Mr. Seamus McCarthy:

The 2018 account of the receipt of revenue of the State collected by the Revenue Commissioners was certified by me on 18 April 2019 and received a clear audit opinion. The account records receipts of taxes and duties remitted by Revenue to the Exchequer, and receipts collected by Revenue on behalf of other agencies. In 2018, the net receipts of taxes and duties amounted to a total of €54.6 billion, an increase of €4 billion or 8% when compared to 2017. At the level of tax headings, the most significant change related to corporation tax receipts, which increased by €2.2 billion, or 27% year-on-year. Receipts related to VAT, income tax and corporation tax together accounted for 84% of net tax receipts. Net receipts collected by Revenue on behalf of other agencies increased by 14.6% year-on-year, from €12.3 billion in 2017 to €14.1 billion in 2018. Pay related social insurance contributions continue to account for the majority, nearly 80%, of such receipts.

Members may wish to note that there was a change in the treatment of local property tax receipts in 2018. Up to 2017, such receipts were treated as an Exchequer receipt but since 1 January 2018, local property tax receipts are remitted by Revenue directly to the Local Government Fund. The amount received in 2018 was €488 million, up marginally from the €482 million received in 2017.

Revenue's administration and operational expenses are charged to Vote 9 - Revenue Commissioners, rather than the Revenue account. The appropriation account shows that the total spent by Revenue in 2018 was €425 million. This was up 3.4% from €411 million in 2017. Taking account of appropriations-in-aid of €72 million, net expenditure under the Vote amounted to €353 million. The surrender for the year was €3.7 million. In my report on the appropriation account, I draw attention to instances of non-compliance by Revenue with procurement rules. The nature of this and how it is being addressed is disclosed by the Accounting Officer in the statement on internal financial control.

I will turn now to chapter 17, which is on tax compliance interventions. Chapter 17 outlines Revenue's approach to monitoring and managing taxpayer compliance. The report reviews controls over compliance interventions and the agreement and collection of tax settlements. The examination found that Revenue's compliance work is well-targeted. Just over 460,000 specific interventions were recorded as completed in 2018. These ranged from low-intensity interventions such as customs checks, checks of information available to Revenue and inquiries with taxpayers, to more intensive on-site audits and investigations. These can result in identification of a yield amount, that is, additional tax, interest and in some cases, penalties due. Out of 456,000 non-audit interventions completed in 2018, one in four resulted in identification of yield, amounting to €316 million. A total of 4,700 audit interventions were also completed in 2018, with almost two thirds of those resulting in a yield. The average yield per case for completed audits was approximately €84,500.

The review also examined 50 settlement cases closed formally by Revenue in 2018, with a combined yield of €92.7 million. For most of the cases reviewed, the examination found that the liability had been calculated by Revenue as required under its procedures, or Revenue had validated calculations by a taxpayer's agent, and interest and penalties had been applied in accordance with legislation. A number of the settlement cases examined have been outlined in the chapter, and illustrate the protracted nature of many compliance and settlement cases.

Case study A involved liabilities of a taxpayer under four aspects of PAYE and PRSI. While Revenue had issued a notice of estimation of amounts due in one of those areas in 2015 in the amount of €205 million, a settlement offer of €29.1 million was accepted in August 2018. The reasons for the change in Revenue's view on the liability are documented in the case file and appear reasonable.

In case study B, Revenue accepted a settlement just days before a Tax Appeals Commissioner hearing was due in April 2017. While Revenue had assessed the tax due at €113 million, it ultimately accepted a settlement offer of €10 million on foot of legal advice to settle, among other reasons, due to the passage of time in the case.

The chapter also looked at the collection of settlements agreed with taxpayers. In general, Revenue does not pursue intervention yield amounts which it deems uneconomic to pursue. There is no set threshold for non-pursuit: each amount is judged on a case-by-case basis. Revenue published information about a total of 554 settlements with taxpayers in quarterly listings in 2017 and 2018, with a combined value totalling €97 million. Of this amount, 59% had been collected by Revenue by the end of May 2019. The rate of outstanding liabilities varied, with the highest percentages of yield outstanding for quarter 2 and quarter 3 of 2017.

The chapter made two recommendations around the area of data recording and performance measurement. The first suggests that Revenue should distinguish in its performance information between interventions prompted by taxpayers and those commenced by Revenue as a result of its own planning or systems. The second recommendation is that Revenue should consider reporting the differences between the amount of tax assessed as due from compliance activity, the tax settlement amount and the tax actually collected, and the reasons for any variances.

I will turn now to chapter 18, which deals with tax relief on film production. Tax relief for investment in films, generally referred to as film relief, was first introduced in Ireland in the 1980s. The administration of film relief involves both the Department of Culture, Heritage and the Gaeltacht and the Revenue Commissioners. The regulations underpinning the scheme were revised in 2015. In order for a film production company to qualify for film relief, the project proposal must be authorised by the Department as a qualifying audiovisual project, based on satisfying certain criteria. A special-purpose production company must be set up for each project. The company may claim corporation tax relief in advance, based on the projected expenditure on a qualifying project, through the mechanism of a payable tax credit. This typically results in a payment to the company and does not depend on the amount of tax previously paid. This is effectively a grant scheme operated through the taxation system. Under the 2015 scheme, 337 projects were granted a total of €273 million of film relief in the period 2015 to 2018, which is an average of approximately €810,000 per project.

The examination reviewed a sample of 35 film relief applications submitted to the Department between 2015 and 2018. Three applications were refused on the basis that they were for categories of film not eligible for certification. All of the remaining 32 projects were approved on the basis that they passed the Department's cultural test. This means that they met at least three of eight broadly-defined cultural criteria as assessed by the Department.

While seven of the eight criteria are amenable to quantification or objective testing, one is very broadly stated. It was noted that almost all of the approved projects were deemed to have met this criterion.

The Department also operates an alternative employment test for projects that are proposed for film relief. To qualify under this test, the Minister must be satisfied that the project can act as a stimulus to the making of audiovisual projects in Ireland through the provision of quality employment, training and skills development opportunities. However, there is no definition of what constitutes quality employment. The chapter recommends that the Department establish criteria to establish the employment aspects of proposals for film relief.

Under the 2015 scheme, Revenue was responsible for approving the value of the film relief. A sample of 15 Revenue files processed under the scheme was examined to check that the prescribed pre-production and post-production checks were undertaken on the projects. These included checks on the legal structure of the production companies, the budget for the project and the expenditure outturn. The examination identified no issues of concern from those reviews.

Revised regulations for film relief were implemented with effect from March 2019. This included moving the relief to a self-assessment basis, similar to that used for most other tax reliefs. When the chapter was being finalised, Revenue was still in public consultation with the film sector on draft guidelines on the operation of the credit under the new system. Revenue stated that planning was underway for an appropriate compliance testing regime for film relief. The recommendations in the chapter were addressed to the Department, rather than to Revenue.