Neasa Hourigan (Dublin Central, Green Party) | Oireachtas source

Members and all in attendance are asked to exercise personal responsibility in protecting themselves and others from the risk of contracting Covid-19. As numbers are quite high at the moment, we strongly advise members and others in attendance to practise good hand hygiene and to leave some distance between themselves and others attending. They should always maintain an appropriate level of social distance during and after the meeting.

Before we begin, I will explain some limitations to parliamentary privilege and the practice of the Houses as regards references witnesses may make to other persons in their evidence. The evidence by witnesses who are physically present or by those who give evidence from within the parliamentary precincts is protected pursuant to both the Constitution and statute by absolute privilege. Witnesses are reminded of the long-standing parliamentary practice to the effect that they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable or otherwise engage in speech that might be regarded as damaging to the good name of the person or entity. Therefore, if their statements are potentially defamatory with regard to an identifiable person or entity, they will be directed to discontinue their remarks.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official, either by name or in such a way as to make him, her or it identifiable. I remind members of the constitutional requirements that members must be physically present within the confines of the place in which Parliament has chosen to sit, namely, Leinster House, in order to participate in public meetings. I will not permit a member to participate where he or she is not adhering to this constitutional requirement.

Today, we will engage with the Department of Finance, the Office of the Revenue Commissioners and the Department of Enterprise, Trade and Employment to consider tax expenditures. After some debate and consideration, the committee has agreed to examine three specific tax expenditures almost as a kind of model for how we might look at them in general. Those expenditures are related to research and development, the knowledge development box and the film credit. The committee has written to a number of stakeholders inviting written submissions regarding the review of these tax expenditures and, next week, will hear evidence from some of these groups. Today, the committee will hear from evidence from the main officials and bodies with the remit of these three tax expenditures.

On behalf of the committee, I welcome Ms Deirdre Donaghy, head of business tax; Ms Aisling Greene, assistant principal officer, R&D tax credit and KDB tax credit; Ms Ian Kavanagh, assistant principal officer, film tax credit; Mr. Matthew McGann, principal officer; and Mr. Paul Cotter, principal officer, Department of Finance; Mr. Alan Carey, principal officer; and Ms Jacqueline O’Callaghan, principal officer, Office of the Revenue Commissioners; and Mr. Dermot Coates, principal officer; and Mr. Felix O’Kane, assistant principal officer, Department of Enterprise, Trade and Employment. I thank each of the witnesses for attending today and for providing information regarding the three tax expenditures in advance to the committee.

I call Ms Donaghy to make her opening statement.

On behalf of the Department of Finance and the Revenue Commissioners, I thank the committee for their invitation to come here today to discuss expenditure reviews of the research and development tax credit, the knowledge development box and the section 481 film tax credit. The Chair has gone through the names but I will mention that Mr. Matthew McGann and Mr. Paul Cotter are from our economics division and they have oversight of the tax expenditure guidelines and also provide the economic analysis elements of tax expenditure reviews.

My colleagues from Revenue will be speaking on the detail of the three tax credits in their statement, so I am going to focus on the expenditure review process. Subsequently, colleagues from the Department of Enterprise, Trade and Employment will provide an opening statement.

Tax expenditures represent a reduction in tax revenues which would otherwise accrue to the State, so it is appropriate that they should come under scrutiny to ensure they are fit for purpose. This scrutiny takes a number of forms, ranging from annual consideration as part of the budget process, to consideration in tax strategy group papers, to full econometric reviews. The work of the Committee on Budgetary Oversight has also contributed to the process of tax expenditure reviews, and I recall engaging with a number of the current members in this committee's formation under the 32nd Dáil in January 2019.

In 2014, the Department developed and published tax expenditure guidelines to set out a best practice approach to the review of tax expenditures. The guidelines indicate that tax expenditures should be used in limited circumstances of demonstrable market failure and where a tax-based incentive is more efficient than a direct expenditure intervention, and that expenditures should be reviewed regularly. A proportionate approach to the scope and frequency of ex postevaluations is recommended to be guided by the expenditure cost. For example, it is recommended that a level 1 expenditure, which would be one with an annual cost between €1 million and €10 million, should have a criteria-based review every five years. Level 2 expenditures with a cost between €10 million and €50 million, which would include the knowledge development box, should be reviewed every five years with an interim review after three years if annual costs exceed €25 million. Level 3 expenditures costing more than €50 million per annum, which would include the research and development and film tax credits, should be reviewed every three years. The briefing paper provided to committee members provides an overview of the expenditure review process and the questions to be considered in ex anteand ex postreviews, and also contains a link to the full tax expenditure guidelines document if further detail is required.

Stakeholder engagement is a key element of the review process for all formats of review. As the body with responsibility for the administration of the tax system, and therefore also having the most comprehensive taxpayer data, the Revenue Commissioners are essential contributors to the review process. The data, where available and suitably anonymised, can be used to analyse existing expenditures or to model potential new measures. However, of equal importance are Revenue’s operational insights into the tax system, which can inform the design of new measures to ensure they are operable in practice. In the case of existing reliefs, Revenue may also identify and bring to our attention issues of concern, or unintended consequences arising from legislation, which may require further review.

We also engage regularly with other relevant Departments - for example, with the Department of Enterprise, Trade and Employment and the Department of Further and Higher Education, Research, Innovation and Science in respect of the research and development tax credit and the knowledge development box, and with the Department of Tourism, Culture, Arts, Sport and Media in respect of the film tax credit. Tax expenditure reviews often also incorporate a public consultation in order to seek views of taxpayers, representative bodies and other interested persons. Department officials may meet with respondents to discuss their submissions, particularly where detailed technical matters are the subject of consultation.

More broadly, the Department is also committed to the regular publication of information on tax expenditures, for the purposes of transparency and to inform contributors who wish to engage with the policymaking process. For example, each year the Department prepares and publishes a series of papers for the tax strategy group, a group chaired by the Department of Finance with membership comprising senior officials and political advisers from a number of Civil Service Departments and offices. The papers contain analysis of a range of issues, often including reviews requested by Members of the Oireachtas during finance Bill debates. A significant volume of analysis is also published each year on budget day, containing analysis of the budget and expenditure measures and economic forecasts. This includes an annual tax expenditures report, containing an analysis of tax expenditure data, the outcomes of reviews completed since the previous report, and tables of tax expenditure costs across all tax heads.

I hope this overview and the briefing paper provided to committee members is of assistance in framing discussion at this meeting. I am happy to engage with any questions from members, following the remaining opening statements.