Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

With the Chairman's permission I propose to address amendments Nos. 40 and 41 together.

The issues raised by the Deputy reflect legitimate concerns surrounding employment law which can extend beyond both the construction and the IT sectors. The employment market has become increasingly complex in recent years, to the point that there are many variations on how people are engaged by end users. For example, the use of intermediary type structures to provide labour has become quite prevalent across a number of sectors. This is particularly so in the IT, pharmachem and airline industries, although it also features in the media and construction sectors. While the use of intermediary companies is generally not a predominant feature in the construction sector, significant taxation risks attaching to this sector necessitated the introduction of the RCT system which in recent times has moved to an electronic platform, eRCT.

I am informed by the Revenue Commissioners that the construction sector is an acknowledged area of high risk internationally and in Ireland it is no different. The scale of the activity carried out within the sector also contributes to a high risk rating. Based on real time data that is available to Revenue from the electronic relevant contracts tax system, in 2014 approximately 320,000 contracts to the value of €29 billion were reported by contractors, along with payment notifications of roughly €10.1 billion.

There are a number of risks associated with construction contracts and Revenue is continually monitoring developments to ensure that the compliance programmes are tailored to meet evolving risk areas. This process is aided by the data Revenue gets through the eRCT system as well as its risk evaluation analysis and profiling, REAP, system and other data sources.

Revenue conducts the full range of interventions to combat tax evasion in the sector. This includes risk management interventions, Revenue audits and investigations as well as site visits. The outcome of Revenue's work includes recovering unpaid tax, including PAYE tax from employers who failed to operate the PAYE system on payments made, the payment of interest on late payment and the pursuit of penalties for failure to notify Revenue, through the eRCT system, of contracts entered into and payments made under these contracts.

I am aware that concern has been expressed that the eRCT system promotes the use of bogus self-employed situations. As with any contract of engagement in the construction sector, whether a person is engaged as an employee or as a self-employed contractor is determined by the facts and evidence of each case and guidance on that matter is provided in the code of practice for determining employment or self-employment status of Individuals, which was prepared jointly by the Irish Congress of Trade Unions, business representative bodies and relevant State agencies.

It is important to point out the eRCT system is a tax deduction at source system and it does not determine whether a person in the construction sector, or indeed in any other sector, is an employee or a self-employed contractor. Under the eRCT system, on receipt of details of relevant contracts that are notified to Revenue in real time by principal contractors, Revenue immediately informs the relevant sub-contractors of those details. If any of the details notified to the sub-contractor are incorrect , or if the sub-contractor is of the view that he or she is not in fact a sub-contractor, then he or she can notify Revenue of those facts. A sub-contractor is fully entitled to clarify with the Revenue Commissioners any matters he or she unsure about and, if in the course of this, the Revenue Commissioners form the view that a contract is in fact a contract of employment rather than a contract for a self-employed contractor, they will take such action as they deem appropriate to ensure that PAYE is operated.

For other sectors, such as the IT sector highlighted by the Deputy, where there is the use of intermediary type structures, these typically take the form of a personal services company, frequently with only one worker or, alternatively, a managed service company, which is generally structured with at least six unconnected shareholders.

In some instances, the driver behind the use of intermediary type structures is the individual who has chosen to establish a corporate structure.

However, many cases have come to light where it appears that end-users are insisting that if an individual wishes to be engaged by an end-user, he or she must establish a personal services company or be engaged via a managed service company. Intermediary type structures can pose a risk to the Exchequer in terms of different outcomes in respect of: employer's and employee's PRSI; indefinite deferral of the payment of part or all of the remuneration with a consequent deferral of payment of the associated tax and USC; payment of unwarranted tax-free expenses, different pension planning opportunities; and different tax planning opportunities. A consequence of the use of intermediary-type structures is that two individuals who perform the same services for an end-user could have different tax outcomes and different entitlements to social insurance benefits.

It must be recognised that the type of arrangements to which I refer may not be driven solely by tax considerations. From the end-user's point of view, there can be clear advantages in ensuring that individuals are not engaged as employees. A feature of these arrangements is that employer's PRSI is avoided. The consequences for the individuals who provides labour include the loss of rights to holiday pay, sick pay, maternity pay and employer pension contributions. In addition, they lose rights under employment protection legislation such as those relating to maternity and parental leave and unfair dismissal.

Due to the complex nature of the issues involved, my officials have been working on preparing a public consultation process and I understand a submission seeking my approval to proceed will reach me shortly. Such a process would allow all interested parties to feed into a broad-ranging consideration of the issues involved. Accordingly, I do not propose to accept these amendments. However, what I propose comes close to what the Deputy seeks.