Oireachtas Joint and Select Committees
Thursday, 9 May 2013
Public Accounts Committee
2011 Annual Report of the Comptroller and Auditor General and Appropriation Accounts
Chapter 11: VAT on Intra-Community Trade
10:10 am
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I remind witnesses, members and those in the Visitors' Gallery to turn off their mobile phones because they interfere with the sound quality of the transmission of the meeting.
I advise witnesses that they are protected by absolute privilege in respect of their evidence to the committee. If they are directed by it to cease giving evidence on a particular matter and continue to do so, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against a Member of either House, a person outside the House or an official by name or in such a way as to make him or her identifiable. I remind members of the provision within Standing Order 163 that the committee should refrain from inquiring into the merits of a policy or policies of the Government or a Minister of the Government or the merits or the objectives of such policy or policies.
I welcome Ms Josephine Feehily, Chairman of the Revenue Commissioners and ask her to introduce her officials.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I ask Mr. McCarthy to introduce the accounts.
Mr. Seamus McCarthy:
Value added tax is a primary source of State revenue accounting for almost one third of total tax receipts. Approximately 90% of VAT receipts relate to domestic trade, with the remainder arising on imports from outside the EU. Special arrangements are in place in respect of VAT on goods and services traded internationally between businesses in the EU. Subject to certain conditions, a VAT-registered business in one member state can supply goods or services to a VAT-registered business in another member state at a zero rate of VAT. In such cases VAT becomes payable locally on the full sales price when the importing business sells the goods or services in its domestic market. VAT is collectable in Ireland on exports direct to retail customers.
Figure 11.1 from the report summarises the control system in place for VAT on intra-community trade. This includes the VAT information exchange system, VIES, and statistical reports on export trade. The VIES returns submitted by Irish traders to Revenue must include a VAT number for each EU customer supplied with goods at a zero rate of VAT. This is communicated via the EU Commission to the revenue authorities in the relevant country which follow up to ensure the appropriate VAT liability is paid.
To take advantage of the zero rate provisions, an Irish exporter must be able to satisfy Revenue the recipient of the goods or services is registered for VAT in another member state. Otherwise the exporter is liable for the payment of Irish VAT on the transaction. Revenue has acknowledged a substantial proportion of traders are non-compliant in filing VIES reports. While Revenue policy is to prosecute persistent non-compliant traders, the examination found Revenue suspended prosecutions for non-compliance in 2010. Revenue recommenced prosecution in such cases in March 2012.
The examination also found the volume of transactions reported by one large Irish export trader fell by 74% between the first quarter of 2010 and the last quarter of 2011. In response to queries by the examination team, Revenue asked the trader for an explanation. It transpired there had been significant underreporting of transactions by the trader because of a technical problem with a new billing system. Revenue asked the company to resubmit its returns for the affected period and stated the company had agreed to do so by the end of August 2012. The Accounting Officer should be able to inform the committee of the outturn in this case.
The EU Commission matches VIES data between countries and reports back any mismatches to the relevant tax authorities. In response to these reports, Revenue's policy is to send error reports to traders containing details of incorrect VAT numbers submitted. A sampling exercise conducted during the examination showed Revenue had issued letters to smaller traders for all incorrect VAT numbers submitted, but took no follow-up action in cases where a response was not received from the trader. The examination also found Revenue had not issued error reports in respect of unmatched transactions to the largest traders in 2010 and 2011 due to Revenue system failures. Error reports were subsequently issued. By the time the report was being finalised, Revenue stated a negligible amount of corrected data had been received from the large traders concerned. Because exporting companies are liable to pay full VAT to the Irish authorities where an invalid customer number is given, the uncollected VAT could be significant. For example, the audit team found that during 2010 and 2011 the value of transactions for which incorrect VAT numbers were submitted by large trading companies was €1.3 billion. The potential associated VAT was estimated to be approximately €200 million.
As part of the VIES control system, Revenue also receives a monthly report from the EU Commission detailing imports by Irish traders from other EU countries. Revenue compares this data to the data on VAT returns with the aim of identifying cases where VAT due has not been accounted for. However, the results of a sampling exercise carried out during the examination indicate cases highlighted by the data matching exercise are not routinely investigated by Revenue districts.
The preliminary results of a pilot project conducted in the Waterford Revenue district suggest that using VIES data to select cases for investigation has the potential to be effective in detecting unpaid VAT. The chapter recommends that Revenue should examine the results of the Waterford project and consider the potential for its extension to other districts. Two identified forms of fraud relating to the intra-community VAT system are known as "missing trader" and "carousel" fraud. Both involve a trader acquiring goods at a zero rate of VAT from another member state, selling them domestically at a VAT inclusive price and then disappearing without paying over the VAT collected to the revenue authorities. Although missing trader and carousel fraud is regarded throughout Europe as a significant risk to the payment of VAT, Revenue has not attempted to estimate the scale of the problem in Ireland or the cost to the State in terms of foregone VAT. Through the Eurofisc network, member states can share information on suspected fraudulent activities. Revenue is monitoring the activities of 17 Irish traders at the request of other member states, but has made no requests for foreign revenue authorities to monitor traders on its behalf. The report concludes by recommending that Revenue should review the range of control measures for VAT on intra-community trade in place in other member states and assess the case for their introduction here.
10:20 am
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I thank Mr. McCarthy. I ask Ms Feehily for her opening statement.
Ms Josephine Feehily:
The Chapter under consideration today reviews the processes that the Revenue Commissioners have in place to manage the risks associated with intra-Community trade. VAT is a consumption tax levied on the value added at each stage of production and distribution. As businesses are able to reclaim any VAT they pay on goods or services, it is the final consumer who ultimately pays it.
In the context of trade between EU member states, VAT is generally collected in the member state where the goods or services are consumed, in line with the rates in that country. This differs from purely domestic transactions, where the supplier charges VAT and is responsible for paying it over to Revenue.
The Irish VAT system operates in the context of an EU-wide legal framework of rules and directives in which the VAT risks arising from intra-Community trade are recognised and continue to be addressed, including by the Irish Presidency of the EU. As pointed out in the Chapter, it was intended that the current system, which was introduced in 1993, would be transitional and eventually replaced by the so-called definitive system in due course. Given the lack of consensus among member states on EU Commission proposals, however, this did not happen. Driven by the overriding need for trade to proceed freely between states in a single market, to enable controls at the EU's internal borders to be abolished and to allow taxes to be collected in the member states where consumption took place, the current system was adopted.
Within the parameters of EU rules, Revenue endeavours to operate the current system in a manner that protects VAT yield while being conscious of the administrative burden it places on compliant businesses. VAT is a self-assessed tax and traders are subject to Revenue's normal compliance and audit activities that apply to all such taxes, as well as those that apply specifically to EU trade.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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May we publish Ms Feehily's statement?
Seán Fleming (Laois-Offaly, Fianna Fail)
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I thank Ms Feehily and her colleagues for their attendance to discuss an issue that many people find difficult to grasp. I have read the report, Revenue's responses to same and the documentation that Revenue sent the committee last week in advance of this meeting. Having also read Ms Feehily’s statement, my impression is that Revenue does not take the issue seriously. The Accounting Officer’s response is detailed in the last paragraph on page 167 of the Comptroller and Auditor General’s report. In it, she agreed in part to recommendation No. 11.1. The response reads, "Revenue's policy is to ensure maximum compliance with VIES legislation at least possible cost and administrative burden for businesses". In her one-page opening statement, she stated that Revenue was "conscious of the administrative burden it places on compliant businesses". Twice, she almost apologised for the administrative burden caused by the VAT information exchange system, VIES. I will not dwell on the matter, but I have heard no concern about the administrative burden placed on pensioners who have no access to computers when paying their property taxes. It is as if Revenue will understand if businesses cannot fill up all of their forms properly.
Last week, the HSE appeared before the committee. The Revenue Commissioners comprise the country's largest revenue generator and the HSE is its biggest spender. When we asked the latter about the cost of drugs, we were told that it did not discuss the matter with the companies involved but with a committee they had set up to engage with it. Is there an attitude at the highest level in the public service of apologising to major IDA companies for being upset by administrative burdens? The HSE would not like to upset companies by holding direct discussions on the cost of medicines. My impression is that Revenue is great at tackling the little person but it is afraid of a complaint from the IDA about upsetting client multinationals and making the IDA's life more difficult.
In its detailed letter to the committee, Revenue did not deal with the issue of the potential €200 million. Judging by the correspondence, Revenue can neither deny nor confirm anything. It does not know. The Comptroller and Auditor General has made a rough estimate of €1.3 million at the aggregated VAT rate, depending on the nature of the product. It is not definitive, but Revenue appears unable to disprove the estimated potential loss to the Exchequer of €200 million. This is the approximate amount intended to be collected in the form of property tax this year. Consider the effort involved in that regard. Revenue apologises to exporters for administrative burdens. Although I wish to discuss the specifics, this is my impression from Ms Feehily's response to the report and her opening statement. Why should Revenue worry about their administrative burden? They must comply with the law of Europe. It is their problem.
Ms Josephine Feehily:
I thank the Deputy. He remarked on the brevity of my opening statement. It is short because that is what I am expected to do with two minutes. In a more traditional opening statement, I would have ranged across the various paragraphs. With my two minutes, I was trying to explain that the risks were recognised in the legal framework and to place it in context. There are 10,000 VIES traders. The majority are small businesses. Until a couple of years ago, the cost of filing VIES on paper was high for business. As part of our general approach of supporting voluntary compliance with all taxes by providing a good service, it is our responsibility to make compliance as easy as possible. We are conscious of the cost to business.
In 2006 or 2007, the EU and the then Government set a target for public administration generally and Revenue in the Irish context of reducing the administrative burden on business by 25%. We have achieved that. I must pay attention to the cost of administrative burden on business. Even if I did not need to, making the process easy would be the right approach to take in terms of supporting voluntary compliance.
Regarding the Deputy's point on little versus large, large companies making intra-EU supplies worth more than €10 million had a monthly VIES filing compliance rate of 87.4% in 2012. This is 63% by value. The rate in the next tier - €1 million to €10 million - was 83.9% per month. The rate in the third tier - €635,000 to €1 million - is 81.6% per month. The weakness, which is below that level, sees a return rate of 66% per month. This category comprises 74% by volume but only 2.5% by value. The situation is the opposite of the Deputy's perception, as the numbers suffering the administrative burden are in the lowest tier.
A number of changes occurred in recent years. At the beginning of 2010, services fell under VIES for the first time, changing the framework significantly. In the context of our discussions with business and our search for efficiencies in Revenue, we realised that businesses were filing VIES, INTRASTAT and VAT 3 forms on three different dates, which only added complications for business.
Part of the reason for the slowdown in terms of prosecutions and follow-up is the end-to-end review we carried out with the CSO, the alignment of filing dates, changes to the systems and mandatory online filing. All of this has resulted in an improvement in the compliance rate, including by small businesses. At the same time, because of changes to the legislation, we had to make changes to how we issue penalty notices and had to review all of our associated legal documentation.
I will respond in a minute to the Deputy's point about the €200 million. At the end of the day, it is important that I point out that the compliance programme is only about returns, data and line items. The real risks in relation to VAT are policed in other ways. The Waterford project mentioned by the Deputy is one example. Work is currently ongoing in the plant and machinery sector. As regards the €200 million, it is a theoretical figure that might be collectable if it was due. There is no evidence it is due. We cannot issue assessments for VAT based on a missing number. There have been two developments since the C&AG produced his report. First, the connection between a VAT number and liability as provided for in EU legislation is not the same for goods and services. In relation to services, it is not essential that the business provides a VAT number. The requirement is for it to provide a VAT number or otherwise satisfy us that it is a business. Second, a recent European court case, with a complicated name, has determined that a charge cannot be laid just because of a breach of the regulations. It does not deny the substantive exemption if the substantive conditions are met. That is a reasonably recent case.
Our focus has been on getting the returns. Where we do not get the returns, we sample the transactions to satisfy ourselves that there is no VAT at risk pending the fixing of the various systems to make the returns flow more easily. In relation to the business mentioned by the Comptroller and Auditor General, we have sampled its transactions and are satisfied that there is no VAT at risk. I apologise if I gave the impression that I am unconcerned about VAT. It is important that we are proportionate in relation to VIES because at the end of the day more than 9,000 of our 10,000 filers will not owe us any money. There is no point in our carrying out VAT assessments if at the end of the day businesses appeal and we get nothing because the substantive entitlement will apply in many cases. I apologise for the lengthy reply. I hope I have answered the Deputies' points.
10:30 am
Seán Fleming (Laois-Offaly, Fianna Fail)
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Ms Feehily has given us information today that was not included in her response in the Comptroller and Auditor General's report or the documentation we received last week by way of follow-up information. It would be helpful if Ms Feehily would give the information she has given us today to the secretary of the committee. I do not believe any member of the committee had that information previously. As such, we did not know the breakdown between large and small businesses and goods versus services.
Perhaps Ms Feehily would give us an estimate of the breakdown of goods and services exports within the EU, given as she stated services now come within the VIES.
Seán Fleming (Laois-Offaly, Fianna Fail)
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What is the estimate? When reading this chapter yesterday I noted how at a macro level Revenue can tie up the exports in the trade figures declared in VAT returns versus CSO figures. I would take some comfort if there was a particular person in an office carrying out reasonable checks. I understand it will never be possible to do an exact reconciliation. Do the VIES returns come in every month or every two months? I note from the annual report published last week there were 67,983 VIES returns last year.
Seán Fleming (Laois-Offaly, Fianna Fail)
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In terms of the cost to business - I understand Ms Feehily's point on the need to reduce costs - I am sure the Irish Revenue Commissioners were part of the European wide revenue network that drew up this scheme. If not, it should have been.
Seán Fleming (Laois-Offaly, Fianna Fail)
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That explains it.
Ms Josephine Feehily:
It seemed to me to be a lazy solution to move to monthly filing because the system of quarterly filing was not working. Some of the solutions needed to the cross border VAT risks, which are well recognised in the literature and by the European Council and Commission, involve changes to directives and the rules, which the Presidency is active on. The best that is being done in between is mitigating of risk. The risks exist because of the way in which the system is designed. I would much prefer to see progress being made on the quick response mechanisms and reverse charge proposals currently before member states.
I am trying to find an answer in the information I have before me to the Deputy's question about statistics. We meet regularly with the CSO and have an MOU in general with it. The CSO is very interested in trade data. I have some data on the matter raised by the Deputy. Goods exports in 2012 amounted to €92 billion, of which €51 billion is encompassed by VIES. I do not have an export figure for services in 2012. However, the service figure for 2011 is €81 billion, of which €31 billion was encompassed by VIES.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Perhaps Ms Feehily would explain the reason all of the exports of goods and services are not encompassed by VIES. Do the remainder of the amounts relate to exports outside the EU?
Seán Fleming (Laois-Offaly, Fianna Fail)
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Do they relate to internal trade?
Seán Fleming (Laois-Offaly, Fianna Fail)
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Could Ms Feehily repeat the figures?
Seán Fleming (Laois-Offaly, Fianna Fail)
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In other words, 40% of our trade is outside the EU.
Ms Josephine Feehily:
That is what the figures imply. The gap in respect of services is bigger. Unfortunately, I only have the figure for 2011, which is €81 billion, of which €31 billion is encompassed by VIES. In the context of services trade generally, this makes sense because trade in that regard tends to be further afield.
Seán Fleming (Laois-Offaly, Fianna Fail)
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There is some comfort in that. Page 159 of the report refers to under-reporting, in particular by one company as mentioned earlier by the Comptroller and Auditor General. Ms Feehily said that Revenue has met with the company and has undertaken assessments, the result of which was that the under-reporting was because of changes to an IT system. I would imagine that exports to the EU by a company of the type about which we are talking would amount to hundreds of millions of euro. It is not a small operator. It must be one of the highest to have had such a noticeable effect. Can Revenue do any more? Is it satisfied, based on its assessments, with the 74% drop in the amounted recorded in that company's VIES returns during 2011?
Ms Josephine Feehily:
The figure of 74% represents the error. The systems were not working. Some of the responsibility for this was at our end and some of it was at the company's end.
I need to be careful not to identify the business for confidentiality reasons. It is in the service sector and was new-----
10:40 am
Seán Fleming (Laois-Offaly, Fianna Fail)
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It is or it was in the services sector.
Seán Fleming (Laois-Offaly, Fianna Fail)
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It is a household name anyway.
Ms Josephine Feehily:
It was new to the VAT information exchange system, VIES, as we were with regard to VIES on services. The systems did not work correctly and the data were not missed until the issue became apparent. We gave it time to correct the matter but it has not met the deadline, which is of some concern to me. We have met representatives and tested the transactions. We are satisfied there is no VAT at risk. As it is a services company, it is not as simple as getting a VAT number, as the requirement for a services company is a VAT number or to satisfy us otherwise that the transaction was with another business in the community. We have tested that and are satisfied there is no VAT at risk. We have given a final deadline of 30 June to fill the gaps, and in the meantime the company is filing appropriately.
Seán Fleming (Laois-Offaly, Fianna Fail)
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During the 2011 period, how have its figures to the Central Statistics Office, CSO, tallied? It must give trade and export figures to the CSO. Does the witness know from where I am coming? The CSO is the only other benchmark I have with the company, and there is a memorandum of understanding with the Revenue Commissioners. Will Ms Feehily answer those specific questions without identifying the company? How have the VIES figures been matched with the CSO and the audited financial statements? I am sure one of the first checks that any audit would involve is reconciliation of turnover on VAT returns against turnover in financial statements. There are two ways of checking if the Revenue Commissioners are capturing most of what they should be.
Ms Josephine Feehily:
The business in question is managed by the large cases division and all the cases managed by that division are subject to comprehensive reviews across the various tax heads and returns. Realistically, with businesses of this size the only way to test any propositions is by sampling, which has been done. With regard to the CSO, services are outside the scope of Intrastat, so I do not know the answer to how the CSO gets its trade statistics figures for services.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Will Ms Feehily run that by me again?
Seán Fleming (Laois-Offaly, Fianna Fail)
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Does it not include services?
Seán Fleming (Laois-Offaly, Fianna Fail)
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What sort of figures are they? That is not Ms Feehily's department.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Coincidentally, we can ask that this afternoon as the Taoiseach will be before a committee with the Government Chief Whip to discuss the Estimates for his Department, and there will be a discussion on the Estimate for the CSO. I will ask the question.
Seán Fleming (Laois-Offaly, Fianna Fail)
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I have referred some of my questions to it and I accept its view.
Seán Fleming (Laois-Offaly, Fianna Fail)
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What about the company's audited financial statements?
Seán Fleming (Laois-Offaly, Fianna Fail)
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The company has been asked to revert by the end of June.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Ms Feehily should ensure it answers the question to her satisfaction, and what is put in the VIES returns should reconcile with the audited financial statements. The €200 million is a theoretical figure and I do not know the breakdown between the VAT rate on goods versus services. Nevertheless, it is a figure that demonstrates a risk. The annual report published last week mentioned management and identification of risk. The figure is theoretical but highlights a potential risk, and any business or organisation must examine a potential risk to see if it can turn into an issue. What has been done to ensure the risk does not become a greater issue, as it has been implied there is no great VAT loss?
Ms Josephine Feehily:
In all large cases we have sampled transactions to satisfy ourselves there is no VAT at risk. In one of the sampling exercises it emerged that the business in question might be charging too much VAT. We are very comfortable with all the large cases that the transactions are entitled to a valid exemption. The requirement is to satisfy us and not just to have a VAT number.
Seán Fleming (Laois-Offaly, Fianna Fail)
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When the Revenue Commissioners write to companies seeking a VAT number, according to a report there is no new check to see if the new VAT number is correct.
Ms Josephine Feehily:
It is important to know the way the system works. When a company is filing a VIES return, the first level check is automated and we do not see it at all. It bounces back. The second level check is carried out at EU level and it is returned to us in the form of a report. We write to the businesses and, partly thanks to this audit, we are improving our follow-up procedures. Where we are not happy with the follow-up, we are sending cases to districts for local checks. In parallel with the work being done by the Comptroller and Auditor General, as documented in the report, we had decided to carry out a project audit in the south east and the Waterford district specifically. With this we aimed to discover the proportion of risk.
The data in the Comptroller and Auditor General's report are interesting and the data we updated last week bring it, more or less, to a conclusion. From 600 cases which looked like they had questions to answer on the face of things, 500 had no questions to answer, and as we worked through them, 32 or 33 had negligible issues. A very small proportion involved serious money. By far the better way to handle risk is to try using risk rules and real-time VAT risk assessment put in place since last year. These ensure we are only challenging the cases with serious amounts of money involved, so we are not wasting our time and that of everybody else challenging hundreds of cases to find a dozen or so with real issues.
With regard to managing risk, we have increased follow-up on incorrect numbers. We are using VIES data to inform risk rules in the risk analysis system for audit, and more importantly, we are using it to inform the rules we have embedded in the VAT real-time framework. When somebody sends in a VAT 3 form, either payable or repayable, we have built some rules into the system to check it automatically at the first point. There are two VIES rules already in the real-time framework. When we refresh the process later this year, we are expecting to add another couple of VIES rules, built on the learning from the Waterford project and a new project regarding missing trader fraud in the plant and machinery sector. It is better to try to prevent VAT loss rather than chasing the money afterwards.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Can the VIES rules be changed without an EU process?
Ms Josephine Feehily:
We cannot change VIES rules. We will use a rule in our real-time risk framework drawn on VIES data.
There is one listed in the report. Another likely to be put in place later this year would be where start-up companies have a very high level of VIES activity. That is what I mean by a rule - a rule based on the VIES data will be built into our VAT system in order to challenge, at the first point, a claim for VAT.
10:50 am
Seán Fleming (Laois-Offaly, Fianna Fail)
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That brings us to the carousel or the missing trader fraud issue. A company could be set up and be very active, but it is gone when the time comes to chase it. The Comptroller and Auditor General's report refers to missing trader fraud. Paragraph 11.44 on page 165 states the Revenue Commissioners have not tried to estimate the scale of missing trader or carousel fraud in Ireland or the associated cost in terms of VAT forgone. It states that in the United Kingdom the revenue authorities estimate the unpaid VAT in respect of this type of fraud at approximately £1.5 billion in 2009-10 and that it represents approximately 13% of all unpaid VAT. There appears to be a problem in other EU countries. Ireland, being a more open economy with a greater level of exports and imports, is probably more susceptible to this carousel or missing trader fraud than most other countries, the economies of which are not as open. The United Kingdom appears to have put an estimate on it, but the Revenue Commissioners have not even tried to estimate it.
Ms Josephine Feehily:
There are a couple of issues regarding whether we are more or less susceptible. The market here is quite small with regard to goods, which is where the risk principally lies. The United Kingdom has a huge market. It had some very significant cases in respect of mobile phones and computer chips, which are well documented and which we have studied. It had serious practical experience on which to build an estimate. In the course of those cases it appeared that, to the extent that Ireland was a risk, it was a risk as a conduit country rather than a country that was actually suffering a VAT loss. One of the reasons we have not attempted to measure the gap is that we have not attempted nationally to measure the VAT gap ourselves. Measuring a gap is an extremely labour intensive business and there is no agreed single way to do it. We recognised that the European Union was measuring the gap and that if it was measuring 25 countries, it seemed sensible to let it do the measuring on a consistent basis. That is the national VAT gap. It did this in 2006 or 2007 and published the results a couple of years ago. The Irish VAT gap at that point was small. The figure was so low that, frankly, we do not trust the methodology. It was too low and the European Union is repeating the exercise at present. We have tended to take the view that if somebody is engaged in gap analysis across the European Union, we should give them the data and let them do it.
With regard to the risk here, we have recently started a national project in the plant and machinery sector.
Seán Fleming (Laois-Offaly, Fianna Fail)
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We have all seen acres of land in the past few years with plant and machinery on it. Much of the machinery has been sold for export. Obviously, the Revenue Commissioners have a concern. Perhaps the witness might give us some information on that exercise.
Ms Josephine Feehily:
I was about to do so. The sector where we think there is a risk is goods where there is reasonably small volume and high value. In that sector we started a project which involved looking at 102 entities, between traders and suppliers, and have identified 17 missing traders. In these cases we have refused €7 million in VAT and raised €3.5 million in a VAT assessment. This is very recent information which I put together in the last day or two. Needless to say, there are appeals involved which will not be easily resolved. However, on the basis of the learning from this and also from two prosecution cases in the last year or two, we are looking at the motor vehicle sector. We have identified 18 traders in that sector for investigation. That is as far as it has gone. We have taken 12 of them out of the VAT system because that is the first line of defence on our part. The investigation is ongoing.
In the past year or so - I cannot remember precisely - we had two prosecutions in the motor vehicle sector for VAT fraud. The VAT at risk between the two was approximately €900,000. They were convicted and a custodial sentence was imposed in one case and a suspended sentence in the other. We are active once we get down to real cases. The learning from these audits and projects continually feeds back into our risk system to allow us to identify the hallmarks of risk.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Did the witness say that of the 102 traders examined in the plant and machinery sector, 17 are missing?
Seán Fleming (Laois-Offaly, Fianna Fail)
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The witness cannot comment on specifics, but does she think some of the 17 cases could result in prosecutions, similar to the two in the motor trade?
Seán Fleming (Laois-Offaly, Fianna Fail)
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What checks are carried out on outstanding balances? One of the Sunday newspapers produces a list of judgments every week and those who buy that newspaper can see them. The Collector General is often listed as the person obtaining the judgment. I have seen the names and addresses of companies in the midlands - I am not talking about my county - against which the Revenue Commissioners had secured judgments, but the companies never existed at the addresses. Is this the type of missing trader we are discussing?
Ms Josephine Feehily:
We would never obtain a judgment against a company at an address that did not exist. The address would be the one the company put on its tax returns, but the company is gone. Quite often what we are doing with a judgment is protecting our rights in the context of other competing rights. We might never get the money; the Deputy is right in that respect. However, we must get to the point of placing a judgment, perhaps on a property or assets, to protect the taxpayers' right in the event that assets become available. The company might be gone by the time the judgment arrives, but it would have been located there. Our legal position is that we must apply for the judgment against the business at its official name and address. That is what the company stated its address was.
Seán Fleming (Laois-Offaly, Fianna Fail)
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I will refer to the note the witness provided a couple of days ago with further information and an update relating to the Comptroller and Auditor General's report. Dealing with the first recommendation on VAT and inter-company trade, the note states Revenue Commissioners districts have been given a role in following up unmatched VIES data this year. Why has it taken until this year for the districts to be given this task? It was reported as part of the 2011 audit that the witness was conscious of the issue, but she is only starting to deal with it in 2013.
Ms Josephine Feehily:
The decision would have been taken towards the end of last year and we acted on it from the beginning of this year. We would always begin by pursuing the business, or asking it first, before sending it out to districts. That is the only reason. However, I take the Deputy's point that it is late, but perhaps better late than never.
Seán Fleming (Laois-Offaly, Fianna Fail)
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I will move to the last paragraph on page 3 of the same document and the Waterford case study. It is recommendation 11.4. Again, the witness talks about Eurofisc and various checks being carried out. She has said a new social network tool is being explored to identify potential fraudulent business networks. Will she explain this? The paragraph also states it is expected this tool will be deployed in 2014. What does she have in mind and why will it be deployed next year?
Does Revenue expect to deploy the tool in 2014? What has the office in mind? Why will it not happen until next year when it was identified in 2011?
11:00 am
Seán Fleming (Laois-Offaly, Fianna Fail)
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Are they only starting now?
Seán Fleming (Laois-Offaly, Fianna Fail)
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Okay.
Ms Josephine Feehily:
The first update regarding recommendation No. 11.4 is that we have done what was recommended and re-examined a representative sample of cases. The new auto commonality system picked up all of the appropriate relationships. We have implemented the recommendation.
The social network analysis is something new and exciting. I think this is the future for us regarding a lot of our work. I just mentioned the SNA to show we are moving ahead of the recommendation using technology. SNA is a tool. I am not an IT person so do not ask me to explain how it works but I have seen the product from it. This is a piece of technology that will wander around all of Revenue's databases picking up connections between entities. By entities I mean businesses, mobile phone numbers, bank accounts, names and addresses and all sorts of interesting things.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Big Brother is watching.
Ms Josephine Feehily:
I have a picture of the SNA. It looks like a spider and risk indicators are built in. It would be useful for the missing trader piece and seriously useful for commonality at the VAT registration section. If we really want to manage the risk, we should not register dodgy businesses for VAT for a start.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Yes.
Ms Josephine Feehily:
That is why there is an emphasis in the report. We agreed with the Comptroller and Auditor General's recommendation on commonality and implemented the recommendation. If we can stop a registration at first point, the new tool, and not just for this particular dossier but a lot of our serious criminal and civil investigations, will draw a picture for us on the links, which will be very interesting. At the moment, it is being tested in a number of districts specifically regarding VAT. When the SNA is tested, we will see what it tells us about its usefulness.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Has that been done internally? Is Her Majesty's Revenue and Customs service doing something similar?
Seán Fleming (Laois-Offaly, Fianna Fail)
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Is it a new thing?
Ms Josephine Feehily:
As it happens, the team developing the SNA is in the UK today showing our work to the HMRC and seeing what it is doing in the same space. Before the summer, which follows one of the other recommendations on international best practice, the New Zealand revenue will come here to see what we are doing in this social networking space.
We have acquired the tool. We bought the piece of technology and developed it in-house. A team is working on how to exploit it and is exploring its potential for revenue investigations in general, but particularly for the commonality test.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Revenue has improved its communication links with the Department of Social Protection. I can see Ms Feehily smiling, and she is probably thinking the same as me. Does she envisage Revenue extending the social network tool to include PRSI numbers? Obviously we have been conscious of difficulties over the years, for example, instances where computers did not match. I shall not mention the €150,000 network that went out some time ago. The initiatives showed that there was a greater level of communication between Revenue and the Department and also in respect of other subsequent social welfare payments. Ms Feehily talked about REAP and detecting fraud. It is important the Department's information would be included in the tool. Has Revenue reached that stage? Does it intend to talk to the Department? Perhaps the information has been included. Such co-operation would be important for the overall collection of taxes and correct payment of social protection payments. A good tool should be used by Revenue, but also in the way I suggest.
Ms Josephine Feehily:
For many years we have built up our exchange of information with the Department of Social Protection. We get regular updates on virtually all of its information and schemes. We also regularly get updates from the General Register Office, which is part of the Department of Social Protection. We receive a lot of information. A lot of it will be in Revenue's systems and the tool will run across all of them. A high level standing group comprising officials from Revenue and the Department meets. We will share our technology and the results of the pilot scheme. I want to emphasise that this is a pilot scheme. I expect it will have many uses but we will not know them until we carry out tests.
For those interested in technology, and I cannot explain it very well, Revenue has its first cloud application that works with Social Protection. It enables live data from both Departments to be worked on at the same time in certain cases. The data on certain cases for investigation are put into a cloud environment. The officials from Revenue and Social Protection can access the data in a live environment and at the same time. I understand that process is currently reaping significant dividends for the Department of Social Protection.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Is that in terms of people who work yet claim social protection payments?
Seán Fleming (Laois-Offaly, Fianna Fail)
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Undeclared?
Seán Fleming (Laois-Offaly, Fianna Fail)
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The local property tax might also show up something.
Seán Fleming (Laois-Offaly, Fianna Fail)
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The last page of the Waterford case study shows how Revenue got on last year and this year. Can Ms Feehily summarise the last page of the case study? I added the figures and got €1.6 million but I am afraid I may have double counted. What is the yield so far or the expected yield?
Seán Fleming (Laois-Offaly, Fianna Fail)
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Was that the yield from the Waterford case study?
Seán Fleming (Laois-Offaly, Fianna Fail)
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Ms Feehily said that out of those 600 cases there were 100 cases really.
Seán Fleming (Laois-Offaly, Fianna Fail)
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The 500 cases were eliminated and 32 were closed due to showing little or no money.
Seán Fleming (Laois-Offaly, Fianna Fail)
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It was Mickey Mouse money.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Ms Feehily said 10% or about 60 out of the 600 cases yielded €2.5 million. Has the scheme been completed?
Ms Josephine Feehily:
There is one ongoing audit which is expected to yield €20,000 and another case is in the course of being interviewed, but the scheme is virtually completed.
It is important to point out that the 600 cases had to be worked on to get down to just 60, and the average yield from the 600 cases is just over €4,000. The average yield from a targeted Revenue audit is closer to €40,000.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Correct. The average yield from those 60 cases is about €40,000.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Yes.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Revenue eliminated 500 cases very quickly, examined 100, and 32 were-----
Seán Fleming (Laois-Offaly, Fianna Fail)
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I know it took a lot of work to reach the 60 or 70 cases Revenue pursued.
Seán Fleming (Laois-Offaly, Fianna Fail)
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I return to the Comptroller and Auditor General's opening figure of €1.3 billion which ended up with €200 million. If one extrapolates the €2.5 billion, in terms of the turnover of those companies, across what he referred to, what would Revenue come up with? There is no point just examining the Waterford office and declaring that a detailed audit of 70 cases yielded an average of €40,000 each. I refer to paragraph No. 11.5, entitled Case Study - Waterford Revenue District VAT on Intra-Community Acquisitions. Early on I felt Revenue had more information than we received, but I did not think it took the matter seriously enough. Revenue conducted a case study in Waterford and came up with a figure of €2.5 million, and in the cases it drilled into, there was an average of €40,000. Can Ms Feehily extrapolate on that figure? Perhaps the Comptroller and Auditor General will comment.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Okay.
Seán Fleming (Laois-Offaly, Fianna Fail)
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They are different issues. Mr. McCarthy referred to one of my last points and perhaps he will comment on my next issue.
Everything we have talked about so far is related to exports and the potential risk of us not getting VAT that may be sent to an unregistered trader in another EU country. We are discussing a potential loss that may not be a real loss at all. Is there a risk coming the other way in terms of imports? Where is the greater level of loss? People who come in here and have VAT numbers that they should not have are a potential risk to the Irish Exchequer. I gather the report only dealt with exports, or at least that is my reading of it. I ask the witnesses to deal with the issue of imports and the potential for VAT loss.
11:10 am
Mr. Seamus McCarthy:
I would say that the Waterford case was an example where 600 cases were identified as not having paid the full VAT. When one drills down into that, 2.5% of those cases were found to owe more VAT than they had actually paid. That is where the €2.5 million figure comes from. What we do not have are data on the total value for those 600 cases. Perhaps the Accounting Officer has that figure or could obtain it for the Deputy in order that it could be put in context.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Can that information be extrapolated? I ask Mr. McCarthy to explain how it was that the Waterford case dealt with imports. Was that a separate exercise? The report seemed to concentrate on exports but the Waterford cases are related to imports. I ask that this be explained for non-technical people.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Just to confuse us completely.
Mr. Seamus McCarthy:
No, I will explain it now. It took us a long time to get an understanding of this. Effectively, this is summarising the whole system. One can look at it in two ways. If the Deputy looks on the left-hand side of the diagram, Ireland is Revenue authority in country A from an export point of view. However, one can also look at it from an import point of view-----
Seán Fleming (Laois-Offaly, Fianna Fail)
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On the right-hand side?
Mr. Seamus McCarthy:
Yes. In the first part of the report we dealt with the issues that come up in the audit vis-à-vis exports and compliance with the VIES system. The second part of the report deals with importation, where Revenue get a listing from the EU of all of the exports from other countries that have been imported to Ireland and on which VAT would be due in Ireland. Then, Revenue match that up with the data on what has actually been paid and declared.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Where does Mr. McCarthy think the greatest risk of loss lies? Is it on the import or export side?
Seán Fleming (Laois-Offaly, Fianna Fail)
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Okay, but the report deals mainly with the export side, or at least that is my reading of it. Perhaps the import side is also dealt with in the report. Can any of the witnesses deal with the €2.5 million figure?
Ms Josephine Feehily:
To explain, we had identified the risks. Every year we pick a handful of new risks and we test them by projects. This project had been listed for working on at the same time, if not before, the Comptroller and Auditor General's exercise was going on. It seemed sensible, therefore, to include it. We identified the import risk and what we were doing was testing, with these data, the risk at case level with the objective of learning from that, as the Comptroller and Auditor General has recommended. We are working on ways to automate some of those risks in order that we do not expose the Exchequer on an ongoing basis to the same risks. The other output from the Waterford project has been the drawing up of a new manual for case workers on how to handle these particular kinds of cases. There is learning and money coming from that project and that is the way we tend to try to work.
There are two really big cases in there so it would be absolutely unrepresentative to extrapolate from those to the rest of the country. However, I need to go back to the point the Deputy made about the €200 million because apart from the fact that one is exports and the other is imports, the Waterford project related to goods while the €200 million related to services-----
Seán Fleming (Laois-Offaly, Fianna Fail)
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It included services.
Seán Fleming (Laois-Offaly, Fianna Fail)
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I did not pick that up from the report.
Ms Josephine Feehily:
They are all services. Those are the five companies, as I indicated in my earlier remarks, where we have sampled the transactions. We are satisfied, on a representative sample of the transactions, that there is no VAT at risk because they were selling to businesses. That is the level of proof required for services. That €200 million is not real and it cannot be connected with the Waterford money.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Is that because they were imports to start with?
Seán Fleming (Laois-Offaly, Fianna Fail)
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The earlier cases were service exports and the Waterford case was imports.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Fine.
Ms Josephine Feehily:
I think the better connection is with the projects I mentioned earlier in the plant machinery and motor vehicle sectors because they are imports of physical goods as well. Those are the better comparators. Working from Waterford into those, I expect we will have an interesting picture when all those projects are finished.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Ms Feehily sent us a letter on 1 May which referred to Revenue reviewing the details of its approach in the light of findings and recommendations, if any, from this committee. That puts the ball in our court to some extent. Ms Feehily referred to figures for companies between €1 million and €10 million. Will Ms. Feehily supply those figures to us because we have not seen them?
In the context of this committee making a recommendation, I would appreciate it if Revenue could do up a paper on the significance of the Waterford case study. Ms Feehily has said it is not a question of straightforward extrapolation because that would not be completely valid. However, a paper would be helpful because I would not like us to make a recommendation based on an over-reading or, indeed, an under-reading of the Waterford case.
Seán Fleming (Laois-Offaly, Fianna Fail)
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That is fine. I ask that Ms Feehily sends on the additional information we require.
Seán Fleming (Laois-Offaly, Fianna Fail)
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I thank Ms Feehily for that.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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When will Revenue be making a judgment on whether the Waterford project has potential for other tax districts?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Does Ms Feehily think it has potential?
Ms Josephine Feehily:
I think it has, if we can target it properly. I am not saying that if we analyse any 600 cases in other districts, we will get the same results. That would not happen. We need to try to identify the hallmarks that made this yielding and then determine if there are comparable slices we can take and give them to other districts to work on. At the same time, we will be asking ourselves similar questions about the other two investigations that are under way. We will try to identify the hallmarks. As I said earlier, ideally we should automate them to stop them happening. Failing that, putting them into the risk analysis system should mean the cases are selected for audit anyway, without having to do a special project. The learning is in finding the hallmarks and turning them into rules.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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For clarification, Revenue is testing new technology on the VAT element of the taxation system, but did Ms Feehily mention social networking? Is Revenue looking at the connections between companies and individuals through its own information and database and through social networking?
11:20 am
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is it similar to connecting individuals on a social networking system and is it applied in that way?
Ms Josephine Feehily:
Yes, it is applied in that way. It makes links but makes them between a bigger range of entities than we would be able to do by looking at things in a linear fashion. When we expand the range of entities from tax numbers, names, addresses, company numbers and directors, the classic one as we are testing for commonality, to bank accounts, phone numbers and properties, we get a richer set of connections. That may or may not be risky but we must risk rate them and that is where the testing is taking place, to see if we can risk rate a network.
For one of the pilot cases, it helped in an investigation to show up a much broader range of connections than we were aware of between entities we were already looking at. That is as far as I could go at present.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What sort of timeframe is involved in testing that on the VAT pilot aspect and then moving it on to everything else.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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So the game is not up just yet?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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For a lot of people it will be game up, which is not a bad thing.
Going back to the Comptroller and Auditor General's opening remarks about member states requesting Revenue to monitor the activity of 17 traders, he stated that Revenue made no requests for foreign revenue authorities to monitor traders on its behalf. Is there a reason for that?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Other countries have asked us to do this?
Ms Josephine Feehily:
Under Eurofisc we have 15 traders being monitored in other countries at our request. We should have clarified this better when responding to the Comptroller and Auditor General. The 12 we are monitoring are under Eurofisc, not under mutual assistance. There are two different regimes and we can and are using both. The monitoring of traders for carousel operates under Eurofisc and there are 15 Irish traders being monitored at our request.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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So there are 15 Irish traders who trade out of Ireland who are being monitored in other countries?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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So it is not the case that there were no requests?
Ms Josephine Feehily:
No. The Comptroller and Auditor General said we were monitoring for other countries but had not made any requests. In fact we have, 15 of them. We have also made significant numbers of requests under mutual assistance. We are quite active in the spontaneous exchange of information. We sent spontaneous information to other countries alerting them to something that might be useful to them 294 times last year, principally under carousel. We received 89 spontaneous pieces of information from other member states. Also, we sent out information on 254 transactions and received information on 443. These would be where another member state asks us or we ask it to check a transaction. The request comes into the office and we send it to a district. We have three months to answer and that is going on all of the time.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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So other European countries have asked Ireland to investigate 17 Irish traders? Countries other than Ireland have asked the Revenue Commissioners to monitor an Irish company?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is that ongoing?
Ms Josephine Feehily:
Yes. Until the other country lifts the request, we would monitor the company for it. It is handled centrally. Monitoring means we monitor transactions and give information to that other country. If we spotted something that was a risk to us, we would act on it but it is a monitoring, it is not an investigation. Perhaps the other country might have seen something that suggested carousel behaviour.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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It is related to that?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I would like a note on this because I would like to see how it is done. How does a supplier selling a product to the market within Europe become liable for VAT? If the same product goes to the USA, what is the rule on VAT? If a product is sold and sent abroad to Europe or America, and comes back to Ireland for repair, what is the VAT rule?
Ms Josephine Feehily:
It gets complicated so we will send the Chairman a paper. VAT is not charged on goods exported outside the European Union. There might be general sales tax in America or Australia but there is no VAT. If goods are exported on an intra-European basis, VAT applies at the point of consumption in the other country at the other country's rate but it must be zero rated here, and this is where VIES comes in. We must be satisfied that the good is being sold properly to a VAT registered business if it is a business to business transaction. If it is a business to consumer transaction, which tends to involve e-commerce, it becomes even more complicated because of all the different countries that are involved. Different country rates must be charged by e-commerce. An Internet trader, if it is selling business to consumer, must charge the VAT of the country of consumption. That is what I mean when I say that it gets complicated.
If something is coming back for repair, there are circumstances where liability can be suspended while it is here and it is going out again. That is a high level answer.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I would like a note on that sort of transaction to get an idea of how a person becomes liable for VAT and how it is paid.
Turning to the annual report, on an issue of interest in terms of tax, in England, the Public Accounts Committee carried out an exercise on multinationals and how they pay tax. We cannot do that as a committee but the question is often asked about the 12.5% corporation tax and the actual tax paid. Could we have an explanation of that?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The headline rate is 12.5%.
Ms Josephine Feehily:
The effective rate will be reduced through reference to tax credits and reliefs. Capital allowances would be one. In recent times, the research and development tax credit has frequently been used. That is encouraged as a matter of tax policy. It is also encouraged in Europe because research and development is considered to be particularly important in these times.
Those are the two that come to mind but there are a range of credits available to businesses, whether multinationals or other businesses, which reduce their effective rate. Similarly with citizens, medical relief, mortgage interest relief and so on reduce one's headline rate to an effective rate.
11:30 am
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What is the average effective rate?
Ms Josephine Feehily:
I could not give the answer off the top of my head but I can certainly do a note on it for the Chairman. A number of years ago a piece of work was done by one of the big four accountancy firms which said that the Irish effective rate was 11%. I am not saying that is the rate, but that work was done. I did not review those sort of data for today. I just do not know the answer.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Will Ms Feehily supply a note, with as much detail as possible on the effective rate of tax that is actually being paid? I will now deal with the annual report and the paragraph dealing with debt management in relation to the board's review of 2012. What is the total outstanding debt to Revenue?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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How much of that figure is hard core debt that is unlikely to be collected?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is Revenue carrying a debt figure?
Ms Josephine Feehily:
I am sorry Chairman. I am trying to get my mind away from VAT to focus on debt. Of the €2 billion debt outstanding, €37 million is debt over ten years old. I do not have the information with me but some of that debt is still under appeal. Debt under appeal can go all the way to the Supreme Court and we have some very old appeals that go on and on.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is that debt of €37 million that is ten years old likely to be collected?
Ms Josephine Feehily:
Some of it will. Some of each of the tranches over time will be collected. If it is under appeal and is going before the court, it may well depend on whether we win or lose. In other cases it may well be that at the end of the process, the business is no longer there, and although we might win, we will get no money. There is no doubt that some of it will be collected.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is there provision in Revenue for a procedure similar to an aged debt analysis?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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If €7 million is outstanding for ten years, what is the next range?
Ms Josephine Feehily:
The money outstanding for nine years is an additional €10 million; an additional €24 million is outstanding for between seven and eight years; an additional €38 million is outstanding for between six to seven years; and an additional €59 million is outstanding between five and six years. Will I stop there or will I keep calling out the figures?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Will Ms Feehily provide the committee with those figures?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is Revenue making ongoing efforts in relation to each of those categories?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Has Ms Feehily sufficient staff pursuing all of those claims?
Ms Josephine Feehily:
I would never say I have sufficient staff. The Minister would be surprised if I did. We can always put good staff to work either on debt recovery or on auditing investigation. We will always get a return for investment in relation to qualified staff.
We have increased the number of staff in the debt recovery unit, in spite of the reduction in overall head count, which was about 13% to 14% in recent years. I have additional staff and more debt management units than we had five years ago. We have almost 30 debt management units working these tiers of debt. They are not only analysed by age but also by size. We put by far the most resources to the largest debt and the newest debt before it gets a chance to get aged. We have a bias towards early intervention and major cases. Size and newness would receive more attention than the really old files, but all are under management.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I understand general tax receipts increased by 7.1% to €36.7 billion last year. How are the tax receipts running for this year?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Are there areas within that figure that are behind?
Ms Josephine Feehily:
Certainly one of the areas that was behind profile in April was VAT. Profile is a forecast. Working from memory, I think they were slightly ahead of last year's figures, which is a different way of measuring it. One month's figures does not make a trend. It is too soon to say. The general view is that we are on target.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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In terms of compliance, one of the main complaints we receive from retailers concerns tobacco smuggling. What is the take on that?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That would have a value of €43.3 million. I see another figure of €1.95 million.
Ms Josephine Feehily:
The figure of €43.3 million was the value of cigarettes and €1.95 million was the value of the roll your own tobacco that was seized.
I think the Chairman is aware that we have the highest level of tobacco taxation in the European Union, and second only to Norway in the broader European area. It is clearly a profitable area for attention by certain elements and it is risky. I told this committee previously that my objective was to contain the problem, and that is the best we can commit to do in an environment of free movement of people and European rules which support and allow personal imports of duty paid cigarettes. One can buy cigarettes for own use elsewhere in Europe for €2 to €3 and bring them into the country.
This is one area in which we have an analysis of the gap. We have been doing surveys for many years in conjunction with the Office of Tobacco Control. A private company conducts surveys for us. The most recent data show that the untaxed tobacco consumption in Ireland is about 20%, comprising 13% illegal and 7% personal imports of tobacco. It has been in and around that level. The previous data were 14% and 6% for personal imports, and prior to that they were 15% and 6% personal imports. The figures for the same study over time have been there or thereabouts for many years and the Office of Tobacco Control has a different interest in this in terms of tobacco consumption. About 13% of the cigarettes consumed in Ireland are imported illegally. We have been containing it at that level by interventions involving international intelligence.
We have had very substantial seizures. A couple of years ago, the biggest seizure in the history of the EU took place in Ireland. We conduct blitzes locally. Our local staff visit markets and shops, etc. We have invited traders on many occasions to give us concrete intelligence. To be honest, it has not been forthcoming. They will tell us that tobacco is being sold, but it would be helpful if they told us the registration number on the white van. They are reluctant enough to give us concrete information on foot of what they observe. The more concrete intelligence we have, the easier it is for us in terms of resource deployment. We have had some very successful prosecutions in the tobacco area in recent years. Some of them have resulted in criminal convictions and custodial sentences. We are managing this issue on all of those levels. We are trying to prevent imports, catch sellers and secure prosecutions. We have been containing it at the same level for a number of years.
11:40 am
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Judging from the complaints, that would not seem to be the case. We have heard that this trade is regularly conducted on the streets of Ireland, that illegal cigarettes are easily obtained and that suppliers are known in local communities. Retailers know about this trade because it affects their sales. We have been told that some of them have been offered supplies of cigarettes. This massive growing trade is having a significant effect on retailers and those who sell cigarettes legally. Despite what Ms Feehily has said about the huge seizures that have taken place, retailers are complaining that they are not seeing enough action to prevent this activity.
Ms Josephine Feehily:
I accept that it is a significant problem. The evidence does not support the view that it is a growing problem. I refer to an independent study that was conducted for the Revenue Commissioners and the national Office of Tobacco Control. Traders and, in particular, tobacco companies often like to focus on higher level data while discounting legal personal imports. As long as it is easy for those who smoke to get flights to places where they can buy cigarettes to bring them back to Ireland, that kind of activity will happen. There is no point in conflating the two figures. It has to be recognised that free movement allows people to import cigarettes for their personal use. We have met representatives of the business community to discuss this issue. We have established a special hotline they can use to report activity of this nature, but we have not received significant concrete intelligence, as opposed to statements. I would be very happy if they would give us more concrete intelligence on which to focus our limited resources. We are always going to have limited resources which have to stretch across all the various risks.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Can Ms Feehily put a figure on what the State - the Department or the Revenue Commissioners - spends on this whole issue?
Ms Josephine Feehily:
Such a breakdown is not available because we are an integrated organisation. Approximately 2,000 Revenue staff are involved in strategies in relation to compliance and enforcement. Officers in a district could be doing a tobacco blitz today, checking car registration numbers tomorrow and making visits to check VAT numbers next week. We do not compartmentalise their time in a way that would allow us to say that some of it is used to work on the tobacco issue. Approximately 2,000 staff are deployed across our compliance activities, ranging across all the risks we are trying to police, including income tax, VAT, excise and tobacco. We are an integrated organisation, which means we have the flexibility to put teams together for various purposes from time to time.
We work closely on this question at international level. We have a really good relationship with the European Anti-Fraud Office, which is known as OLAF. Those involved with that office will confirm that the effective management of this problem involves the development of international networks, the use of intelligence and the deployment of resources in relation to risky imports and risky cases. The same approach is taken to VAT, VIES or anything else. Our approach to managing it is about getting intelligence that tells us where to go looking. We have set out and published a strategy in relation to managing tobacco. We have engaged with the business community on it. We are working with OLAF at international level. We are containing it. I do not think that is a bad result in light of the environment we are in, the level of profits that can be made and the rules allowing for the free movement of goods and people. I would welcome concrete information from the business community that we could follow up. It is important to disaggregate data produced by the tobacco companies, which do not have the same objectives we have.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I would like to ask another question in the same vein. Drugs with a street value of €49.3 million were seized in 2012. This represented an increase on the 2011 figure, which was €24.1 million. Have the resources in that area been affected by cutbacks? Are the same resources available to Revenue in this area?
Ms Josephine Feehily:
I suppose it is part of the same answer. Our staff in this area are part of the group of 2,000 that I mentioned. As we have managed the decrease in our numbers, we have maintained the proportion of our staff involved in compliance, we have increased the number of staff involved in debt recovery and we have not reduced the number of staff who have enforcement duties. We have not reduced the number of uniformed staff that we deploy to duties at airports and ports and elsewhere throughout the country. We have disproportionately hit other parts of the organisation in order to maintain the numbers involved in these areas. Our involvement in the drugs issue is confined to the point of import - airports and ports. We do not have a role with regard to inland drugs. We have maintained staff numbers despite the reductions.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Do the drug units at airports and ports that use dogs to detect drugs consist of staff directly employed by Revenue?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Are the dog units used widely?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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It has not really been affected.
Ms Josephine Feehily:
It has not been affected. We have increased the number of dog teams, particularly in the context of currency. Under a reasonably recent EU rule, it is necessary to declare cash in excess of €10,000. We dealt with that principally by deploying currency dogs at the airport. If one is investigated by a customs dog while sitting at the departures side of the airport, it is likely that the dog will be checking for cash, but it could be drugs.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Okay. I would like to mention something that has been done on the administrative side in support of voluntary compliance. It has been suggested that the administrative burden on businesses has been reduced by 25%, saving them more than €85 million per annum. What kind of analysis was done to arrive at that figure? Many businesses would argue that they have not saved that much.
Ms Josephine Feehily:
We did not count it. When I responded to Deputy Fleming earlier, I mentioned a project that was established by the Government after it was decided that Departments should seek to reduce the administrative burden by 25% over a certain number of years from the base year of 2008. We were part of that project, which was run by the Department of Jobs, Enterprise and Innovation.
It is a burden reduction project which is undertaken using the standard cost model. The Department engaged consultants; we supplied it with the data and worked with them and the sum was arrived at. That is all I can tell the Chairman about the project. As the findings have been published, I can send the committee the report.
11:50 am
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I have not met many people involved in the SME sector who have asked me to thank the Revenue Commissioners for saving them money in that area because they have not noticed the savings in their business. It always amuses me when figures such as this are used. When one engages directly with the SME sector, it tells a different story, namely, that it is-----
Ms Josephine Feehily:
The SME sector is part of the project team. A Better Regulation group run by the Department of Jobs, Enterprise and Innovation and chaired, I believe, by the Minister of State, Deputy John Perry, includes representatives from business, including ISME, the Small Firms Association and IBEC. The Revenue Commissioners is also represented on the group, but I am not sure who else is involved. The group has not been able to tell us much more that we could do, although it has made one request to us. One of the issues that contributed most heavily to this process was the modernisation of relevant contracts tax, which removed 1 million pieces of paper from the system. The business representatives on the group are keen to see if we could use that model, which is a real time taxation model in which businesses can find out in real time how much to deduct from a contractor. This is because contractors are paid at one of three rates, depending on the risk involved. Business is very anxious to have us do more of this. That is the most recent conversation I have had with representatives of business. I have checked in with the group to see if there was any other work we should be doing and the answer I have tended to get is that they wish others would catch up with us.
There is another piece of work done by the World Bank every year. Since it started, Ireland has been shown to be the easiest country in Europe in which to pay business taxes. This year this is ranked as the sixth easiest country in the world in which to pay business taxes. There is, therefore, another validation, if one likes, in respect of this issue. The measure used in the World Bank's work is the length of time required to fill in forms. It does not focus on tax policy but the number of hours required to fill in forms and so on. There are, therefore, various pieces of work that support the view I have expressed. If there are specific transactions that we can make, I would be happy to hear what they are. We were discussing earlier that the VAT information exchange system, VIES, had moved from a quarterly to a monthly basis, which I know businesses do not like. If there are transactions which businesses consider unnecessary and could be eliminated by Revenue, I would be happy to hear about them. We will then examine them.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I have two further questions on the small and medium-sized enterprise sector. I will take the case of a company or individual who encounters a difficulty with taxes and subsequently enters into an agreement with Revenue to pay the taxes. I refer to people who are generally compliant but hit a blip because of the state of the economy. If they take an up-front approach and ask Revenue if they can pay their taxes over a period and arrive at an arrangement with it to this effect, is it its policy to write to the customers of the business in question stating it has entered into an arrangement with the company under which it will pay its taxes over a period?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is Ms Feehily aware of cases where this has happened?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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No, that is not what I am referring to.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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This practice has occurred. I will pass on the details.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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It did not make such a request. The reason I raise the issue is that if it were Revenue's policy to write to a company's customer base, such a practice would further destabilise the company as customers would be a little uneasy about someone who, for one reason or another, did not appear to have paid tax, even if he or she had entered into a legitimate arrangement with the Revenue to pay his or her taxes.
Ms Josephine Feehily:
It would probably be better if the Chairman provided details of the case in question. I am thinking of one or two circumstances where such a practice might arise. It is not that we would necessarily do so willingly, but I am already thinking of one or two cases such as debt discounters and such like which can happen where businesses enter into arrangements with discounters and then allocate part of that debt to us. All options arise in the context of entering into arrangements with businesses.
By way of providing information for the committee, last year we had 16,000 businesses and €124 million of debt under various "time-to-pay" arrangements. This is working fairly successfully. We test the viability of businesses before entering into such arrangements and our experience is that it works in a high proportion of them and that they come out the other end.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Does the test entail contacting the customers of a business?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Some 16,000 businesses entered into an arrangement with the Revenue Commissioners to pay their taxes. Is that correct?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What progress has been made on the property tax?
Ms Josephine Feehily:
We have received 638,000 returns as of this morning, which is about 40% of the total figure. We are very pleased as there are almost three weeks to go until the closing date or ultimate filing date and we had a standing start of a couple of weeks ago. Engagement with the tax has been very high. Notwithstanding public comment, much of this engagement has been positive in the sense that people who are engaging with the tax are simply looking for information and assurances rather than complaining. It is a new tax and we do not have a register with which to start. As I indicated to the committee in February, we foresaw some of the glitches, all of which have since arisen, and we are working our way through them. In the context of a Government decision taken at the end of July last year to ask Revenue to collect this tax at a time when we did not have a register, legislation, policy decisions or information technology, I am very pleased to find that at the end of quarter one, the Exchequer had received €1 million from the tax and that €22 million had been collected at the end of April. We now have 638,000 returns. I am pleased with the progress made.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Will Ms Feehily indicate again, for the information of those who may be following proceedings, the procedure that applies where a person disagrees with the value indicated on the assessment and believes he or she should pay a lower property tax amount?
Ms Josephine Feehily:
We are not valuing property. People know their properties, whereas the Revenue Commissioners do not. The estimate is irrelevant and should be ignored. We placed advertisements in national and provincial newspapers a couple of weeks ago, in which we stated people did not have to pay the Revenue estimate. It was as clear as that. They must make an assessment of the value of their own property. As a self-assessment tax, people decide the value of their property, fill in their return, tell us how they want to pay and return the form to us. The value is entirely a matter of judgment. The estimate will only come into play if people do not send in a return. Its only role is one of compliance. It does not have any relevance to the self-assessment. Is that clear?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Yes, that is how I understood it. The argument one hears is that one should pay the property tax rate indicated on the form and subsequently send in a valuation or lodge an appeal. One should pay what one believes to be the correct rate.
Ms Josephine Feehily:
One of the reasons we took out the advertisement in the print media was that we were hearing that message. Some of this is not being helped by commentators. We wanted to be clear and put out a message in places where we believed it would be accessible, that is, national and, in particular, local newspapers, that it was a self-assessment tax. People make a decision, choose a payment option and make the return. They do not have to pay what is written on the Revenue assessment unless they agree with it as the tax is based on a self-assessment.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What is Ms Feehily's message to those who have not received an estimate, have subsequently requested one and wish to pay by cash because they do not have Internet access?
12:00 pm
Ms Josephine Feehily:
What I would say to them is this: we had no register but we created a register out of our own databases and a series of other databases and we knew it was not perfect. We wrote in respect of 1.66 million properties. We know some people were missed out. Some of those may still receive correspondence because we have had returns sent back to us from An Post which we are reissuing to different addresses. Ideally, what they should do is file online or telephone our helpline and pay over the telephone. It is difficult now if they want to pay in cash. We can still send them a return. If they have written in and asked for a return we will still send it to them but it is difficult. It would be better if they could actually pay either online or over the telephone by giving their payment details to the operator.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I raise the question because I heard a debate on radio about this where the individual contacted the office and complained that he did not get much help. I am not saying that it is the case generally because it is not. Then he wanted to pay by cash as that is how he gets paid. He is not advanced in technology and does not know how to do it. There must be some way the office can arrange for that type of payment for people who are either elderly or simply living a different lifestyle and do not want or cannot pay in the way suggested. They want to pay and want their assessment. There are a number of people who have not received the assessment and who have not got the means to pay as outlined by Ms Feehily open to them.
Ms Josephine Feehily:
At the end of the day we will not refuse cash. If the person in question has written in or has contacted the helpline and asked for a return to be sent out we will get it out to them. The danger is, because of the volumes involved, that we will not manage to process it on time. The reason we had a cut-off date of 7 May for the paper returns is that we have a rather large number of paper returns which have to be processed and payments activated and put into play before 1 July. If they have a request in we will certainly send them a return. Getting back to an earlier part of our discussion in the context of managing risk, it is not sensible in this day and age from a risk management point of view, in terms of tax at risk, - there was a report in the past couple of days about the shadow economy and the connection with cash - for people to hold cash so we tend not to encourage people into that space. If cash is running across the economy, if many people are transacting their businesses in cash, that is a risk. In our systems and in all our tax filing we try to manage by avoiding the use of cash. That is a strategy we adopt right across the tax system.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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One has to acknowledge that there are a percentage of people who are willing to pay the tax and who are tax compliant in everything they ever did and are now confronted with having to pay this new tax online and are simply not able to do it. I have met a number of those people. They want their estimate. They have the money to pay and are willing to pay and the system should respond. There is a small number of people in this category. Those I have dealt with are mainly elderly people who have always conducted their affairs in a legitimate way but paid by cash. I am not trying to facilitate some other activity in the economy, I am trying to explore a way in which the Revenue will assist them to make their payment.
Ms Josephine Feehily:
We will certainly respond to them if they have written in for a return. We are working through those written requests from people who are looking for those returns and we will get to them. All I am worried about is that we may get to them a bit too late, given the timescale involved between now and 1 July.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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In that case Revenue will have some flexibility in terms of not penalising those people.
Ms Josephine Feehily:
Our objective at this stage is not to get into that position. Our objective is not to be in a position where we are penalising anybody because it is not something we want to do. We will certainly not penalise anybody where we have open correspondence seeking a return. We might penalise people where we have open correspondence where the individual wrote across it "I have no intention of paying this". Where we have legitimate open correspondence from a person who has not received a form, we certainly would not move to penalising space without first clearing that correspondence.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Will they be facilitated in some way?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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In terms of the 40% who have paid to date-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Some 40% have filed their return. What percentage has actually paid? When Ms Feehily says they have filed their return, they have just agreed.
Ms Josephine Feehily:
In filing a return one chooses a payment option. There are nine payment options. Obviously I do not have an analysis of the 40% because that is this morning's figure, they have yet to be processed and put into the system. What I can tell the Chairman which might be helpful-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Sorry, are they as good as done given that the 40% has indicated their option to pay.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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We can presume then that the 40% are compliant and will pay.
Ms Josephine Feehily:
Absolutely. All I am saying is that because it is this morning's figure until they are actually processed I cannot say what proportion has paid. What I can say, which might be helpful, is that when we had about 400,000 I looked at the spread of payment options and found that about 45% had paid in full. Those were last week's numbers. Another third had selected a debit option which might be a single debit or a direct debit. Less than 10% were choosing the deduction at source option and another less than 10% were paying at the various outlets An Post, Omnivend and so on or by cheque. Less than 10% were choosing cash or cheque options which is not the most popular option.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Based on that figure, nearly half of them have paid.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I read in a newspaper at the weekend that Revenue has 400 staff geared up and ready to go.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I have come to that conclusion myself recently.
Ms Josephine Feehily:
The context for that number was a parliamentary question which asked about our helpline. Our helpline is operated partly by an outsource company, partly with referral upwards to Revenue staff. In the context of a particular question we indicated that at peak times, which would have been, say, last week, between all of us there would be between 200 and 400 people deployed across all of the functions, between opening the post in Sarsfield House, answering the telephones, dealing with correspondence to processing payments. That is where the number of 200 to 400 came from. The article suggested we had 400 ready to go on the compliance side. Clearly we will have to judge, after the end of May, how many staff will be needed for compliance. I am hopeful it will not be so many. The Government decision allocated us 100 staff for the local property tax. We will have to see how many we will need.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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When does Revenue move into compliance mode and plan to dip into the pocket?
Ms Josephine Feehily:
The analysis will be done at the end of May and early June after the filing. Then we need to segment the non-engagers, the non-responders into various risk tiers and also into various categories. We will move into non-compliance mode as in mandatory deduction from people who are in employment. Certainly that will begin to be felt in July. We will do the analysis and the work in June and it will begin to be felt in July.
We will begin with people in employment.
12:10 pm
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Why did you pick that sector? Is it because it is easier to deal with them?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What comes after that?
Ms Josephine Feehily:
Then we will move on to those on occupational pensions and we must then have a good hard look to see what kind of engagement we have from categories of people in receipt of social welfare pensions. We must look at those, but they are very much down the line and we will not get to them for a while.
Then, in October - we will already have issued several public reminders - if the self-assessed group have not paid their local property tax by the time they file their income tax return, we will apply a significant surcharge to their income tax return. The compliance moves along in tiers.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What about those who simply cannot pay?
Ms Josephine Feehily:
There are a range of deferral options available for those who simply cannot pay. If they are on a low income - €15,000 for a single person and €25,000 for a couple - they can apply to defer the tax. They can apply for partial deferral if their income is €25,000 for a single person or €35,000 for a couple. These figures can be increased by 80% of the interest on a person's mortgage. Then, if the person is below those thresholds, he or she can avail of a deferral of the tax. There is also a provision in the amendment Act for a hardship deferral in situations in which there has been a sudden and unexpected loss. What is in mind there are people who intended to pay the tax and were organised to pay it before something unforeseen and significant happened. These people can apply for a deferral on hardship grounds. All of these options are in play and people are availing of them. Every provision, including the exemptions and deferrals, and all payment systems are actively being used as we speak.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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It seems then that by the end of this year, the Revenue Commissioners will have a complete handle on the return of this tax and that it is well on the way to achieving that.
Ms Josephine Feehily:
What I have said is that we achieve an 80% compliance rate across the taxes. I am optimistic that by the end of the year we will have gone ahead of that in regard to this particular tax. It must be borne in mind that in some cases compliance means having made a return and qualified for a deferral or an exemption. Compliance does not always mean a payment has been made. Our objective is to be north of 80% by the end of the year.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Does the Office of the Revenue Commissioners have a budget for the local property tax? Would it be €10 million or €20 million, with 100 staff or more involved?
Seán Fleming (Laois-Offaly, Fianna Fail)
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How much is it going to cost to set up and implement the system to the end of this year?
Seán Fleming (Laois-Offaly, Fianna Fail)
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So it is about 10% of the target.
Seán Fleming (Laois-Offaly, Fianna Fail)
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It is 60 cent nowadays, since 1 April.
Seán Fleming (Laois-Offaly, Fianna Fail)
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In a normal year, if the take is €500 million, the office will be allowed €10 million in running costs, or 2% of the total.
Ms Josephine Feehily:
That is for the first two years only. After that it is reduced to 1%, which is our normal administrative cost for a tax yield. Our costs vary upwards or downwards by fractions of the 1% tax yield. Even when buoyancy went out, because of the head count reduction we still came in with an administrative cost of approximately 1%. After the first two years, the funding will stabilise at the rate of the funding available to us for all of the other taxes.
Seán Fleming (Laois-Offaly, Fianna Fail)
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There will probably be a blip in 2016 when people can change their valuations. There will probably be an extra cost that year, or will that be done by the local authorities?
Seán Fleming (Laois-Offaly, Fianna Fail)
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There is an assumption in all the forms that the rate holds for three years, from 2013 to 2016. My general impression is that the valuation holds until 2016.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Explain that to me, because I was not aware of it.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Everybody thought the value was set from 2013 until 2016, but Ms Feehily is saying that from September next year the Revenue Commissioners can be on notice from local authorities of a 15% increase in-----
Seán Fleming (Laois-Offaly, Fianna Fail)
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So it is not the valuation of the house.
Seán Fleming (Laois-Offaly, Fianna Fail)
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This is the three-card trick, but not being played by the Revenue Commissioners. The people are being told the valuation is set, unless someone sets it at the lowest valuation of €90 per annum. I and everybody else understood that the valuation would hold for three years and I have met no-one who understood any different until now. Now, Ms Feehily seems to be saying that in September of next year the Revenue Commissioners will say the valuation can be held, but that it will not be at 0.18% but at 0.19% or so.
Seán Fleming (Laois-Offaly, Fianna Fail)
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It can increase the rate by up to 15%.
Seán Fleming (Laois-Offaly, Fianna Fail)
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I understand that.
Seán Fleming (Laois-Offaly, Fianna Fail)
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We understand that. However, this is a shock to me. Perhaps I did not see what was happening, but I understood the value set on the house would not change.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Everyone assumed that once the value set on the house did not change, the payment would not change. However, Ms Feehily is now telling me that is not the case - that the value on the house can remain the same, but the charge based on the valuation can change if local authorities notify the Revenue Commissioners by September of next year.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What is the range that applies to the change of rate?
Seán Fleming (Laois-Offaly, Fianna Fail)
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So local authorities can, by September of next year, inform the Revenue Commissioners that although the house values may stay the same, the rate applicable to the values may increase by 15%. In effect, the amount the householder will have to pay can rise by 15%, if the Revenue Commissioners are notified by the local authority to that effect.
Seán Fleming (Laois-Offaly, Fianna Fail)
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With regard to people who signed direct debits, which are like an electronic cheque-----
Seán Fleming (Laois-Offaly, Fianna Fail)
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Does that allow the Revenue Commissioners the authority to change the payment being taken from the person's bank account by up to 15% if the local authority informs it the rate has been changed?
Ms Josephine Feehily:
There are two entirely different things involved. A single debit authority, which is like an electronic cheque, allows us to take the debit only once.
If a person chooses that payment option she will have to choose another payment option each year because we cannot turn that one over. It is once and once only. A different category of people will choose direct debit. If the amount they have to pay changes then clearly their direct debit will have to change. That is why I said there might be a blip in our costs because we would then have to talk to them and engage with them if the rate goes up or down.
12:20 pm
Seán Fleming (Laois-Offaly, Fianna Fail)
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Two things surprise me about that. The rate of the person who carries out the deduction from the State old age pension can very even if the value of the house does not change or if the local authority changes the rate after September next year.
Seán Fleming (Laois-Offaly, Fianna Fail)
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The amount they would have to pay will go up.
Seán Fleming (Laois-Offaly, Fianna Fail)
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The Revenue Commissioners are doing the collection. Am I surprising Ms Feehily by suggesting people thought they would pay a fixed amount because the value of the house is fixed? It is in the legislation.
Ms Josephine Feehily:
It does not surprise me that the general public may not have been following this. I suppose I am surprised because it was well flagged in the debate on the legislation. It surprises me that Deputy Fleming was unaware of that part of it because it was a part of the discussion on why it is a local property tax.
Seán Fleming (Laois-Offaly, Fianna Fail)
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I fully understand that local authorities can increase the rate. We all understood that and perhaps it is a point of detail in the legislation. However, we did not understand that it was kicking in for local authorities by September of next year. Of course it is in the legislation if Ms Feehily says so. However, I do not believe the public has been made aware of it. They have concentrated everything on the valuation. Every debate that people have had, apart from those on the payment method and date, is related to the value they put on their houses. In fact, one can put whatever value one wishes on a house but the local authority has the authority to change how much a person must pay come next September. I am simply saying that has not come into the public consciousness yet.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Ms Feehily made another comment a moment ago. I wish to discuss the costs. Ms Feehily stated that the Revenue Commissioners are moving on to deductions at source, starting with people in employment, etc. She said it would then move on to people on social welfare payments. When might that be? They have to pay their full amount for this year but what if the Revenue Commissioners only get to them in October or September? Does Ms Feehily understand where I am coming from? This is another problem for people on social welfare who must pay the tax. A person in employment must pay between 1 July and the end of December. The payment will be deducted in six equal monthly instalments taken from the weekly or monthly wages or salary, as the case may be. There will be a time lag by the time the Revenue Commissioners have established all of those processes. Ms Feehily said the Revenue Commissioners would then get on to the people who will have deductions from social welfare payments. Let us suppose that takes place in September. That means they will have a full half-year return to be deducted out of three months of payments. They will have a high deduction for the last three months of the year because the deductions will not start from 1 July. That will represent another serious upset. I have been saying to people that €45 is all they will have to pay, depending on their house, and that it will only be approximately €2 per week. However, now they will find that the deduction from the State pension only clicks in for the last quarter. It could be €4 per week running up to Christmas to get the full amount by the end of the year.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Does Ms Feehily agree that it is not understood that people could have a much higher deduction for the last four months of the year? They are the people who can least afford greater payments at the back end of the year. They are the people we should be facilitating by spreading payment over six months.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Correct. Is there interest on the deferral?
Seán Fleming (Laois-Offaly, Fianna Fail)
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I have had calls from and have spoken to elderly senior citizens - people in their 80s on social welfare payments and on the State pension. Ms Feehily will be aware that people at that hour of their lives do not want bills hanging around. They feel that they may not get through the pearly gates unless everything they owe to God and man is paid before they leave. I have put it to these people that they may not want to defer the payment because there will be interest due on it in several years’ time and possibly someone else will have to pay it after they pass away. Most old people like to pay a bill the day they get it because part of the psyche of being old is that one does not want bills hanging around that are not paid. It makes no sense to talk to people in their 80s about deferring. That is not where they are at in their minds. They like to get the bills out of the way.
Ms Josephine Feehily:
This is what I meant when I said I wanted to break it down. That is an important message, because it is not understood by everyone that the level we are discussing would automatically be below the various thresholds. I completely agree with Deputy Fleming that the sensible thing for people to do is to spread the payment over six months, but to do that they must send in their return first. Then we will action their payment option with effect from July and they will have six equal payments, or 26 if it is weekly.
The problem when we come to compliance relates to people who have not made a return. In some ways they will have missed the chance to spread it evenly over six months.
I am faced with a Hobson’s choice. We have discussed this in the Revenue Commissioners. It seems to me that, come July, if we go straight for all the non-compliers in one fell swoop, ranging from people in employment to people on social welfare, then we will be simply ranging too wide. Therefore, we decided to begin with people in employment and then move on to occupational pensions and then write to the people on social welfare and send them a reminder, reminding them in particular of the deferral option. I take Deputy Fleming’s point about the interest, which is in the legislation. It is still likely to be an option that is suitable for quite a few people.
We have decided at this point on a different treatment. When we reach the end of May, if the level of non-engagement from elderly social protection payment pensioners is non-existent, then we will not have to do any of this. This amounts to speculating that we will be dividing the non-compliant into those categories at that stage. However, we need to get to the point at which we can see the make-up of the non-engagers, and then we will dice them into segments and decide on different treatments.
Seán Fleming (Laois-Offaly, Fianna Fail)
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Everyone who gets a return in on time in the month of May will be-----
Seán Fleming (Laois-Offaly, Fianna Fail)
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Therefore, we are discussing those who do not make the return. Ms Feehily cannot answer that until the first week in June.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I wish to clarify one point. We had better be clear about this. The 15% figure is in the legislation. It must be notified to the Revenue Commissioners by the end of 2014 that a given local authority will seek an increase in the band of 0% to 15%. Is that correct?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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They will indicate that to the Revenue Commissioners by the end of 2014. Is that the position?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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It will be applied for 2015?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is it open to them at that stage in the course of 2015 to decide to increase the rate again for the following year?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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As and from 2014, the rate of property tax can be increased by local authorities year-on-year. Is that the position?
Ms Josephine Feehily:
Or it can be decreased. My preference is with Deputy Fleming. There is a point to note about the way in which this tax is designed. There will be stability for three and a half years and that is helpful to everyone. It is helpful to us and it is helpful to the taxpayers. The fact that if one builds an extension or improves a house it will not affect the bill for three and a half years has built a good deal of stability into the process. It will give us time to understand the register and the market. My preference is for stability, but that is the provision.
12:30 pm
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Yes, but it is important that people understand clearly, from the Revenue Commissioners-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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-----that what Ms Feehily has outlined is what the law says and it is what can be done by local authorities from 2014. That is a fact.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Just to be clear about it.
Seán Fleming (Laois-Offaly, Fianna Fail)
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It is very useful to hear this at the end of our meeting.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Deputy Fleming, is that okay?
Seán Fleming (Laois-Offaly, Fianna Fail)
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Yes. I thank Ms Feehily for clarifying that because something might have gone under the radar in regard to local authorities being able to increase the rate a person would pay from next year.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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We have come to the end of our meeting. I thank the witnesses for attending. I ask the committee to dispose of the 2011 Annual Report of the Comptroller and Auditor General, Chapter 11 - VAT on intra-Community trade. Is that agreed? Agreed.