Simon Harris (Wicklow, Fine Gael) | Oireachtas source

This is the joy of tax. Where a withholding tax should have applied to the payment, this is not available as a credit to the subcontractor as the subcontractor received the payment in full without the operation of the relevant contracts tax but the principal is liable for the RCT which should have been deducted from the payment. In addition, the principal contractor is liable to a penalty of 35% of the tax that should have been deducted or €5,000, whichever is lesser.

In seeking to enforce the withholding rate in appropriate cases, Revenue compliance officers are being requested to review the tax affairs of subcontractors. Where accounts and returns are belatedly filed by a subcontractor and tax paid, it is stated that there is no loss to Revenue in these circumstances. Therefore, it is argued that Revenue should not be seeking this additional tax, in other words, from the principal contractor. Section 15 amends this section so that the penalty for the non-operation of the RCT is set at a level to ensure that the Exchequer is protected and that the penalty is also proportionate and reasonable. Also, in moving to this different civil penalty regime arguments as to whether the same income is doubly taxed are avoided.

We want to be very clear that tax has to be paid but if a tax is not paid then there is also going to be a penalty. Without this amendment that matter was unclear and it looked, potentially, like the same person was being taxed twice. That is not the case. There is the tax the person owes and then there is the penalty the person must pay for having failed to comply with the RCT in the first place.

It is proposed that the new regime would reflect the level of risk associated with the incorrect operation of the RCT by a principal contractor by reference to the deduction rate applicable to a sub-contractor when the payment was made. A higher penalty will be applicable in the case of a contractor where the sub-contractor was deemed to have a higher level of risk, and vice versa. Effectively, we are bringing in a sliding scale. For instance, at one end of the scale where the sub-contractor to whom the payment was made is not known to Revenue a civil penalty of 35% of the relevant payment shall be applied to the contractor and there will be no mitigation of this penalty. At the other end, where the sub-contractor is registered with Revenue and is liable for the RCT deduction rate of zero, a civil penalty of 3% of the relevant payment shall be applied, and Revenue will provide guidelines allowing for a mitigation to a zero rate.
This is about clarity, control and recognising some of what the Deputy alluded to, without me getting into the specifics, namely, that there must be clarity in terms of sub-contractors' and contractors' tax liabilities. This is basically saying that if someone is a compliant sub-contractor with their contractor there will be a sliding scale for offences. If they are not complying there will be a higher level of penalty, and there is no such thing as double tax. It is a penalty plus the original amount of tax. I have tried to make that as clear as possible.