Mr. Seamus McCarthy:

The account of the receipt of revenue of the State collected by the Revenue Commissioners discloses taxes and duties remitted by Revenue to the Exchequer and receipts collected by Revenue on behalf of others. The 2017 Revenue account, which was certified in April 2018, was examined by the committee at a meeting last June.

Revenue’s administration and operational expenses are charged to Vote 9, Office of the Revenue Commissioners, rather than the Revenue account. The 2017 appropriation accounts show that the total spent by Revenue in the year was €411 million. Taking account of appropriations-in-aid of €71 million, net expenditure under the Vote amounted to €340 million. The surrender for the year was €3.4 million.

Chapter 17 examines the actions taken by Revenue in recent years to tackle the issue of tobacco smuggling, which represents a significant risk to tax receipts. Revenue and the National Office for Tobacco Control commission an annual survey to estimate the extent of illicit tobacco related activity in Ireland. Based on the survey, Revenue estimates that 13% of cigarettes consumed in Ireland in 2017 were illegal, with an associated notional loss of revenue of approximately €229 million.

Revenue seizures of cigarettes and tobacco in 2017 were worth in excess of €20 million at normal prices, representing a potential loss to the Exchequer of €16 million in taxes and duties. Relative to the estimated overall loss of €229 million, this implies a Revenue detection rate for illegal cigarettes of approximately 7%. The value of any seizures that take place abroad with Revenue’s assistance is not recorded as there is no formal mechanism in place to account for such events.

Figure 17.7 refers to expenditure of more than €400,000 incurred by Revenue up to the end of August 2018 relating to the ongoing holding in Dublin Port of a ship that was seized in 2014 for carrying illegal cigarettes and tobacco. Significant disposal costs may also arise. This expenditure is charged to Vote 9.

Revenue published its first stand-alone strategy on combating the illicit tobacco trade covering the period 2011 to 2013.

A follow-on stand-alone strategy was not produced. However, Revenue is finalising a national action plan to combat illicit tobacco, with a focus on increased international co-operation.

Chapter 18 outlines Revenue’s approach to monitoring and managing the tax affairs of high wealth individuals. These are managed by a dedicated unit within Revenue’s large cases division. A specific case manager is assigned to each individual. As at June 2018, the unit was managing approximately 480 individuals. The unit was also dealing with around 140 trusts, partnerships and other legal entities related to these individuals. Revenue’s criterion for someone to be considered a high wealth individual is that the person is known or believed to have net assets of more than €50 million. This is a high threshold compared with other jurisdictions.

High wealth individuals tend to operate in multiple business sectors. Revenue's practice in that regard is to assign a sectoral code to each high wealth individual that reflects his or her primary activity. On that basis, around one third of high wealth individuals operate primarily in the real estate sector. High wealth individuals’ tax liabilities cover a range of tax categories. At the time of the examination, the most recent data provided by Revenue on tax liabilities for high wealth individuals were for 2015. In that year, high wealth individuals accounted for 3.4% of all net income tax due, 9.3% of capital gains tax receipts and 2% of all capital acquisitions tax receipts.

High wealth individuals filed 334 income tax returns in 2015. The number of returns filed is lower than the number of individuals managed in the unit for a number of reasons. For example, a jointly assessed couple, both classed as high wealth individuals, would count as one taxpayer unit and file one income tax return. The unit also monitors individuals known to have substantial economic interests in Ireland but who may not have a requirement to file an income tax return in Ireland.

The income tax due from high wealth individuals who made income tax returns in 2015 was highly concentrated, with very significant variations between the 334 returns. Some 85% of the total income tax liability was due from just ten taxpayers. Across the group, the average effective tax rate was 39.2%, more than double the average rate of 16.3% for all income taxpayers. However, 90 high wealth individuals had an effective income tax rate less than the national average rate.

The examination reviewed a sample of 30 compliance interventions undertaken by Revenue which resulted in additional tax being collected from high wealth individuals. Of these, 14 had availed of a qualifying avoidance disclosure programme, QAD, to settle their tax affairs. A QAD allows a taxpayer who entered into a tax avoidance transaction to settle with Revenue by paying the full tax and interest due at the time of the disclosure. Incentives for the taxpayer in such QAD cases are a 20% reduction in the amount of interest otherwise due and the avoidance of penalties and publication as defaulters.

For one of the intervention cases reviewed, Revenue had agreed to a phased payment arrangement on the basis of limited documentation. Another 26 taxpayers involved in the same tax avoidance scheme were granted the same settlement arrangements without the specified evidence. Revenue guidelines set out the evidence required but also state that some cases may fall outside the guidelines. However, the guidelines do not explicitly state in what circumstances such an exception should be made.

Chapter 19 reviews recent trends in corporation tax losses and follows on from a report I presented last year on corporation tax. Companies are liable for corporation tax in respect of all profits arising from income or gains. Where a company reports a trading loss, that loss can be used to obtain relief from the payment of corporation tax. Losses carried forward by companies can be made up of a combination of unused capital allowances and trading losses. However, Revenue’s systems do not identify unused capital allowances carried forward separately from the overall losses carried forward. There is a high degree of concentration in companies that have accumulated losses. In 2016, a total of €231 billion of losses and unused capital allowances was available for offset against profits. Those available losses and allowances could potentially result in the lowering, over a number of future years, of corporation tax receipts by the order of €29 billion. This overhang of losses is, consequently, a key variable in the outturn of corporation tax receipts.

As has been noted previously, corporation tax receipts have consistently outperformed forecasts in recent years, particularly since 2015. Based on prior year trends, Revenue forecasts receipts on a net basis, that is, after the impact of losses. Separate forecasting of gross receipts and of the usage of losses may offer some potential for improved forecasting accuracy.