saying. That is the situation as of now.
Deputy Doherty: I find it very hard to understand how a particular bank with 3 per cent of the nation’s business is in the mess it finds itself and that there is such a perfectionist condition attaching to the others. Have the Revenue examined the liability for tax on bank charges and are bank charges shown to you as described by me, the public and the banks?
Mr. MacDomhnaill: Bank interest and charges are deductible expenses for most businesses. They would be in the account as a normal business expense.
Deputy Doherty: How are bank charges in relation to transactions with which they are normally associated disclosed by the bank because there is a charge, a profit being made and a tax liability which is separate from anything else the bank has tax liability for? Have these recent innovations been examined by the Revenue Commissioners? The public are faced with four or five different charges in relation to extraordinary situations and it is the most vulnerable find themselves in this critical situation. It is almost as if they are lucky to be vulnerable and they do not question. Recently I encountered a horrendous situation in a bank by way of charges. It was an absolute act of gross immorality. Are bank charges specifically identified in the areas of their application by the Revenue Commissioners? Have you asked the particular banks to make returns specifically identifying the areas where they are imposed?
Mr. Mac Domhnaill: You are talking about the entire income of a bank. When a bank submits audited accounts the entire income, on the income side, is made up of interest and charges. That is reflected, in the hundreds of thousands of accounts of people who have the interest charged up, as an expense. Revenue are not in a position to validate the amount of interest, relative to the balances, because we see the balances on a balance sheet for one day in the year. The interest is calculated by reference to daily balances, fluctuating rates of interest and different terms. Not every borrower gets the same terms. You would really need a computer programme to track the charges. I understand there are experts who will do that.
Deputy Doherty: There are millions involved, are there not, made up a small amounts here and there? For example, a 45 acre farmer, already in debt, who goes to discuss his overdraft with his bank manager is charged £25 per hour. Do we know the cumulative amount of these charges in any particular bank?
Mr. Mac Domhnaill: All these charges and interest make up the banks’ income.
Deputy Doherty: I am distinguishing between charges and interest. These are new charges, introduced in recent years, imposed, in many instances, without the knowledge of the customer.
Mr. Mac Domhnaill: These charges make up the income on a bank’s account.
Deputy Doherty: They are additional to the interest.
Mr. Mac Domhnaill: The income of the bank account is made up of interest and charges. Those accounts are independently audited.
Deputy Doherty: The Director of Consumer Affairs is very concerned about bank charges. He has publicly stated his concern on more than one occasion. I simply thought the Revenue Commission might have a particular view on them.
The Central Bank has examined all the banks from time to time as is their responsibility. Has the Central Bank been forthcoming with you in relation to your investigations over the years?
Mr. Mac Domhnaill: I think, Chairman, we dealt with this the last day. The Central Bank has no authority to give us information.
Deputy Doherty: Would you consider it a necessity to ensure that the Revenue Commissioners can gain access to some of that information which is available to the Central Bank?
Mr. Mac Domhnaill: What was said to this Committee during the previous discussion on the Central Bank was that this was part of the Central Bank’s European arrangement. It is, in any event, a matter for the Central Bank. My understanding, from the statement given to me by the Central Bank and which I made available to the Committee, is that this is part of European as well as domestic law and that the degree to which the Central Bank can divulge this information is quite limited in the circumstances specifically laid down in the legislation. I see no need to go a circuitous route through the Central Bank if we can go directly to the banking institutions themselves. It would only be a waste of time.
Deputy Doherty: With no disrespect to the Central Bank, having regard to their performance in relation to the banks, I do not think there would be much useful information forthcoming. There was a serious deficit of information, at least in publicised accounts, over the years.
Lastly, to what extent do you use the offices of state solicitors? Do you have solicitors, other than state solicitors, who are on hefty fees?
Mr. Mac Domhnaill: Once our prosecution cases went to the Gardaí. The Gardaí then referred them for carriage through the Courts either to the Chief State Solicitor or to the state solicitors. That was where our main involvement would be with state solicitors. We have also used state solicitors, to a fair degree, for straightforward customs prosecutions. The other area where we use solicitors is for debt enforcement.
Deputy Doherty: Outside of state solicitors?
Mr. Mac Domhnaill: Yes, outside of state solicitors. Then we have the Revenue Solicitor’s Office.
Deputy Doherty: Do you have many of them?
Mr. Mac Domhnaill: There are two firms.
Deputy Doherty: What amounts of money were paid to these two firms over the past three or four years?
Mr. Mac Domhnaill: In 1996 the total gross amount paid out was £861,489. In 1997 the gross amount was £860,029. These amounts were paid to two firms of solicitors where a whole business operation is going on and hundreds of cases are being prosecuted.
Deputy Doherty: It would be for a number of cases and for staff and so on? Thank you Mr. Mac Domhnaill.
Chairman: As has been established by Deputy Rabbitte, there have been tremendous and evident improvements in the Revenue Commission over recent years. The activities uncovered by recent tribunals and revelations about banks have happened under the noses of the Revenue Commissioners and without sufficient action by them. This Committee can come to no other conclusion. The public feel that the Revenue Commissioners have been remiss and less than robust in exercising their duty of care to the taxpayers by failing to ensure that tax evasion does not occur. While I acknowledge that the rules of confidentiality in the banking system are there for a good purpose, they should not be used easily for the purpose of tax evasion which is a crime. Those who perpetrate tax evasion are criminals.
The Chairman of the Revenue Commissioners reported a case in a court in the west of Ireland where the judge found a respondent guilty but did not sentence him to prison because he was a professional man.
Mr. Mac Domhnaill: No, it was because his business would have been closed down.
Chairman: I think I am quoting your words correctly but that judge seems to me to summarise the attitude that jail is no place for gentlemen even if they are criminals. That attitude informs the approach of more than the Revenue Commissioners and it must change.
I am concerned about a number of things which are happening in our society which must be stamped out because they are dangerous. Allowing tax evasion, social welfare abuse and the compensation culture to continue will be corrosive and ruinous of our society and our economic success. The Committee must be concerned about that.
We cannot let you off today with a simple reprimand. We must say we are concerned about the Revenue Commissioners. I suggest that we not conclude this hearing today. The Committee should consider some other aspects of this problem. For instance, we spoke today of the criminal pursuit of tax evaders. We have not yet spoken about the criminal pursuit of compliant bank executives. I am not sure if such a pursuit comes within the remit of the Revenue Commissioners. If senior bank executives are compliant in tax evasion, either by active facilitation or by turning blind eye they should not be let off the hook. If there is to be confidence in our banking system and in our economy it is important that the banks are seen to be above suspicion. For that reason I would like to consider if the Committee should use its powers under Standing Orders to summon bank officials to this Committee. I suggest that we adjourn consideration of this matter until next week.
I agree with Deputy Bell. You have an impressive mastery of the issue of taxation and of the organisation of which you are in charge. I commend you for that, chairman, and for the improvements which have taken place under your leadership in the Revenue Commission in this area the Committee is dissatisfied.
Mr. Mac Domhnaill: May I make a short response, Chairman. You mentioned various tribunals. Two of the tribunals have finished. In the beef tribunal, Revenue was cleared of all allegations and our two officers who negotiated the settlement were commended by the tribunal.
Nothing in the findings of the McCracken tribunal points a finger at Revenue.
In those circumstances it is hard to see why Revenue is specifically mentioned in the Moriarty tribunal. I am confident Revenue will get a reasonable hearing at the tribunal but the hearings have not started so I do not see, Chairman, where you get evidence drawn from tribunals to make that statement.
Deputy Rabbitte: I think he is getting it here, if one takes the example Mr. MacDomhnaill has made. It is true that any allegations - and there were no serious allegations against the Revenue Commissioners - were not established, but it was established that one of the largest enterprises in the country was engaged in the biggest orchestrated tax evasion scam in the history of Irish industrialisation. The point the Chairman was making was that this went on under the noses of the Revenue Commissioners, to use his phrase. That is not to imply it was the Commissioners’ fault or that they were complicit but it happened. It is difficult to understand how a huge enterprise can make Revenue returns akin to those of a corner shop without alarm bells going off somewhere - for instance, the company might claim to have 2,500 employees but the tax returns are for 150 employees. That is the point being made by the Chairman and the man on the street.
Mr. MacDomhnaill: It is a point of view but it is not quite accurate in relation to the tribunal. We had made a settlement and it was alleged that it was not a good one. We uncovered the evasion and made a settlement before the tribunal entered the arena. That was placed before the High Court as part of the financial settlement necessary to salvage that industry when the banks had to come to an arrangement. They would not sign off on the arrangement until Revenue had finalised its back duty investigation.
Deputy Rabbitte: We are pitting our wits and I would like to reserve my position on the uncovering claim but I remember for a fact that when it was uncovered the company concerned misled the Revenue Commissioners - the figure was wrong and turned out subsequently to be a great deal more.
Mr. MacDomhnaill: No, in the first settlement we were dealing with an avoidance scheme where companies were set up and dividends declared but these dividends were remuneration in disguise. The judge endorsed Revenue’s view that these were not dividends, which would be tax free, but remuneration. In the second settlement, before that arrangement came about there was straightforward evasion which was not dressed up as dividends.
Deputy Rabbitte: We have to struggle with 53,000 accounts and I do not know what factor one can multiply that by for the other associated banks. In this small population of taxpayers that is a huge proportion and that was going on. I do not understand what Mr. MacDomhnaill means by saying there were 10,000 accounts of less than £100 because why would anyone want to open a bogus non-resident account for so little? I am bemused by that but perhaps he is saying that when they were uncovered £100 was left in them. The suggestion that someone would have only £100 in a bogus non-resident account is the type of thing which makes the man in the street ask who they think they are fooling.
Chairman: They were grannies.
Deputy Rabbitte: Grannies do not do that.
Mr. MacDomhnaill: When you count numbers of accounts or deposits it includes all of those so one can get a huge number. They may be balances only but at any one point in time there are a number of deposit accounts and at that point, nearly 10,000 were-----
Deputy Rabbitte: But Mr. MacDomhnaill are you saying that a large share of the bogus accounts had only £100 in them. They may have had £100,000 in them but at that particular time only £100 was left, when whatever transaction-----
Mr. MacDomhnaill: I am not saying anything of the kind, I said there were some large accounts. I was responding to Deputy Ardagh’s question as to whether small people were involved. I was not trying to make any comment about the numbers being quoted.
Deputy Rabbitte: They might be small people, shorter than 5 feet 8 inches, but with a lot of money.
Mr. MacDomhnaill: I was responding to a different question.
Deputy Durkan: There is one other question which might come up again but it might be no harm to look at it further for the next day. It relates to intermediaries. If I decide to approach a financial institution to make an investment - I hope I would have more than £100 if I was going offshore - what liability rests with the institution in respect of accountability to the investor? We have discussed the accountability to the Revenue Commissioners.
Mr. MacDomhnaill: The Deputy has touched on a sensitive point. In order to get information from a financial institution we must be able to show chapter and verse because otherwise the institution will be open to litigation from the investor. It must fit in with the reporting arrangements covered by law.
Deputy Rabbitte: What is the answer to the Chairman’s question? Are the Revenue and this Committee as powerless as it would appear? If a senior executive of the Bank invites me with a nod and a wink to invest in this way, on the basis that I have more substance than the average depositor, is he complicit with the depositor in committing an offence?
Mr. MacDomhnaill: If we can prove it. This could happen - a number of people have written to us regarding recent events and named individuals who enticed them to enter into these transactions. If those people are prepared to give evidence we will be able to establish a case of aiding and abetting tax evasion, for which there are fairly substantial penalties, including custodial sentences.
Chairman: That was the question I wanted to ask the Department of Finance: has consideration been given to introducing amending legislation to give protection to people who give evidence of the kind mentioned by the Chairman of the Revenue Commissioners?
Mr. Ó Murchadha: Up to now this question has not been considered. It can be considered in the context of the review of Revenue powers and legislation which may be required in the near future.
Chairman: It is galling that it is left to Mr. Bird and Mr. Lee of RTE to get this information under cloak of secrecy without naming individuals. If those individuals had confidence that they could go to the Revenue with legal protection and that justice would be pursued, presumably they would have considered that route, but I imagine they went to RTE because they did not feel that route was open to them.
Mr. MacDomhnaill: Arising out of the judge’s comments we have written to RTE for the information.
Chairman: For the future, do you see a need to provide legal protection, immunity or indemnity to employees of financial institutions who see wrongdoing and report it to Revenue? Is there need to change the law to provide such protection?
Mr. MacDomhnaill: That is a significant point because when we get information we often cannot use it as evidence because the job of the person concerned may be at stake - it is not even a question of being prosecuted. We have information in many cases where we make financial settlements but we cannot translate it into evidence because of the risks to the people concerned.
Chairman: They cannot give evidence?
Mr. MacDomhnaill: They are not prepared to.
Deputy Doherty: In circumstances where names, addresses and information on where money went have been given to you. The circumstances in which the information was provided to you would, by normal standards, amount to a breach of contract between the client and the institution. Does any law govern this?
Mr. MacDomhnaill: That is something we must be careful about. The institutions themselves will take legal advice. They will not give information to Revenue unless there is a statutory authority because that is their protection. If you want them to give the information they must be given the statutory authority. On the other hand, we get information from people. This was the main point in the RTE case before the Supreme Court. The complainant alleged that documents had been stolen and therefore should not be used. Those in a fiduciary position with regard to a company can take the view that the Supreme Court has endorsed the handing over of information they hold to a regulatory authority. That is the first time we have had a strong statement to the effect that something obtained, even in doubtful circumstances, can now be given to a regulatory authority to secure conviction or whatever.
Chairman: In cases where there is evidence of crime. Is that the position?
Deputy Doherty: It is worse than that. In this instance an investigation is basing itself on a criminal activity that occurred in the first instance, where documents were obtained by illicit or illegal means. One cannot commit a crime in pursuance of the investigation or detection of one. In this situation I imagine the financial institutions are open to a large number of civil actions in circumstances where there is a revelation of accounts, names and addresses and where money went.
Have accountants been questioned or pursued? Many of these people, such as Deputy Rabbitte, have spoken about people with substantial sums of money who have accountants who are central to the fiscal activities. What role have they played and what are their obligations regarding this matter?
Has the matter been taken up with the various institutes of accountancy? They can no longer disclaim in these matters. Recent legislation has made it obligatory in certain circumstances for people to make disclosures. Surely they must be central to this whole area of investigation?
Mr. MacDomhnaill: A key recommendation of the beef tribunal was that auditors be obliged to notify the Revenue Commissioners if they came across evasion. That was one of the most controversial measures to come before the Dáil and it has been considerably watered down. Now they are merely asked to resign from the case if the client refuses a request to disclose matters to the Revenue Commissioners. There is no question of them having to tell us of evasion.
Deputy Doherty: You had better keep you eye out for resignations.
Mr. MacDomhnaill:The question regarding a crime being committed would have been a matter of great hesitation for many until the recent Supreme Court decision. The court has now said that, notwithstanding the theft of documents, they can still be handed over to a regulatory authority. If tax evasion is involved the Revenue Commissioners would be the regulatory authorities. We have requested these documents and are confident we will get them.
Chairman: We will adjourn at this stage but return to the subject because we need to discuss the state of the law on this. Revenue and other people are operating under laws which are unbalanced or unnecessarily restrictive. We may also wish to discuss other matters, including possibly calling senior personnel from the different banks to appear before the Committee.
We will resume on Thursday at 9.30 a.m. when we will consider Vote 3 - Department of the Taoiseach, Vote 42 - An Roinn Ealaíon, Oidhreachta, Gaelteachta agues Oileán and Vote 44 - An Comhairle Ealaíon. We will also resume on the report on the Value for Money Examination - the Irish Genealogical Project, with Deputy Conor Lenihan and Deputy Durkan leading.
On Thursday, 7 May 1998 at 11 a.m. we will consider the 1996 annual report of the C&AG, the Appropriation Account and Vote 24 - Department of the Environment and Local Government (resumed). Is that agreed? Agreed.
The witness withdrew.
The Committee adjourned at 5.05 p.m.
PROCEEDINGS OF COMMITTEE
DÉARDAOIN 13 SAMHAIN 1997
THURSDAY 13 NOVEMBER 1997
1.Chruinnigh an Coiste ar 11.00 a.m.
2.Comhaltaí i Láthair:-
Na Teachtaí S. Mistéal (i gCeannas), Ardachaidh, Cooper-Ní Fhloinn, Ó Duinneacha, Ó Dochartaigh, Ó Foghlú, Mac Giolla Dé, Ó Luineacháin, MacCormaic, Ó Coinín.
3.Chuaigh an Coiste i suí príobháideach.
Rinne an Coiste breithniú.
Chuaigh an Coiste i suí poiblí.
4.Breithniú Chuntais Leithreasa 1996.
Tosaíodh ar bhreithniú na gCuntas Leithreasa don bhliain 1996. Cuireadh an Cuntas seo a leanas ar athló:-
Oifig na gCoimisinéirí Ioncaim.
5.Finnéithe a Ceistíodh:-
An tUas. Cathal Mac Domhnaill (Cathaoirleach, Oifig na gCoimisinéirí Ioncaim),An tUas. S. Puirséal (An tArd-Reachtaire Cuntas agus Ciste).
Chuaigh an Coiste ar athló ar 1.15 p.m. go dtí 11.00 a.m. Déardaoin 20 Samhain 1997.
1.The Committee met at 11.00 a.m.
Deputies J. Mitchell(in the Chair),Ardagh, Cooper-Flynn, Dennehy, Doherty, Foley, Gildea, Lenihan, McCormack, Rabbitte.
3.The Committee went into private session.
The Committee deliberated.
The Committee went into public session.
4.Consideration of Appropriation Accounts 1996.
Consideration of Appropriation Accounts for the year 1996 was begun. The following Account was adjourned.
Office of the Revenue Commissioners.
Mr. Cathal MacDomhnaill (Chairman, Office of the Revenue Commissioners).
Mr. J Purcell (Comptroller and Auditor General).
The Committee adjourned at 1.15 p.m. until 11.00 a.m. on Thursday 20 November 1997.
DÉARDAOIN 20 SAMHAIN 1997
THURSDAY 20 NOVEMBER 1997
1.Chruinnigh an Coiste ar 11.05 a.m.
2.Comhaltaí i Láthair:-
Na Teachtaí S. Mistéal (i gCeannas), Ardachaidh, Cooper-Ní Fhloinn, Ó Duinneacha, Mac Dhurcáin, Ó Foghlú, Mac Giolla Dé, Ó Luineacháin, MacCormaic.
3.Chuaigh an Coiste i suí príobháideach.
Rinne an Coiste breithniú.
Chuaigh an Coiste i suí poiblí.
4.Breithniú Chuntais Leithreasa 1996.
Athchromadh ar bhreithniú na gCuntas Leithreasa don bhliain 1996. Cuireadh an Cuntas seo a leanas ar athló:-
Oifig na gCoimisinéirí Ioncaim.
5.Finneithe a Ceistíodh:-
An tUas. Cathal Mac Domhnaill (Cathaoirleach, Oifig na gCoimisinéirí Ioncaim), An tUas. S. Puirséal (An tArd- Reachtaire Cuntas agus Ciste).
Chuaigh an Coiste ar athló ar 1.20 p.m. go dtí 11.00 a.m. Déardaoin 27 Samhain 1997.
1.The Committee met at 11.05 a.m.
Deputies J. Mitchell(in the Chair),Ardagh, Cooper-Flynn, Dennehy, Durkan, Foley, Gildea, Lenihan, McCormack.
3.The Committee went into private session.
The Committee deliberated.
The Committee went into public session.
4.Consideration of Appropriation Accounts 1996.
Consideration of Appropriation Accounts for the year 1996 was resumed. The following Account was adjourned:-
Office of the Revenue Commissioners.
Mr. Cathal MacDomhnaill (Chairman, Office of the Revenue Commissioners). Mr. J Purcell (Comptroller and Auditor General).
The Committee adjourned at 1.20 p.m. until 11.00 a.m. on Thursday 27 November 1997.
DÉARDAOIN 18 NOLLAIG 1997
THURSDAY 18 DECEMBER 1997
1.Chruinnigh an Coiste ar 11.05 a.m.
2.Comhaltaí i Láthair:-
Na Teachtaí S. Mistéal (i gCeannas), Ardachaidh, de Bheil, Cooper-Ní Fhloinn, Ó Duinneacha, Ó Dochartaigh, Mac Dhurcáin, Ó Foghlú, Mac Giolla Dé, Ó Luineacháin, Mac Cormaic, Ó Coinín.
3.Chuaigh an Coiste i suí príobháideach.
Rinne an Coiste breithniú.
Chuaigh an Coiste i suí poiblí.
4.Breithniú Chuntais Leithreasa 1996.
Athchromadh ar bhreithniú na gCuntas Leithreasa don bhliain 1996. Críochnaíodh na Cuntais seo a leanas:-
Oifig na gCoimisinéirí Ioncaim.
5.Finnéithe a Ceistíodh:-
Cathal Mac Domhnaill (Cathaoirleach, Oifig na gCoimisinéirí Ioncaim), T. Ó Daltúin (Ard-Rúnaí, An Roinn Dlí agus Cirt, Comhionannais agus Athchóirithe Dlí), S. Puirséal (An tArd-Reachtaire Cuntas agus Ciste).
Chuaigh an Coiste ar athló ar 1.30 p.m. go dtí 2.30 p.m. De Máirt 6 Eanáir 1998.
1.The Committee met at 11.05 a.m.
Deputies J. Mitchell(in the Chair),Ardagh, Bell, Cooper-Flynn, Dennehy, Doherty, Durkan, Foley, Gildea, Lenihan, McCormack, Rabbitte.
3.The Committee went into private session.
The Committee deliberated.
The Committee went into public session.
4.Consideration of Appropriation Accounts 1996.
Consideration of Appropriation Accounts for the year 1996 was resumed. The following Accounts were disposed of:-
Office of the Revenue Commissioners.
Mr. Cathal MacDomhnaill (Chairman, Office of the Revenue Commissioners), Mr. Tim Dalton (Secretary General, Department of Justice, Equality & Law Reform), Mr. J Purcell (Comptroller and Auditor General).
The Committee adjourned at 1.30 p.m. until 2.30 p.m. on Tuesday 6 January 1998.
DÉ MÁIRT 28 AIBREÁN 1998
TUESDAY 28 APRIL 1998
1.Chruinnigh an Coiste ar 2.35 p.m.
2.Comhaltaí i Láthair:-
Na Teachtaí S. Mistéal (i gCeannas), Ardachaidh, de Bheil, Cooper-Ní Fhloinn, Ó Dochartaigh, Mac Dhurcáin, Ó Coinín.
3.Chuaigh an Coiste i suí príobháideach.
Rinne an Coiste breithniú.
Chuaigh an Coiste i suí poiblí.
4.Breithniú ar cheist an dul chun cinn i ndáil le hionchúisimh:-
Athosclaíodh breithniú an Chuntais seo a leanas agus cuireadh é ar athló
Oifig na gCoimisinéirí Ioncaim.
5.Finnéithe a Ceistíodh:-
C. Mac Domhnaill (Cathaoirleach, Oifig na gCoimisinéirí Ioncaim), S. Puirséal (An tArd-Reachtaire Cuntas agus Ciste).
Chuaigh an Coiste ar athló ar 5.05 p.m. go dtí 9.30 a.m. Déardaoin 30 Aibreán 1998.
1.The Committee met at 2.35 p.m.
Deputies J. Mitchell(in the Chair),Ardagh, Bell, Cooper-Flynn, Doherty, Durkan, Rabbitte.
3.The Committee went into private session.
The Committee deliberated.
The Committee went into public session.
4.Consideration of the issue of progress in relation to prosecutions:-
Consideration of the following Account was reopened and adjourned
Office of the Revenue Commissioners
Mr. Cathal Mac Domhnaill (Chairman, Office of the Revenue Commissioners), Mr. J Purcell (Comptroller and Auditor General).
The Committee adjourned at 5.05 p.m. until 9.30 a.m. on Thursday 30 April 1998.
DÉARDAOIN 23 IÚIL 1998
THURSDAY 23 JULY 1998
1.Chruinnigh an Coiste ar 11.05 a.m.
2.Comhaltaí i Láthair:-
Na Teachtaí S. Mistéal (i gCeannas), Ardachaidh, Cooper-Ní Fhloinn, Ó Duinneacha, Ó Foghlú, Ó Luineacháin, Mac Cormaic, Ó Coinín.
3.Chuaigh an Coiste i suí príobháideach.
Rinne an Coiste breithniú.
Chuaigh an Coiste i suí poiblí.
4.Breithniú Chuntais Leithreasa 1996.
Athchromadh ar bhreithniú na gCuntas Leithreasa don bhliain 1996. Críochnaíodh na Cuntais seo a leanas:-
Oifig na gCoimisinéirí
5.Finnéithe a Ceistíodh:-
S. Puirséal (An tArd-Reachtaire Cuntas agus Ciste).
Chuaigh an Coiste ar athló ar 2.10 p.m. go dtí 11.00 a.m. Déardaoin 17 Meán Fómhair 1998.
1.The Committee met at 11.05 a.m.
Deputies J. Mitchell(in the Chair), Ardagh, Cooper-Flynn, Dennehy, Foley, Lenihan, McCormack, Rabbitte.
3.The Committee went into private session.
The Committee deliberated.
The Committee went into public session.
4.Consideration of Appropriation Accounts 1996.
Consideration of Appropriation Accounts for the year 1996 was resumed. The following Accounts were disposed of:-
Office of the Revenue Commissioners
Mr. J Purcell (Comptroller and Auditor General).
The Committee adjourned at 2.10 p.m. until 11.00 a.m. on Thursday 17 Septermber 1998.
DÉARDAOIN 15 DEIREADH FÓMHAIR 1998
THURSDAY 15 OCTOBER 1998
1.Chruinnigh an Coiste ar 11.05 a.m.
2.Comhaltaí i Láthair:-
Na Teachtaí S. Mistéal (i gCeannas), Ardachaidh, de Bheil, Cooper-Ní Fhloinn, Ó Duinneacha, Ó Dochartaigh, Mac Dhurcáin, Ó Foghlú, Mac Giolla Dé, Ó Luineacháin, Mac Cormaic, Ó Coinín.
3.Chuaigh an Coiste i suí príobháideach.
Rinne an Coiste breithniú.
4.An Dréacht den Dara Tuarascáil Eatramhach ón gCoiste um Chuntais Phoiblí ar an Cuntais Leithreasa 1996.
Chuir an Cathaoirleach an Dréacht Dara Tuarascáil Eatramhach faoi bhráid an Choiste lena breithniú.
Aontaíodh an Dréacht den Dara Tuarascáil Eatramhach.
Ordaíodh: Tuairisciú don Dáil dá réir sin.
1.The Committee met at 11.05 a.m.
Deputies J. Mitchell(in the Chair),Ardagh, Bell, Cooper-Flynn, Dennehy, Doherty, Durkan, Foley, Gildea, Lenihan, McCormack, Rabbitte.
3.The Committee went into private session.
The Committee deliberated.
4.Draft Second Interim Report of the Committee of Public Accounts on the Appropriation Accounts 1996.
The Chairman brought forward the Draft Second Interim Report for Consideration.
Draft Second Report agreed to.
Ordered: To report to the Dáil accordingly.