Mr. Niall Cody:

I thank the Chairman for giving me the opportunity to make a short opening statement. As time is limited, I will concentrate on giving a brief overview of the two relevant chapters in the Comptroller and Auditor General's report.

Large-scale laundering of marked fuel escalated in 2011 when ultra low sulphur marked gas oil became widely available on the market because of changes in EU environmental standards for fuels. This fuel is the same as road diesel, apart from the markers and dye.

Revenue responded to this increased risk and, since 2011, has implemented a comprehensive and successful strategy to tackle the problem. The strategy is designed to make it much more difficult to source marked diesel for laundering and to get laundered diesel onto the market.

Our strategy includes the following elements. The licensing regime for auto fuel traders was strengthened with effect from September 2011 to limit the ability to get laundered fuel onto the market. A new licensing regime was introduced for traders in marked fuel in October 2012, designed to limit the ability to source marked fuel for laundering. There was identification and implementation of a new fiscal marker jointly with Her Majesty's Revenue and Customs for implementation in Ireland and the UK. A new supply chain reporting regime was introduced from January 2013, which requires all fuel traders to make monthly electronic returns to Revenue of their fuel transactions. We use these datasets to identify suspicious or anomalous transactions and patterns of distribution for investigation. Revenue, in co-operation with other law enforcement agencies on both sides of the Border, has intensified the targeting of enforcement action against suspected fuel-laundering operations. This process is facilitated by the cross-Border fuel group, which is representative of all relevant agencies North and South. In addition, a reckless trading provision was introduced in the Finance (No. 2) Act 2013 that makes a supplier who is reckless in supplying rebated fuel for a use connected with excise fraud liable for the duty evaded. This provision has strengthened our hand in dealing with those traders supplying fuel recklessly to dubious customers.

In the Finance Act 2014, provisions were introduced to strengthen our ability to refuse or revoke a mineral oil trader's licence where that trader does not comply with excise law, does not maintain adequate stock management systems and records or provides false or misleading information. Under the new provisions, Revenue's assessment of applications is based on the legitimacy of the applicant and their business, and the quality of their accounting and stock control systems.

The tax loss associated with fuel laundering is not quantifiable but there is no doubt that it was significant. Following the implementation of a range of measures to tackle the problem, we recently completed an analysis of oil market trends in Ireland and, on the basis of a comparison of extrapolated pre-2013 trends with actual results for 2013 and 2014, estimated that our mineral oil strategy may have saved the Exchequer up to €200 million in 2014.

Clearances of marked gas oil from tax warehouses dropped significantly in 2013 and 2014 and were stable in 2015 despite the strengthening economic recovery that saw road diesel clearances rise in the same year by over 9%. The successful implementation of this strategy has resulted in major strides made to reduce and eliminate fuel laundering. This is evidenced by the fact that a recent random sampling programme produced no evidence of the new marker in any of the samples taken.

The Comptroller and Auditor General has made a number of recommendations as a result of findings made during his review. The recommendations have been accepted and will be implemented.

On the taxpayer compliance chapter, Ireland has a self-assessment system. It is a fundamental principle of self-assessment tax systems that returns filed by compliant taxpayers are accepted as the basis for computing tax liabilities. Revenue promotes compliance with the tax system by pursuit of those who do not file returns, by auditing selected returns and by taking appropriate action against tax and duty evaders up to and including investigation and prosecution.

We carry out compliance interventions for a variety of reasons: to protect the Exchequer; to assure ourselves as to the accuracy of self-assessment returns; to influence compliance behaviour; to provide a level playing field for all taxpayers; and to minimise the distortive effects on legitimate business caused by the shadow economy. We constantly strive to prevent non-compliance by making it as easy as possible for our customers to pay the right amount of taxes and duties at the right time. Through our service-for-compliance approach we are providing more and more user-friendly ways of doing business with us, increasingly through digital channels. However, a minority of people choose not to comply with their tax and duty obligations. The type of intervention to be undertaken in any particular case is the one considered to be the most appropriate to target the specific risk or risks identified and to influence the compliance behaviour of the taxpayer. By carefully selecting the cases for intervention and choosing the type of intervention, we maximise the use of resources and minimise the compliance burden on compliant taxpayers.

We have made a strategic shift in recent years to increase the number of less intrusive non-audit interventions. This does not mean that we are ceasing our audit programme, though as the Comptroller and Auditor General has noted in his report, it does mean a reduction in the numbers of what were previously classified as audits. We believe that by increasing the focus on non-audit interventions, we can increase our coverage of potential risk and we can focus our resources more effectively on the biggest risk cases. Non-audit interventions involve verifying documentation and requesting additional information in order to address specific risks. Revenue continually assesses the appropriateness of interventions. This mix of audit interventions and non-audit interventions has led to a higher level of non-compliant yield being collected, from €492 million in 2012 to €642 million in 2015.

We also risk assess any information that might suggest the existence of aggressive tax-planning as an avoidance or evasion mechanism. An example of this is our recent review of the tax affairs of medical consultants, which also featured in the Comptroller and Auditor General's report. We opened 763 interventions nationally, 403 of which were closed by 30 June and yielded €48.7 million in tax, interest and penalties. The Comptroller and Auditor General's report also featured a chapter on the research and development tax credit, a tax expenditure that has increased considerably in recent years. Revenue's compliance activity in relation to this credit has increased proportionally. In 2015 we completed 178 interventions with total yield in excess of €46 million.

The Comptroller and Auditor General has made three recommendations arising from the review. Revenue has accepted each of the recommendations in part. While our random audit programme is not currently designed for the purpose of estimating the audit gap, I have committed to reviewing the role that audit-gap measurement could have in assessing our effectiveness. Similarly with tax-gap measurement, while continuing to have reservations on developing a full suite of tax-gap measurement tools, we will continue to carry out critical analyses of compliance in particular sectors and activities. As regards increasing the level of risk-based audits, our strategy has shifted to identifying the most appropriate intervention to address the identified risk. Risk-based audit will continue to have a very important role to play in implementing this strategy.

I am happy to discuss any issues and answer any questions raised by the committee, subject, of course, to taxpayer confidentiality.