Oireachtas Joint and Select Committees
Thursday, 1 June 2017
Public Accounts Committee
2015 Annual Report of the Comptroller and Auditor General and Appropriations Account
Chapter 13 - Revenue's Review of Medical Consultants' Tax Affairs
Chapter 14 - Research and Development Tax Credit
Chapter 16 - Deferral of Tobacco Stamp Liability
9:00 am
Seán Fleming (Laois, Fianna Fail)
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We are now back in public session. Today we will examine Chapter 13 - Revenue's Review of Medical Consultants' Tax Affairs; Chapter 14 - Research and Development Tax Credit; and Chapter 16 - Deferral of Tobacco Stamp Liability, all of which are dealt with in the Comptroller and Auditor General's annual report for 2015. Several months ago we examined the overall Vote in respect of the Revenue Commissioners and today we are dealing with three chapters that we did not deal with on that occasion. We are joined by Mr Niall Cody, Chairman of the Revenue Commissioners; Mr. Declan Rigney, assistant secretary in the planning division; Mr. Phillip Brennan, assistant secretary for the Dublin region, and Mr. Liam Gallagher, principal officer, and by Ms Vickie Cahill from the Department of Public Expenditure and Reform.
I remind members, witnesses and those in the public Gallery that all mobile phones must be switched off completely or placed in aeroplane mode. People frequently put their phones on silent and this interferes with the recording and, therefore, with the Official Report. The phones should be in aeroplane mode or switched off completely.
I draw the attention of witnesses to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a 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 they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.
Members of the committee are reminded of the provisions of Standing Order 186 that the committee shall also refrain from inquiring into merits of a policy or policies of the Government or a Minister of the Government or the merits of the objectives of such policies. Members are reminded of the long-standing ruling to the effect that they should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable.
I call the Comptroller and Auditor General to make his opening statement.
Mr. Seamus McCarthy:
As the Chairman said, the committee is examining the remaining three chapters dealing with Revenue matters from my report on the accounts of the public services for 2015.
In addition to looking at the Revenue account, previously we also considered taxpayer compliance.
Chapter 13 examines an ongoing programme of reviews of the tax affairs of medical consultants carried out by Revenue, beginning in 2010. The focus of the review is on cases where medical consultants set up companies through which they provided medical services. Some consultants set up more than one company. Revenue had concerns about the nature of the transactions between the consultants and the companies, and about the level of evidence available to support the commercial nature of those transactions. By 30 June 2016, Revenue had initiated reviews of 763 cases and had closed 403. Arising from the closed cases, Revenue had identified additional financial yields totalling €48.7 million inclusive of tax due, interest and penalties. A total of 70% of the closed audit cases had resulted in financial yield, at an average of €173,000 per case. A total of 29 of the closed cases had been published in the Revenue defaulters list up to mid 2016.
My examination looked at 37 of the closed cases in some detail. In general, we found that Revenue had used a consistent approach while carrying out the reviews. We recalculated the interest and penalty amounts charged by Revenue in ten of the 37 cases. While the correct interest and penalties had been applied in eight of the cases, we found that there had been undercharging in two cases - the estimated undercharge amount was just over €45,000. This suggests that Revenue’s process for ensuring the correct calculation of interest and penalties could be improved.
In 30 of the 37 cases we reviewed, the taxpayer involved had made a disclosure to Revenue indicating an amount of tax and interest due. We would have expected to see that the Revenue auditor had calculated the liability due in the remaining seven cases, where no taxpayer disclosure had been made. In four cases, the settlements agreed were based on calculations submitted by the taxpayer’s advisers. In the remaining three cases, calculations on the file were not signed or dated, so it was difficult to identify who had prepared them. Surprisingly, the Revenue code of practice for audit did not require Revenue auditors to quantify the liability due in an audit case. In two of the cases examined, negotiated settlements were agreed. The terms of the settlements required adjustments to the subsequent company financial statements, but Revenue did not formally communicate the required adjustments to the taxpayers. Revenue has agreed that, in future, where adjustments to subsequent financial statements are required, this will be communicated formally in the audit closure letter. Revenue has also committed to following up on a sample of such cases to ensure that the relevant adjustments have been made.
Chapter 14 examines the operation of the research and development tax credit which was introduced to incentivise private company expenditure on in-house research and development undertaken in Ireland. The credit can be claimed at a rate of 25% of qualifying expenditure, in addition to the standard 12.5% corporation tax deduction, that is, a total tax benefit of 37.5% offset against corporation tax liability. Since 2009, Revenue has been paying out rebates in respect of the credit. The cost of the credit has risen substantially since its inception, as shown in the diagram that members can see on the screen. The cost was €553 million in 2014, which was equivalent to 26% of the estimated business expenditure on research and development for that year. The diagram illustrates that the offset of corporation tax receipts is part of the cost of the scheme, but also that the payable credits is quite a significant amount in 2014.
Our examination found that Revenue did not have readily available information relating to the cost and number of beneficiaries of the scheme, or about compliance interventions or case reviews it had carried out in respect of research and development tax credit. As a result, information in these areas had to be extracted from individual files by Revenue for the purposes of the examination. Revenue has stated that the introduction of its electronic case management system from July 2015 will allow it to more easily identify research and development credit cases. Given the high cost of the scheme, however, Revenue needs to also develop the capacity to monitor the effectiveness of its compliance work in this area.
A Revenue intervention in respect of a research and development claim involves the application of two tests: a science test to ensure that the activities included in the claim are eligible for credit; and an accounting test to ensure that the associated costs have been properly tracked and accounted for. The examination reviewed a sample of 17 intervention cases closed by Revenue in 2015 that involved an element of disallowed research and development tax credit. The total research and development tax credit claims in those cases was €46.4 million. Following intervention review, Revenue identified a total of €8.4 million for recovery, including tax, interest and penalties. This was equivalent to 18% of the tax credit claimed.
A condition of obtaining any public service contract with a value of €10,000 or more within any 12-month period is that the contractor is required to produce a tax clearance certificate. Revenue uses experts to assist its own caseworkers when checking the scientific aspects of research and development tax credit cases. In 2015, Revenue had paid five experts more than €10,000 each but was unable to provide evidence that the tax status of the experts had been confirmed prior to processing payments. In addition, Revenue had not requested copies of qualifications from individuals applying to be included on the panel of experts. Revenue has agreed to incorporate this step as part of its procedures.
Chapter 16 deals with a specific issue that arose in 2015 in respect of the collection of tobacco excise, which yields revenue of approximately €1 billion a year from a small number of tobacco producers. The excise is collected through the application of stamps to tobacco packaging. In October 2015, the Revenue Commissioners agreed to allow one tobacco manufacturer to defer part of its payment of tobacco stamp liability due in December 2015 until January 2016. The amount deferred was equivalent to 11% of the company’s liability for the year. Members may wish to note that the cash amount is not disclosed in the report as it could lead to identification of the company.
The legislation underpinning tobacco excise has, since 1996, allowed Revenue, in exceptional circumstances, to permit a tobacco producer to defer payment for up to one month after the liability arises. Revenue exercised this power for the first time in 2015, in the context of uncertainty around the introduction of new cigarette packaging legislation. The examination found that Revenue had not established a written procedure for granting such a deferral nor was the deferral in 2015 formally documented. I recommended that Revenue improve its documenting of high-value decisions and exceptional cases, and Revenue has agreed to implement the recommendations.
As part of the standard arrangements for the purchase of tobacco stamps, tobacco companies are required to have in place a bank guarantee or bond which can be called on by Revenue in the event of a default. The company availing of the tobacco stamp liability deferral had an adequate guarantee in place at end of 2015 and so no tax was at risk when the payment was deferred.
Seán Fleming (Laois, Fianna Fail)
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I now call on Mr. Niall Cody to make his opening statement.
Mr. Niall Cody:
I thank the Chairman for this opportunity to make a short opening statement. As time is limited, I will focus on providing a brief overview of the three relevant chapters from the Comptroller and Auditor General’s report of 2015. At the outset, I should state my obligation to uphold taxpayer confidentiality as provided for in section 851A of the Taxes Consolidation Act 1997.
The Comptroller and Auditor General has reported on Revenue’s review of the tax affairs of medical consultants. This is a good example of how compliance issues identified locally are extended nationally when necessary. During a routine audit of a medical consultant as a high-wealth individual, certain risks were identified which led to an examination of transactions that took place at the time when the medical consultant incorporated. A focus on the substance of these arrangements revealed no evidence of commercial reality in the structure and transactions involved. The issues that Revenue challenged centred on the incorporation of a private practice with a view to securing an overall reduction of tax payable, through tax arbitrage between personal and corporate rates of tax. This identified significant tax risk and, therefore, a targeted sectoral compliance programme was implemented nationally.
The Comptroller and Auditor General’s report provides some detail on how cases were selected. As with any Revenue compliance programme, we used analytics to identify and select cases and then conducted the appropriate intervention in each case.
The tax risks that were identified included the purported disposal of goodwill by medical consultants to their controlled companies, cross-charges made between medical consultants and their controlled companies that lack any commercial basis, claiming personal expenses against professional income, insufficient or no supporting documentation to support large expenses claimed as tax deductions, excessive incorrect tax deductions claimed in relation to salaries-pensions of spouses and children, and deferring professional income to later tax periods, thus delaying taxation. The project has not yet concluded. As at March 2017, there were 279 open cases, 84 of which are under appeal.
By way of update to the figures from paragraph 13.9 of the Comptroller and Auditor General's report, as at 30 April 2017 Revenue has initiated 825 cases, 552 of which were closed by that date, yielding €61 million in tax, including future uplift, interest and penalties. This yield relates to 276 consultants, 36 of whom have been published in the quarterly list of tax defaulters.
The Comptroller and Auditor General made seven recommendations arising from his examination of this compliance programme. Revenue has agreed to six of these, either in full or in part, and the committee has been provided with updates on their implementation. Progress has also been made in relation to the recommendation which was not agreed and this is being considered again, as part of a review that is currently under way.
The Comptroller and Auditor General also reviewed the operation by Revenue of the research and development tax credit. The cost of this tax credit scheme is significant and in the period from 2004 to 2014 has increased from €71 million to €553 million. In 2013, the economic and fiscal division of the Department of Finance reviewed the scheme, concluding that since inception the tax credit was a significant driver for increasing research and development spend and an overhaul of the research and development tax regime was not required. Revenue interventions in respect of the research and development credit have increased in proportion to the risks associated with the increasing cost of the credit. In 2011, there were 26 such interventions, yielding €2.6 million. In 2015, this rose to 178 interventions yielding €13.5 million.
During his examination, the Comptroller and Auditor General sought detail on the number of research and development cases selected for intervention and the element of yield directly applicable to research and development. This information was not readily available because Revenue records yield from interventions by reference to tax head, rather than by reference to the tax credit or relief giving rise to the yield. In order to provide the detail requested, it was necessary to examine each individual case. The Comptroller and Auditor General considered that the cost of the research and development scheme justified collating information on the compliance work carried out specifically on research and development and made a recommendation to that effect, which Revenue accepted. In implementing this recommendation, Revenue has adopted a two-pronged approach. First, the Revenue case management system provides better labelling functions to enable research and development interventions to be identified; and, second, changes to the corporation tax return will allow case workers to raise assessments in respect of research and development adjustments to claims, enabling identification of cases where research and development yield has been established. This will facilitate compiling accurate statistics on clawback amounts in respect of research and development activities. By way of an update, the research and development intervention figures for 2016 are a total 271 interventions, 93 of which yielded over €13.3 million.
The Comptroller and Auditor General made two additional recommendations in relation to the engagement of experts by Revenue. Revenue agreed with both recommendations, and we have recently strengthened our procedures to ensure that tax clearance is confirmed before any expert is accepted for work and we have also taken the opportunity to improve our processes concerning the verification of experts' qualifications.
Since 20 May 2016, tobacco companies are only permitted to manufacture tobacco packs that conform to the second tobacco products directive as implemented in Ireland under Department of Health regulations. In March 2016, the Department of Health published measures to implement the directive in Ireland. Under the new regulations, any stock manufactured before 20 May 2016 could be released for sale up to and including 20 May 2017.
In late 2015, it was not clear when or how the new directive would be transposed into Irish law, and neither was it clear as to the format in which tobacco packs could be produced after 20 May 2016. As a consequence, one tobacco company decided to build up sufficient stocks of stamped tobacco packs in the old format and hold the product in warehouses for release onto the market in 2016. In discussions with the tobacco companies on transitional arrangements, Revenue agreed with one tobacco company that the deferral element of the additional-stock element of the tax stamp charge due for payment on 21 December 2015 could be extended to 28 January 2016. Tobacco products tax legislation provides that in exceptional circumstances a longer period of deferment can be applied. A deferral of one month was granted on the basis that the uncertainty around the introduction of the new directive represented a set of exceptional circumstances. The tobacco company in question had a guarantee in place covering the amount of the tax stamp charge that was deferred and no tax was at risk as a result of the deferral.
The Comptroller and Auditor General has made two recommendations arising from his examination of the deferral and Revenue has agreed with both. We now have in place a robust procedure which sets out the various authorisations required for the use of powers relevant to tobacco products tax legislation and which ensures that approval decisions in that regard are fully documented.
I am happy to discuss any issues and answer any questions raised by the committee, subject of course, to taxpayer confidentiality.
Seán Fleming (Laois, Fianna Fail)
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I call on the committee's lead speaker, Deputy Marc MacSharry, who will be followed by Deputy Peter Burke. The first speaker has 20 minutes, the second speaker has 15 and subsequent speakers, who have ten minutes, have indicated in the following sequence: Deputy David Cullinane, Deputy Catherine Murphy, Deputy Catherine Connolly and Deputy Shane Cassells.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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I thank the witnesses for attending and thank Mr. Cody for his presentation. In true Revenue style, Mr. Cody answered in his own brief words several of the obvious questions which arise and I may well be briefer than the 20 minutes.
How did Revenue become aware of the existence of a tax planning strategy specific to consultants? Was it a tip off or does Revenue have a network of intelligence in place that informs it of this type of information?
Mr. Niall Cody:
As I outlined in my remarks, this started off as a result of an audit on a medical consultant. In the course of that audit, which was not setting out to uncover a strategy that was being applied across medical consultants, the auditor looked at the set of arrangements and then started to raise questions. In the context of the Dublin region, generally what we do, if we come across an example of a set of arrangements, is to see if there are other examples of it. That is the way we work.
The Dublin region became aware that a number of consultants were incorporating and setting up this type of structure, and from that we established the facts in certain cases. We then had to get legal opinion because there were certain arrangements, even to the extent of whether a medical consultant could incorporate. We sought a whole series of legal advice. We got our legal advice, we got expert accounting advice on the treatment of goodwill and then, in the context of the Dublin region where most of the consultants who have significant private practice are based, the Dublin region started to expand the project.
Mr. Philip Brennan is head of the Dublin region and he wrote to the IMO and the IHCA about our concerns in this area. We then decided that we would expand the project from the Dublin region nationally. The Comptroller and Auditor General's report sets out some of the detail of how we selected cases and the features involved, and we took it from there.
It is a feature of what we do. We do sectoral reviews and then we establish whether there is a risk. If there is a risk, we expand it nationally and it then takes its course.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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It was a random-----
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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No. The Revenue uses analytics to choose people or whatever. From that, as Mr. Cody stated, the Revenue decided to take a look at this to see whether it was replicated, and it was. They expanded the project into a national project and they are where they are now.
As part of his investigations, did Mr. Cody identify who devised this strategy? Who was it, or can Mr. Cody tell us?
Mr. Niall Cody:
I cannot tell the committee about the details of tax practitioners who were involved in advice.
Some of it is in the public domain. Essentially, with schemes like this the experience tends to be that there is a number of advisers who develop the scheme and market it to clients. Some of them take it up.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Was the scheme, to the knowledge of the witness, targeted specifically at consultants?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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The witness mentioned the Irish Medical Organisation, IMO. Is it safe to say it was not the representative organisation, the medical organisation-----
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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It is about imposing it here. For all the world, this would have been reputable professionals coming up with a scheme and recommending it. In essence, the scheme was illegal or, if appropriately used, was it legal?
Mr. Niall Cody:
This is the issue around schemes and legality. Tax planning is a normal part of the corporate business world. The challenge we have is schemes range from implementation of the law and reliefs provided for as intended by the Oireachtas to moving somewhere along the continuum to look at the interaction of reliefs in a way that was probably never thought through when they were being implemented but is still legal. A taxpayer is entitled to plan affairs to minimise that in accordance with law. We also have what we would see as aggressive avoidance, which is legal, but we will challenge it. There is a move from avoidance to deliberate default; that is moving out of legal schemes to what we consider as illegal schemes. We cannot apply penalties unless there is deliberate default. We cannot apply the penalty set out in the code of practice when we challenge avoidance; there are special rules around avoidance. With the types of cases we are dealing with, we see them as beyond legality and acceptability.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Would the witness say the design of this scheme was prudent tax planning and management in line with the law or, notwithstanding the fact that the project is still under way, does he believe the scheme was designed to subvert the law in terms of tax?
Mr. Niall Cody:
We are always reluctant to get into value judgments. We can look at the facts of the case. To date we have yields in 276 cases and published 36 cases. One cannot be published on the tax defaulter list if engaged in legal tax planning. What tends to happen in schemes like this is interaction between corporate tax rates, capital gains tax rates and income tax rates. It is perfectly permissible to plan one's way through that scheme. The problem in this project is the legitimate boundaries were forgotten about. There is an idea of goodwill in the context of these cases. In all the cases we have settled, the goodwill has been completely undone. It is not a question of valuation and the use of expenses. In the previous years we have reported a review of the contractors project. One example of the cases we deal with are wages for children, or under age people, as there was in one of the cases I saw relating to work on a website as the child was proficient in information technology and the consultant was not. That is what we must deal with. When we deal with a scheme like this, it is constructed by professionals and part of the challenge comes from everybody lumping in everything, to use an agricultural term, in minimising the amount of tax paid. The average settlement in these cases is considerably higher than the settlements we have in our risk-based project. These are high-wealth individuals with significant income and significant underpayment of tax. I know tax professionals are involved with this but there are also professional people involved. It comes back to the idea that if a scheme results in a significant reduction in tax liability - if it is too good to be true - it is probably not proper.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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It probably is too good to be true.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Is there a possibility of other professionals or consultants utilising similar strategies?
Mr. Niall Cody:
We do sectoral reviews and our compliance activity is informed by our experience. It is mentioned in the Comptroller and Auditor General chapter. We have a group looking at particular issues around goodwill to see if it can apply in other professions. There are restrictions on how professions can structure themselves, such as whether they can incorporate.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Is it becoming the practice in sectors that there are aggressive avoidance schemes? Is that becoming the norm?
Mr. Niall Cody:
My predecessor and my predecessor's predecessor has been before the Committee of Public Accounts speaking about aggressive tax avoidance. We have a team of people working on avoidance. This failed the avoidance test as it went beyond avoidance. However well-intentioned was the planning, it did not work at all. I would think aggressive avoidance is probably not as prevalent as it was a number of years ago. We have teams of people looking at it. One of the strategies we are trying to look at now is ensuring we know what is going on. We will always come to it after the event, as the structures are set up and self-assessment works in a way that the return comes in a good period after the event takes place. We then have to review, slice and dice the data, using analytics and third party information before making a challenge.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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An internal working group was set up to look at the matters from a corporation or professional practice standpoint, with a view to publishing guidance. Is that work complete?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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There is no information available from that just yet.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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I have another point. Of the 403 cases, one third had no yield. Is there information on the types of intervention on the no-yield cases? Was it aspect query, profile interview, audit, for example?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Is that foolproof? Is it fair to say the 121 cases were not audited?
Mr. Niall Cody:
No. Looking at the rate of nil-yielding interventions, it is approximately 30% across the board.
The work in respect of the medical consultants has a 70% yield. A particular feature of the medical consultants cases is that there is a consultant and a company. We could have a settlement entirely attributable to the individual, which would mean that the company yield would be nil. Such outcomes have an inherent nil yielding. In some cases there would be a yield from both the individual and company sides. The real nil yielding is actually much less; if we counted each of the consultants and his or her company as one, we would have a very low nil yielding in this project.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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In terms of outlay for the Revenue Commissioners in a case that is being investigated, is there a difference between cases that yield and that do not?
Mr. Niall Cody:
It depends on how long the case takes. If a nil yielding audit or intervention gives assurance that the taxpayer has properly complied with the law, it is a very valuable intervention. It shows that the taxpayer is correct. The challenge we all have as managers in the organisation is that we would like our nil yielding audits to be closed as quickly as possible. The real challenge is presented by a nil yielding audit that runs for a long period. That is possible. As the statistics show, we have 84 cases that are gone to appeal. Such a case may go its full length and, in the normal course of events, we may have the appeals commission find against us. While we could have long nil-yielding audits, by and large we would hope to close them as quickly as possible. We have detailed measurements and statistics which we review monthly on that process.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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In respect of the two cases in which the Comptroller and Auditor General identified incorrect calculations of penalties and interest, have the Revenue Commissioners identified why that happened? Are there more robust procedures to ensure it cannot happen again?
Mr. Niall Cody:
We keep working on our revenue case management system to ensure that as few mistakes as possible occur. Our case workers closed about 6,700 audits last year. Audit work is not easy work for our officials. They are dealing with tax practitioners and taxpayers. When I got the job of being in charge of the Dublin region I was talking to our auditors because I am a bit obsessive about proper recording in case management. They were saying it is tough work as it is hard to get agreement and hard to get money. Sometimes errors are made. The second of the two cases was an error around giving credit for a refund that was due to the consultant, which was not related to the issues that were subject to the underpayment. That should not have been credited. There was a small computational error in the interest charge also. In both cases, the underpayment was less than 3% of the total settlements.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Have steps been undertaken?
Mr. Niall Cody:
Absolutely. We do constant reviews at local management level and the planning division does a quarterly review. We learned a lot from the Comptroller and Auditor General's work in the 2012 report, particularly chapter 27, which reviews a series of audits. We often talk about chapter 27 although some of the people we are talking to do not know what we mean. It has been hugely informative for us in constantly improving our record keeping systems.
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Has Revenue got sufficient resources for optimum output?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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More specifically, if Revenue had more people would yields be higher? Would there be a higher level of tax compliance?
Marc MacSharry (Sligo-Leitrim, Fianna Fail)
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Revenue has not been refused any request for additional resources.
Mr. Niall Cody:
Not in my period. We went through the period of the recruitment embargo in the Civil Service, during which we went from 6,600 full-time equivalents in 2008 to 5,700 in 2012. We are now back at over 6,000. The challenge is that we are also losing a lot of people to retirement because of the age profile of the organisation. It is a challenge to lose experienced people and to integrate, train and develop new people. That is the biggest challenge facing me in my period as chairman.
Seán Fleming (Laois, Fianna Fail)
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I thank Deputy MacSharry. The next speaker is Deputy Peter Burke, who has 15 minutes.
Peter Burke (Longford-Westmeath, Fine Gael)
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I thank all the witnesses for their attendance. I want to have a look at the Revenue Commissioners' headline results for 2016 as given in the three-page document that summarises the yields and various interventions and puts numbers behind the majority of them. In respect of audit compliance, there have been about 537,000 interventions. The average yield, if we were to be as crude as that, seems to be falling. In 2015 it was €1,391 and it has gone down to €1,033. Does that include desktop queries and interventions of that nature? How does Mr. Cody feel the resources Revenue is putting in compare with the yields? Would it be a concern that the yield is falling?
Mr. Niall Cody:
The comparison between 2015 and 2016 is distorted by two issues. In 2015 there was a settlement opportunity for tax avoidance, in June I think, which yielded €42 million. That was a once-off opportunity such as we offer every so often. In 2015 there was also one serious, back-duty legacy case. It went back to the special investigations and was hanging over us for many years. It involved significant legal action outside the State. The settlement actually figured in the estimates for a number of years but was settled in 2015. The impact of those two events is essentially €90 million. Taking that sum out, the 2016 figures are on par with those for 2015. There are always events and outliers that distort the figures. This year we have just finalised the offshore disclosure, which has brought in about €75 million, so this year's average figures will show a spike which will not be repeated next year.
Peter Burke (Longford-Westmeath, Fine Gael)
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Are the aspect queries very fruitful for Revenue in terms of the resources that have to be put into them? Could Mr. Cody explain the process by which they are selected? I imagine Revenue has improved an awful lot in terms of assessing the balances on VAT and PAYE control accounts and matching them to their returns after the period end. If there are any differences, obviously they are picked up. Is that more fruitful than going for a full-scale audit involving spending a number of days in someone's business or premises? Have those instances reduced in light of the fact that we are utilising the aspect query method more now?
Mr. Niall Cody:
Over the last years we have developed a full suite of appropriate interventions matched to risk. Everything we do is driven by risk and by our risk evaluation and profiling, REAP system, through which we are trying to identify a specific risk and the appropriate intervention. Obviously, a full-scale audit or investigation takes significant resources and time. The aspect query programme gives us coverage. We will select a type of risk and then write to the taxpayer giving the information that we have and asking for a comment. Depending on the outcome of the aspect query, the case can then be escalated to an audit if required.
The aspect query programme gives us coverage. The challenge we have is making sure we make the appropriate intervention having regard to the risk. The difference between an aspect query and an audit is that if one gets an aspect query, one still retains the right to make an unprompted voluntary disclosure. If there is a high risk and significant information that suggests there is tax evasion, it would not be appropriate that we would have an aspect query. It would be appropriate that that would be taken for a higher intervention.
Peter Burke (Longford-Westmeath, Fine Gael)
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That would involve making an appropriate call in that context. Between 2015 and 2016, incidents of instalment arrangements seem to have gone up from approximately 8,500 to almost 11,000. The actual value of debt under arrangements did not increase significantly, but is there any reason for the increase in the number of instalment arrangements?
Mr. Niall Cody:
Yes, there is. In the 2014 review the Comptroller and Auditor General looked at the issue of debt management and debt control. One of the areas that the report highlighted was the level of debt that was more than a year old. The preponderance of that debt is at the lower end of the taxpayer base. We have invested in our IT and data systems in order that, through 2016, we had a serious focus on the numbers of debtors who we could not get to as often as we got to the higher rank. Looking at our compliance rates, our timely compliance rates of large cases is 99%, for medium cases it is 98% and for small cases is now up to 88%, but that was down in the lower half of the 80s. Through 2016 we got to small debtors whom we would not have to got to as quickly before.
If someone has difficulty paying their debts, there are two things that person needs to do. They need to submit their returns and they need to engage with us. If they engage with us, we will deal with it and we will enter into instalment arrangements to allow people bring their affairs up to date.
Peter Burke (Longford-Westmeath, Fine Gael)
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With regard to the online system, what incidence is there of people completing form 11 and form 12 online? I imagine the vast majority are at this stage. Do we still accept paper copies?
Mr. Niall Cody:
The self-assessed income tax form 12 is predominantly completed online. VAT and PREM, that is, employer's PAYE, are all mandatory electronic submissions unless one is given an exemption. Most of our business engagement and filing of returns is online. With PAYE there is still an option of either a paper or an electronic form 12. The electronic form 12 has only come on stream in the past three years and it is a brilliant system. In the first quarter of last year, which was the second year where we had the facility to file PAYE online, we received 47,000 returns. This year we have received 199,000. People are using it because it is easier than any of the manual forms. A manual form for PAYE can stills be used, however.
Peter Burke (Longford-Westmeath, Fine Gael)
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If someone is in a poor area for broadband, for example.
Peter Burke (Longford-Westmeath, Fine Gael)
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I have a few questions on the Exchequer receipts. I will obviously be careful to deal with administration questions. Corporation tax continues to pull ahead, and going back to 2014 and then looking at the picture in 2016, the increase still seems very strong. How solid is that? I know Mr. Cody wrote to the Minister for Finance last year, saying he did not expect all but 300 million of it for the following year, but it still seems to be increasing. Does Revenue have any view on that? How solid is the base? Can we get a picture of how many multinational companies these tax receipts are reliant upon?
Mr. Niall Cody:
I have to try to get my years right. In November 2015, I wrote to the Minister for Finance because that month showed a significant increase in corporation tax receipts, which was the subject of much commentary. I wrote to the Minister setting out our analysis as we could give it at that stage. That is the letter the Deputy is referring to. We then followed it up in April 2016 with a detailed report on corporation tax analysis, and for the first time we published it. In April of this year, we published an update. I have it here. It is an analysis of 2015 corporation tax returns and 2016 payments. It is a view over what is happening with corporation tax and is a very interesting report on the data we have. Its sets out that, by and large, the growth in corporation tax has been broad-based and applies across the sectors. Corporation tax, however, is primarily paid by a small proportion of large companies. Approximately 80% of corporation tax is paid by the companies that are dealt with by our large cases division. In 2015, 41% of corporation tax was paid by the ten largest taxpayers.
Peter Burke (Longford-Westmeath, Fine Gael)
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What is that in money terms? As a ballpark figure, is it €6 billion-----
Peter Burke (Longford-Westmeath, Fine Gael)
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The witness might perhaps, in due course, send on the report that is published.
Seán Fleming (Laois, Fianna Fail)
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Million?
Seán Fleming (Laois, Fianna Fail)
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That is €2.7 billion.
Peter Burke (Longford-Westmeath, Fine Gael)
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Have we also seen significant increases outside of the large cases division?
Mr. Niall Cody:
Yes, absolutely. It has been broad-based. There are many companies which paid corporation tax in 2016 that did not pay it before. It was their first year. It is a sign of that broad-based recovery across the companies. There are other factors. For example, 7,900 companies carried forward losses from 2014 but not from 2015. They paid nearly €200 million because losses are now going out of the system.
Peter Burke (Longford-Westmeath, Fine Gael)
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As the economy improves.
Peter Burke (Longford-Westmeath, Fine Gael)
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I have a few further questions. I have heard many call for reform of the capital acquisitions tax system. It amounts to less than 1% of our tax yield and yet sometimes business or entities that do not qualify for reliefs etc. find it very difficult to pass on businesses or inheritance to the next generation. While I know Mr. Cody has no role in policy, does he have any views on the administration of this tax, given that yield is less than 1% of the total yield? What resources does it take to collect that money? How cost-effective is it? It is interesting for someone who has been reading articles on this tax and on the whole area of probate etc. in that it could be improved, even in terms of receipts for the taxpayer as well.
Mr. Niall Cody:
Capital acquisitions tax receipts last year were €419 million. As the Deputy says, it is 1% of the total. It is an area that we are really interested in with a view to modernising the system. Most capital acquisitions tax is paid on inheritance. There are significant reliefs for passing on businesses and farms within families. Over recent years there has been evidence of abuse of some of the reliefs and some of them have been tightened in legislation. There is a real opportunity for the modernisation of the CAT system and I know that the Courts Service is looking at the modernisation of the probate system.
Peter Burke (Longford-Westmeath, Fine Gael)
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Is Mr. Cody bringing that view forward to the Department of Finance?
Peter Burke (Longford-Westmeath, Fine Gael)
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For improvement?
Mr. Niall Cody:
-----modernising it, integrating it and bringing it up to date.
The tax comes out of the process in a way. Is there additional revenue? The reality is that, in dealing with an event such as inheritance, there are processes that ensure proper tax is paid. There are probably greater challenges around the gift element of it because it is a self-assessment system and how stuff is recorded.
Peter Burke (Longford-Westmeath, Fine Gael)
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I expect it is difficult to ensure compliance in that area.
Peter Burke (Longford-Westmeath, Fine Gael)
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That is obviously a major challenge.
Peter Burke (Longford-Westmeath, Fine Gael)
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There is potentially an opportunity to increase the yield considering it is small in terms of the total tax take. I am referring to recording gifts and ensuring people are aware that thresholds apply when they receive money as a gift from a third party. The level of the threshold will depend on the relationship to the disponer etc.
Mr. Niall Cody:
It is a challenge. There are, however, generous reliefs in the area of inheritance and family businesses, and that is a policy issue. There is work we can do on the systems base. It is one of those areas of which there is a lack of understanding and knowledge. It is a relatively minor tax and people's understanding of it-----
Peter Burke (Longford-Westmeath, Fine Gael)
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Could Revenue do more to make people aware of their obligations in that regard?
Mr. Niall Cody:
The issue is we try to make sure people are as aware as they can be of the arrangements. Next week, we are issuing our new revamped website, which will be a state-of-the-art website. We had a state-of-the-art website in 2008 but websites that are nine years old cease to be state-of-the-art.
Peter Burke (Longford-Westmeath, Fine Gael)
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Outside of that, in terms of broadening public knowledge, as self-assessment and form 11 deadlines approach, we hear advertisements on radio or see them in newspapers. However, individuals' obligations regarding capital acquisitions tax, CAT, appear to be under the radar.
Mr. Niall Cody:
Significant CAT issues involve people who are required to file a form 11. There are obligations in the form 11 to record gifts. We would do a little bit more in this area and we have people looking at the system and how we integrate this into our overall communications system. Over the next couple of years, we will have more work done on that.
Peter Burke (Longford-Westmeath, Fine Gael)
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A number of concerns have been raised with me. On the MyEnquiries facility, the target time for responding to a query is between 20 and 25 days. I often hear that the responses people receive do not answer the questions they asked. This means it will take a further 20 or 25 days to clarify a response. For example, someone applying for a tax clearance certificate will be under pressure. Heretofore, if someone marginally missed a VAT or PAYE deadline or an issue arose that he or she was not aware of, he or she was able to contact a local tax office by telephone and have the matter resolved instantly. Now, however, people can wait for weeks to have issues resolved. The concern raised is that raising a point of clarification increases the time it takes to deliver a response to a query.
Peter Burke (Longford-Westmeath, Fine Gael)
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I am talking about all other tax queries, not exclusively tax clearance certificates. I understand a strong online system is in place for tax clearance but the issue is when points of clarification or other issues arise. My experience with the Athlone tax office is that it is quick to respond and could be the flagship for the country in terms of the speed with which it resolves queries. However, I believe the process has slowed down significantly.
Mr. Niall Cody:
Our statistics do not bear out that the process has slowed down, but there are varying degrees of complexity in requests for correspondence, and it depends on what the issue is. What the MyEnquiries facility is about is an attempt to have a secure platform for dealing with what are personal data. It is linked to the whole issue of data protection. We get emails, which are not a secure form of exchange of information. The MyEnquiries system is a system that is secure and integrated.
Peter Burke (Longford-Westmeath, Fine Gael)
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Maybe Revenue could speed up the timeline for issuing clarifications. Perhaps it could speed up the process of dealing with requests from taxpayers for further clarification after they receive a response to a query. That is where the backlog may be.
Mr. Niall Cody:
Right now, we are looking at our standards in relation to complex cases. It is interesting what the Deputy is talking about because we are talking about this among ourselves. I think the next challenge for us is how we deal with complex requests for clarification. We have guidelines on tax opinion and on the Revenue technical service which deals with outside of the large cases division, LCD. That is the real challenge for us over the next period, and it is linked in a way to what Deputy MacSharry was talking about, namely, resources in the context of significant retirements. Some of the people who were in Athlone dealing with these queries are no longer there. These are the challenges we have.
Peter Burke (Longford-Westmeath, Fine Gael)
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I am conscious of time. The electronic relevant contract tax, eRCT, system, is obviously exceptional in ensuring compliance but has caused concerns among small businesses. I will cite the example of person who does manual labour and office administration and, for argument's stake, it transpires when he is doing a VAT return for the period from January to April that he missed a payment notification for an administrative reason. This may be because he paid someone on a Friday night and made a genuine administrative mistake. This generally arises when the person is doing their VAT returns for a four month VAT period. In such cases, the person will be subject to penalties for missing the deadline. These penalties are onerous for small businesses. Larger companies have large numbers of staff, departments and resources to ensure procedures are followed correctly. Is it possible to provide some leeway, possibly until 23 May, for those who are doing the January to April VAT return? The critical issue is that if the business self-corrects within the period in which the VAT return is live and due, this should be acknowledged in some form. I know this will be difficult for the system but the current system is very onerous for small businesses paying small amounts of tax.
Mr. Niall Cody:
The RCT system is a really important tool to ensure compliance in the construction sector. The move to the electronic system in 2012 is one of the major reforms of the administration of the tax system. It is predicated on payment notifications by principal contractors. The onus of compliance in RCT is on a principal contractor, not the subcontractor.
Peter Burke (Longford-Westmeath, Fine Gael)
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That is correct.
Mr. Niall Cody:
The key is compliance with the payment notifications. The penalty regime in the RCT system was changed in law a couple of years ago and we only apply penalties where there have been repeat breaches. The system is absolutely all about real-time compliance and there is an onus on the principal contractor. However, we do not, in any case, impose penalties for a once-off breach. There is a huge responsibility on a principal contractor. A principal contractor is engaging subcontractors. This is not a small operator.
Peter Burke (Longford-Westmeath, Fine Gael)
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Principal contractors can be very small. From working in a small practice, I know that some of them can operate on a very small scale and would come under the RCT system, even if only for short periods sometimes.
I believe in probity and ensuring everything is right. A self-correcting period could be helpful. It would give people a little window of opportunity when making returns to say they made a genuine mistake.
Mr. Niall Cody:
There are self-correction provisions within the RCT system. We do not impose penalties. I have, as the Deputy might gather, some experience of the RCT system. My concern is that in certain cases we are not enforcing the payment notification because our case worker is dealing with the taxpayer. We will be reasonable and we are reasonable in our imposition of penalties. Repeat non-compliance with the payment notification system undermines the RCT system.
Peter Burke (Longford-Westmeath, Fine Gael)
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Is there a mandatory fine?
Peter Burke (Longford-Westmeath, Fine Gael)
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That is fair enough.
Seán Fleming (Laois, Fianna Fail)
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Mr. Cody should not be saying that in front of the Comptroller and Auditor General.
Peter Burke (Longford-Westmeath, Fine Gael)
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I thank Mr. Cody for his reply.
Seán Fleming (Laois, Fianna Fail)
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Deputy Cullinane is next. I suggest we keep to ten minute slots. I was generous to the accountants, talking about those issues to Revenue.
David Cullinane (Waterford, Sinn Fein)
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I am a Waterford man who lives in Mr. Cody's home turf of Knocktopher, County Kilkenny. Mr. Cody is very welcome.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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They will swap the crown and go as far as the Deputy-----
David Cullinane (Waterford, Sinn Fein)
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I am trying to get the Liam MacCarthy cup as far as Knocktopher but I have not been too successful.
David Cullinane (Waterford, Sinn Fein)
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I hope to see Mr. Cody in Croke Park in September.
Seán Fleming (Laois, Fianna Fail)
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That is the only chance Waterford has of winning.
David Cullinane (Waterford, Sinn Fein)
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From Revenue's perspective, what is the difference between tax avoidance and tax evasion?
Mr. Niall Cody:
From Revenue's perspective, tax avoidance is legal but tax evasion is not legal. One of my colleagues always says that the difference between avoidance and evasion is that somebody who is engaged in avoidance should have no difficulty in telling us what they are doing but somebody who is engaged in evasion will seek to hide and suppress it.
David Cullinane (Waterford, Sinn Fein)
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Is tax evasion a crime?
David Cullinane (Waterford, Sinn Fein)
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Is it a crime?
David Cullinane (Waterford, Sinn Fein)
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I know Revenue cannot impose them. From Revenue's perspective, is tax evasion a crime?
David Cullinane (Waterford, Sinn Fein)
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Is tax avoidance a crime?
David Cullinane (Waterford, Sinn Fein)
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If tax evasion is a crime, is it a victimless crime?
David Cullinane (Waterford, Sinn Fein)
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There is always a context.
David Cullinane (Waterford, Sinn Fein)
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If we have tax evasion-----
David Cullinane (Waterford, Sinn Fein)
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-----where people are evading paying tax-----
David Cullinane (Waterford, Sinn Fein)
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-----there is a consequence. We all know that there are pressures on the public purse in terms of housing, child care, health and all of those areas.
David Cullinane (Waterford, Sinn Fein)
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The more money that people evade paying tax on then the less money we have to spend on public services and other public spending.
David Cullinane (Waterford, Sinn Fein)
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It means there are consequences.
I want to ask about the tax planning strategy for hospital consultants that was referred to by the Comptroller and Auditor General. I know questions were put in that respect earlier but I was not here for the first 20 minutes. I apologise now if I ask some of the same questions. When did Revenue become aware of the tax planning strategy?
David Cullinane (Waterford, Sinn Fein)
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Yes.
David Cullinane (Waterford, Sinn Fein)
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How did Revenue become aware of it?
Mr. Niall Cody:
As I said in my opening remarks, we were carrying an audit on a medical consultant. One of the features of the case we were auditing is that there was an incorporation by that consultant. We then looked at the case. It had certain features, as I outlined in the statement and is outlined in the Comptroller and Auditor General's report.
As we normally do with cases, if we identify a case with features that we are not happy with we then look at other cases to see is this a common practice in the sector. The Dublin region did work in 2010 to 2012 and identified a number of cases. We then sought legal opinion in relation to some aspects of the transactions. Once we had received our legal opinion, and expert accounting opinion, we then started to look, extended the project nationally and then started to look at individual cases.
David Cullinane (Waterford, Sinn Fein)
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When Revenue worked out from that one individual, from then doing an examination, Revenue found that the practice was more widespread.
David Cullinane (Waterford, Sinn Fein)
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Was there evidence that the strategy was promoted?
David Cullinane (Waterford, Sinn Fein)
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Was the scheme advertised? Is there evidence it was advertised? Was it discreetly promoted?
David Cullinane (Waterford, Sinn Fein)
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I refer Mr. Cody to figure No. 13.2 of the Comptroller and Auditor General's report, which simplifies the matter for us. Sometimes tax affairs can be made very complicated by people who want us to understand that it is all very complicated when, very often, it is very simple. One can see that it is the same type of consultant on the same salary. The calculation shows how much tax he or she would pay as a PAYE worker and the amount of tax payable for the incorporated option. One of the examples is of a consultant who receives €240,000 from a hospital contract, has an estimated private income of €100,000 from carrying out private practice and, thus, a total income of €340,000. Can Mr. Cody see the figures on the left-hand side?
David Cullinane (Waterford, Sinn Fein)
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Obviously the consultant pays income tax on the hospital contract, which is a public contract. He or she pays 52% tax on the private income, which is €52,000.
Let us look at the figure for incorporation. I presume a consultant will pay PAYE on the hospital contract. However, it is the private element of the income that is incorporated. Let us look at the example given. It shows that a consultant can pay himself or herself a salary of €40,000 and pay income tax on the €40,000. The remaining €60,000 is seen as profit by the company and, therefore, is subject to 12.5% corporation tax. That means that the consultant's liability would be €28,300 rather than €52,000. Incorporation is a considerable saving. Is that legal?
David Cullinane (Waterford, Sinn Fein)
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Consultants can do it?
David Cullinane (Waterford, Sinn Fein)
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Let me outline scenarios. First, we know that there is already public debate about consultants on public contracts working in public hospitals, availing of public money and carrying out private practices in public hospitals. That is allowed, it is happening and consultants make money from the practice. I just gave the example of public money from a contract and private money from income even though the consultants are practising in pubic hospitals and benefiting from same.
Second, consultants are allowed to incorporate the private income. They will save money from doing so to reduce their tax liability.
Third, Revenue found, not only in terms of the legal element of it in terms of incorporating the private income, consultants, as Mr. Cody put it, lumped everything in. There are very wealthy individuals claiming expenses that maybe they should not have claimed, they were not even paying the €28,000 that was due and there are examples of a widespread abuse of the system. Is that fair?
David Cullinane (Waterford, Sinn Fein)
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I know there can be variances.
David Cullinane (Waterford, Sinn Fein)
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The figure referred to consultants working in public hospitals but having a public contract and a private income. First, they availed of public hospitals to carry out private practices. Second, they can incorporate the private income, which means they pay less tax.
Then there is No. 3, which is the problematic one, potentially. If they were availing of expenses they should not have been availing of, would Mr. Cody have seen that as avoidance or evasion?
David Cullinane (Waterford, Sinn Fein)
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Mr. Cody sees it as evasion then.
David Cullinane (Waterford, Sinn Fein)
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I fully accept that.
David Cullinane (Waterford, Sinn Fein)
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I fully accept that. I am just putting on the record what the Revenue Commissioners came across and what the practice was. We have established that. Mr. Cody gave one example of a child who would be more proficient in media platforms or software or whatever, and they were offsetting some of those expenses. What other examples of fraudulent expense claims were there?
David Cullinane (Waterford, Sinn Fein)
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Yes, but Mr. Cody is here today.
David Cullinane (Waterford, Sinn Fein)
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I ask Mr. Cody to proceed then.
David Cullinane (Waterford, Sinn Fein)
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What kinds of home expenses? I ask Mr. Cody to elaborate on that.
David Cullinane (Waterford, Sinn Fein)
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Plasma TV screens?
Mr. Niall Cody:
I do not have the detail of the individual claims but we deal with this across a whole range of cases in which settlements are made for personal expenses that were claimed as business expenses. If we come across such expenses, we add them back, and if they are a result of anything other than carelessness, we have to consider the issue-----
David Cullinane (Waterford, Sinn Fein)
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Mr. Cody has already said-----
David Cullinane (Waterford, Sinn Fein)
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-----this is not carelessness. This is the thing.
David Cullinane (Waterford, Sinn Fein)
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I want to be clear. This was not some mistake; this was intentional. If one goes to the trouble of incorporating part of one's income, one does so because one wants to reduce one's tax liability, and that is allowed. I have my own view as to whether it is morally right but it is allowed. If one then goes to the further trouble of evading tax, that is intentional and purpose-driven. That is what was happening here, and these are high-wealth individuals already benefiting from carrying out private practices in public hospitals. If the Revenue Commissioners established that this was a practice in this sector, and if there are individuals who can incorporate parts of their income like this, the question is whether it is a practice in other sectors. One example that jumps out at me is the many landlords who have multiple properties that they let out. Are there examples of individuals who own perhaps five, ten or 20 properties which they let and who incorporate the rental profits through a company? For a landlord, all rental income is taxable, is it not?
David Cullinane (Waterford, Sinn Fein)
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Would it be possible then for somebody who had five, ten or 20 properties and was letting the properties out to incorporate that income?
David Cullinane (Waterford, Sinn Fein)
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I know it is a feature. I am just saying-----
David Cullinane (Waterford, Sinn Fein)
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Mr. Cody came across examples of tax evasion in one area. He stumbled across it because of one hospital consultant. I understand completely that incorporating income is allowable, but people were going further than that and were evading tax. If it was done in this area, I think it is safe to say that this was not an outlier. It is safe to say that we could probably find similar instances in other sectors. I have given Mr. Cody one example where there are without doubt people who have multiple properties that they are letting. They are putting the profits into companies and then reducing their liability because it is incorporated. Would it be safe to say then that in these areas it is also possible that there was evasion regarding expenses as well?
Mr. Niall Cody:
It is safe to say that across the business sector there is some level of non-compliance. That is why we have an audit programme. That is why we carry out risk-based analyses. That is how we carry out interventions across these areas. We talked about this last October. Our risk-based audit interventions generally result in about 70% of an audit yield. Our random-based programme has a 30% yield. Of the 30% yielding cases, the vast majority yield less than-----
David Cullinane (Waterford, Sinn Fein)
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I must put this to Mr. Cody: he only found out about what was happening with hospital consultants because of what emerged in respect of one consultant, so-----
David Cullinane (Waterford, Sinn Fein)
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I ask Mr. Cody to bear with me. Had he not done that, he would not have been in a position to do the work he did to recover the €47 million or whatever it was that he recovered. Therefore, one can take it as read that this is happening in other sectors. I have given Mr. Cody one example. He is the person in charge of making sure we collect as much tax as possible. We already accepted earlier that tax evasion is not a victimless crime. In all instances where individuals are incorporating private income, that would be - I will not say unusual, but it is private income that, in normal circumstances, should be taxed as PAYE income. In those circumstances, as with hospital consultants, has Mr. Cody now gone through all the different sectors to see whether there is the same level of tax evasion in all those areas?
David Cullinane (Waterford, Sinn Fein)
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It is income tax.
Mr. Niall Cody:
Yes. The issue is that the individual has to be self-employed, there must be incorporation and then there is the risk. That is our business. We carry out an audit programme across all the business sectors. I disagree with the Deputy's idea that we stumbled upon the case in question. We carry out a regular review of sectors, we have a risk-based system that identifies the riskiest cases, we audit them, it is completely open to our colleagues and the Comptroller and Auditor General to look at the areas of risk, and we have a track record of identifying non-compliance and following through. In this instance we identified the case, and what our auditors do and what is ingrained in the system is that if we identify a risk or an example, we ask whether there are other such cases. That is the activity we do every year that we report on. I do not think the Deputy and I are disagreeing on anything, but I am not completely sure-----
David Cullinane (Waterford, Sinn Fein)
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I wish to ask one final question. Would the Comptroller and Auditor General agree that this was not stumbled across but done as part of-----
Mr. Seamus McCarthy:
The system of auditing that has been outlined is certainly planned and very deliberate. I think we have established and accept that it effectively targets higher-risk areas, and we discussed this at the previous meeting when we talked about tax compliance. I am not familiar with the specifics of this individual case that got the ball rolling here. Inevitably, there can be circumstances that go unnoticed for a period but I think over time, with random testing and good targeting of taxpayers, most things should get at least a look, which allows one to identify, if one has good antennae-----
David Cullinane (Waterford, Sinn Fein)
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Given that Mr. Cody has used good antennae and uncovered tax evasion in respect of some hospital consultants, does his antennae - and my antennae went up as well - tell him that there may be other areas now where this is a problem? If so, is he actively looking at those other areas? That is the point I am making.
Mr. Niall Cody:
I am tempted to give a one-word answer: absolutely. I would like to talk a little more about what we do and what we try to do and our strategy of managing our case base, as we would call it. There is something like 850,000 cases that are subjected to our risk evaluation analysis and profiling, REAP, process. All of these cases a couple of times a year are risk-ranked based on all the information we have on our system, third party information and the rest.
We are also actively engaged in segmenting our case base. We are trying to focus on cases below our large cases division because these people are high-wealth individuals who have opportunities. Deputy Peter Burke spoke of smaller businesses which have relatively limited scope for sophisticated tax arbitrage.
Seán Fleming (Laois, Fianna Fail)
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Can Mr. Cody explain the word "arbitrage" for our viewers?
Mr. Niall Cody:
It is about looking at the different tax rates on income versus capital gains and corporation tax and engaging in tax planning to minimise the tax paid while maximising the benefits. We have identified the national case base below the level of large cases division. A dedicated resource is involved in profiling the cases because the challenge is to focus on the non-compliant while not disrupting the compliant taxpayer. Two years ago, I was asked why we were not on top of things and I explained that we were like the people working against doping in sport. If we come across something that is serious we can go back to it We can go back four years in an ordinary case but longer where there are serious evasions. It is a bit like the information on offshore accounts. We will find people, even if we do not do so immediately, because our data matching will improve.
We are trying to improve our knowledge of the sectors which can do this type of stuff. Anybody who moves beyond planning and becomes engaged in abusive practice is better off coming to us before we come to them. In the chapter of the report of the Comptroller and Auditor General on medical consultants it shows how, in the original cases at which we looked, the taxpayers did not avail of the opportunity for a disclosure. They and their advisers had felt that what they were doing was unchallengeable. I was in Philip Brennan's office at an early stage when it was not clear that we would win these cases. He happened to have a letter from one of the agents on his desk, with a comprehensive rebuttal of everything we were trying to do. There was an element in the letter of a tone which meant "the cheek of ye, challenging the schemes we have set out" but we follow these things through to the end.
Catherine Murphy (Kildare North, Social Democrats)
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Tax planning must have started somewhere. Have the Revenue Commissioners identified the original people who carried it out?
Catherine Murphy (Kildare North, Social Democrats)
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Would there generally be a consequence for such people?
Catherine Murphy (Kildare North, Social Democrats)
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The Revenue Commissioners may consider what can be done in that context.
Catherine Murphy (Kildare North, Social Democrats)
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The director of the HSE was before the committee in 2015 and said he had concerns about consultants having contracts in public hospitals, such as St. Vincent's, when they were not supposed to. He said 56% of consultants had such contracts. Would the Revenue Commissioners have looked at these data? There is a mixture of PAYE and additional income and if a person spends only 56% of his or her time on public work it frees up a lot more time for work in another area. Would that come onto the radar of the Revenue Commissioners?
Mr. Niall Cody:
Our concern is the tax treatment of a person's income and that is the limit of our involvement. The cases we are dealing with are consultants who have significant private practice but if there is an issue between the HSE and the consultant around contracts it would not be within our competence to get involved.
Catherine Murphy (Kildare North, Social Democrats)
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I ask because if they have considerable private practice and are also working in the public system it may draw attention to the amount of revenue they can get, there being only so many hours in the day.
Mr. Niall Cody:
In our self-assessment system people keep books and records of their private income, which we look at in the normal course of our work. Breaches of contracts with the HSE are not a matter for us.
Catherine Murphy (Kildare North, Social Democrats)
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I understand that. Is there a data protection issue with the computerised system for risk evaluation? How do the Revenue Commissioners manage it?
Mr. Niall Cody:
We take data protection very seriously and treat taxpayer confidentiality very seriously. All the information we have in our systems are collected under law and protected in our secure systems. The big challenge for a tax administration is collecting enough data, using the data and protecting the data. We have a very strong relationship with the Data Protection Commissioner and when there is a breach we immediately report it. Our REAP system takes all our third party data and taxpayer return information and risk-rates them against all other cases. There are then audit trails of access to a taxpayer's record, which must only be for business use.
Catherine Murphy (Kildare North, Social Democrats)
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When the Revenue finds a person has defaulted and goes onto the list, is there further monitoring of them? Do people in that position face heightened scrutiny?
Mr. Niall Cody:
Our risk ranking system factors in various behavioural issues and one of the factors is previous behaviour. It is important, however, to keep a balance because they are cases where people are doing things we have not yet found and we do not want to just focus on the people whom we have found with risky behaviour.
Catherine Murphy (Kildare North, Social Democrats)
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My next question is on large corporations and tax planning.
I refer to practices such as channel stuffing and sweet trucks. I have had a conversation with several people about the situation. Essentially, my description of it is that it is a kind of limbo environment. There is neither inventory nor sales at the end of a year but there is product that is sitting on one of those sweet trucks or in a channel somewhere between both. In terms of multinationals, I presume there is some international engagement in relation to methods that might be used. Is that the case?
Mr. Niall Cody:
The whole international tax and corporation tax area has been a serious focus across all administrations since probably 2012. I refer to the BEPS project. There are various methods of automatic exchange of information between administrations and country-by-country reporting. When one looks at international tax planning, some of that is to identify mismatches between countries' rules. Our challenge here is to ensure that multinationals pay Irish tax on profits generated in Ireland.
Catherine Murphy (Kildare North, Social Democrats)
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I imagine that if those particular things are happening, they would relate to tax avoidance rather than tax evasion.
Mr. Niall Cody:
Tax planning and the exploitation of mismatches in rules are probably not even tax avoidance; it is essentially tax planning. Countries have their rules and where there are mismatches there are some opportunities for either double taxation or, as it is called, double non-taxation. In some cases companies end up paying tax on profits in both countries because of mismatches in rules but there is increasing international co-operation in this area and the Government has been to the forefront in implementing the BEPS action plan to try to ensure that Irish-based business is taxed in Ireland.
Catherine Murphy (Kildare North, Social Democrats)
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I will move on to a few other points. The Office of the Director of Corporate Enforcement, ODCE, has a particular function in relation to companies. Is there any data sharing in relation to complaints that are made with the ODCE that would have a tax implication?
Mr. Niall Cody:
We have a memo of understanding with the Office of the Director of Corporate Enforcement since its foundation. We have regular referrals of cases where there has been infringement of company law, because obviously that is what it has to look at. We have data-sharing arrangements, subject to data protection and the law. Since the establishment of that office there has been a relationship there. One will see every so often that where companies go into liquidation, we will refer issues to the ODCE and it will then seek to have directors disqualified where appropriate.
Catherine Murphy (Kildare North, Social Democrats)
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When a new scheme is introduced such as the research and development tax credit scheme, which went from just over €70 million to more than €500 million, a substantial increase, it could have been anticipated that it would increase given that there is a lead-in time for research and development. Is there an appropriate system evaluation done at that stage on the risks and compliance issues?
Mr. Niall Cody:
When any new scheme comes is introduced, it is legislated for and our job then is to ensure that it is claimed in accordance with the legislation. We will have a risk-based programme to identify cases that we need to look at.
In 2013, the Department of Finance carried out a review of the research and development credit scheme, which it published, and clearly research and development and expenditure on it is critical to the success of the country's economy. The Department carried out a study and published it. What we do is look to ensure that the scheme is operated in accordance with the law, so we carry out risk-based interventions. We got slated fairly heavily by business commentators through 2013 and 2014 on carrying out too many audits. There was an OECD report in 2013 about which we were concerned because certain industry sources had persuaded the OECD to complain about the heavy-handed approach to audit by Revenue of the research and development credit. My predecessor wrote to the secretary general of the OECD to explain that we carry out a risk-based approach. It is a very valuable relief. There is no question about that.
Catherine Murphy (Kildare North, Social Democrats)
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If appropriately used.
Catherine Murphy (Kildare North, Social Democrats)
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I thank Mr. Cody. I am not cutting him short. It is just that I have a few other questions to ask and I have limited time.
Catherine Murphy (Kildare North, Social Democrats)
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The Revenue sheriff is governed under a very old Act dating back to the 1920s. In the UK, there is much more up-to-date legislation and codes of conduct in that entire area. Is Mr. Cody entirely happy with the current regime or is legislation required to bring anything up to speed? I rely on people coming to me with information or complaints. One must always have fair treatment as well. How is the calculation of worth made when goods are seized? People have told me that goods which were seized were offered for sale back to them. I have to take things at face value. The seizure of certain goods could not have been anticipated under legislation dating back to the 1920s. Data protection, for instance, was not an issue in terms of computers in a commercial environment where in some cases the information contained is not owned by the individual concerned. Could Mr. Cody outline his position on that regime at the moment?
Mr. Niall Cody:
The Revenue sheriff system is under Department of Justice and Equality legislation in the first instance. The sheriffs are officers of the court. We and they have a code of conduct which is regularly updated and is available on our website and from them. There is a complaints procedure in individual cases. The sheriff system is a really important part of our debt management and enforcement system. In 2016, we had 36,000 referrals to the sheriff in relation to €268 million. Of the €268 million that was referred in 2016, the amount of €148 million was collected as a result of the sheriff activity.
The sheriffs are engaged in very difficult work. There is no question about that. A referral will not take place to the sheriff until it is at the end of a process of failure to engage with our staff in the Collector General's office. I have complaints in my office where a person claimed that a sheriff appeared out of the blue and did X, Y and Z. That cannot happen.
It has to be at the end of a process of engagement and a failure to engage with us. Most referrals to the sheriff do not result in seizure. Mostly what happens is the sheriff appears and engagement happens. The sheriffs are professionals, such as solicitors. The UK was mentioned and there has been an element of privatisation of debt collection in certain areas there. I would not like to go down that route. I have read about debt collection agents in the US. The sheriff process provides a very important safeguard but it does not mean that in individual cases things do not happen that should not happen and tempers get frayed. I know of a recent case in which the emergency response unit was brought in as a result of problems with the case.
The Deputy has asked a series of parliamentary questions and has a concern about computers. Sheriffs are bound by data protection legislation and they have protocols. The Chairman asked me about it the last day. I look at all the parliamentary questions. I was very interested in the questions the Deputy asked about data protection. Computers are very different. We have spoken to the sheriffs about ensuring they abide by the data protection protocols.
Catherine Murphy (Kildare North, Social Democrats)
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I have a final question on tobacco yields. There are a very significant number of illegal imports. Mr. Cody is in a position to know what is brought in and how much of it is illegal. I wish nobody smoked and I completely accept there is a serious public health issue. Is there a tipping point at which it becomes counterproductive because more illegal material comes in and people avoid paying the price because of the excises on it?
Mr. Niall Cody:
We give huge attention and resources to tackling illegal tobacco but it is a smuggled operation so it is concealed. It goes back to the discussion we had earlier about evasion. We will only come across it when we come across it. We try to measure the illegal tobacco trade in the State in conjunction with the Office of Tobacco Control. Every year, we get Ipsos MRBI to carry out an independent survey of illegal tobacco products. We have been doing this since 2009. We publish the report and I have it here. I can give the Deputy a copy of it. The methodology has been the same since it started. It gives us a view of the position. In 2016, the estimated level of illegal tobacco trade in the State was 10% of the market. The level of legal, non-Irish duty paid packs which people get abroad and bring back legally is 8%. That means 18% of the market is not going through the tobacco stamp process. To put it in context, in 2015, the illegal market was 12%; in 2014, it was 11%; in 2013, it was 12%; and in 2009, the estimate is that it was 16%. We get this done independently every year. It is one of the few areas where we take that type of tax gap approach to try to look at it independently. Other bodies engage in and publish research and they tend to have a higher figure. Those research areas are supported by the tobacco industry. I have no doubt that in some cases it is in the tobacco industry's interest to have a higher figure than a lower one to deal with the argument about whether excise rates should be increased. In this committee I have been asked about our satisfaction with the estimates on the tobacco market and the increase. I said that a 50 cent increase now is equivalent to previous 10 cent increases. A packet of cigarettes costs over €11. I can make that research available to the committee.
Seán Fleming (Laois, Fianna Fail)
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If Mr. Cody sends it to the clerk, he will circulate it to us.
Catherine Connolly (Galway West, Independent)
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I feel like having a cigarette at this point. I thank all the witnesses for their frank delivery. It is very welcome. It is refreshing. I welcome how they have embraced, albeit not entirely, the Comptroller and Auditor General's recommendations.
Catherine Connolly (Galway West, Independent)
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I say this partly tongue-in-cheek and partly seriously but it occurs to me that Revenue did not do an advert on the buses about medical practitioners or other professionals. It did not ask them to come forward to help us pay tax as has been done with social welfare.
Catherine Connolly (Galway West, Independent)
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I do not agree with the social welfare advert. I asked the question tongue-in-cheek. It is an appalling way to go on. I saw the Ombudsman's report on social welfare in the paper yesterday or today which said the figure for fraud was wrong. It has just been highlighted in the Ombudsman's report. I have to make the comment that we go after certain people in a particular way. I am not referring to the Revenue Commissioners. We do not go after other people with significantly more liability at all.
Catherine Connolly (Galway West, Independent)
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What was the result of that?
Mr. Niall Cody:
It is hard to establish the effect of any particular aspect of our engagement. One of the things we are concerned about is the tradition was to advertise in the newspapers. However, much of the population, apart from those of our age, does not look at newspapers. We want to try to increase our scope to make sure all people who do not read normal stuff can know their entitlements.
Catherine Connolly (Galway West, Independent)
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In the context of audits, did Revenue audit Templemore at some stage?
Seán Fleming (Laois, Fianna Fail)
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Mr. Cody need not talk about individual taxpayers.
Catherine Connolly (Galway West, Independent)
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I just want to clarify.
Seán Fleming (Laois, Fianna Fail)
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The Deputy did not mean it.
Catherine Connolly (Galway West, Independent)
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It was just to clarify the context. I will come back to the consultant.
Mr. Seamus McCarthy:
There was a tax audit of the Garda Vote in 2010 and it continued for a number of years. There was a settlement, a payment of liabilities, a payment of interest and penalties. It was disclosed in the appropriation account for the Vote. It was of the whole of the Garda Síochána. Mr. Culhane explained yesterday it focused on pay. It is yet to be established whether there was any focus on Templemore specifically. I do not expect the Revenue Commissioners can help with that.
Catherine Connolly (Galway West, Independent)
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I have a question about the consultants.
This is a finite figure, is it not? Revenue has picked out a selection. Is 3,643 the overall figure in respect of consultants?
Mr. Niall Cody:
No. We work on the basis of economic activity codes. That would link to the medical sector in its entirety; they would not all be consultants. Starting out from our potential population, we had to find the medical consultants and, within that group, those consultants who incorporated. That is where we started.
Catherine Connolly (Galway West, Independent)
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Who else would be within that group?
Mr. Niall Cody:
There would be various agents. Someone could be selling medical products, for example. Economic activity codes only drill down so far. It is an EU-based system to try to give us a sectoral approach. When we are starting a project, we have to start here. It is wider than the 100% population, as it were.
Catherine Connolly (Galway West, Independent)
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That is okay. That is the figure. Some 825 cases have been examined from that figure, is that right?
Catherine Connolly (Galway West, Independent)
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Of that figure, then, the yield to date is €61 million over a number of years, from 2010 onwards, is that right?
Catherine Connolly (Galway West, Independent)
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From that period to date, Revenue has received €61 million from that group.
Catherine Connolly (Galway West, Independent)
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In respect of the time span, I think the Comptroller and Auditor General looked at a sample case, 37 or something. He highlighted the variance in time taken to close the cases. Can Mr. Cody comment on that? Sometimes they were closed within six months and sometimes it took four years.
Mr. Niall Cody:
The cases that took the longest were the early one when we had started to identify the issue and to go into the legal advice and so on. As I said earlier, when we started, people did not use the opportunity to make a thorough disclosure. They felt that their cases stood up. Once the process had started and the first number of cases were published, the level of disclosure increased. It became clear that we were seriously challenging these cases, so people tended to settle more quickly. We showed that we were not giving up. It is probably a trend in all our projects that it takes longer to settle the earliest cases.
Catherine Connolly (Galway West, Independent)
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Would it be fair to say that those involved in the more recent cases are settling more quickly?
Catherine Connolly (Galway West, Independent)
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Has Revenue analysed that? Is it reducing the timeframe?
Mr. Niall Cody:
In respect of audit, at our management advisory committee, MAC, and our business management executive we have regular reviews of the timeliness with which we close our interventions. We produce monthly reports on all our activity and these are the subject of discussion at all our MAC meetings. The organisation attributes real importance to ensuring that our managers actively support the caseworkers. We are losing a lot of experienced people and we have to manage all that. It is a clear focus of the work we do in managing our portfolio.
Catherine Connolly (Galway West, Independent)
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Earlier, Mr. Cody referred to an internal working group. It is expected to report the end of next month, is that right?
Catherine Connolly (Galway West, Independent)
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Will any of it be published?
Catherine Connolly (Galway West, Independent)
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Why can it not be published? This is an important review of how companies are being used, not just by doctors and consultants, is it not?
Mr. Niall Cody:
Ultimately, I think the report will be published and made available. The question is whether it is published before or after legislative proposals are drafted. Legislative proposals have to go through a process. We tend to try not to publicise what we would see as flaws in the law before we get a chance to have them remedied. Otherwise, they could be exploited.
Catherine Connolly (Galway West, Independent)
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So that is the focus of the review group, is it?
Catherine Connolly (Galway West, Independent)
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That is what I was going to ask. This is just the medical area. There are obviously other sectors. What would they be?
Mr. Niall Cody:
We have no evidence of the abuse of goodwill on a systemic basis across other professions. There are restrictions on what some professions can do vis-à-visincorporation. It is one of the things that will inform our risk selection system. I talked about how we segment our case base and try to learn from one case to see if it can be replicated elsewhere.
Catherine Connolly (Galway West, Independent)
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Would this group stand out?
Catherine Connolly (Galway West, Independent)
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Moving on to research and development, this is the one area that jumped out at me. Although I am no expert on figures, it is a huge figure, is it not? The number increased from 73 companies in 2004 to 1,600 in 2014. That is probably much higher again in 2017, is it?
Catherine Connolly (Galway West, Independent)
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That figure was 1,538 companies.
Catherine Connolly (Galway West, Independent)
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That will probably have risen again in 2016, more than likely.
Catherine Connolly (Galway West, Independent)
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I am only trying to get the figures so I can frame my question. It has risen to 1,600 companies and we would expect that to continue. The cost of the scheme has increased to €708 million. Revenue had 520 compliance interventions between 2011 and 2015. I am just reading from the document. It emerged that €46.1 million had been inappropriately claimed, I suppose, and Revenue was getting it back. Is that right?
Catherine Connolly (Galway West, Independent)
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They said they were doing research and development. Does the figure of 520 correspond to separate companies?
Mr. Niall Cody:
A compliance intervention on research and development will generally be in respect of a separate company. There may be reasons for having a number of interventions regarding the same company. Some companies have streams of research and development. We might be looking at one aspect in a particular stream, while in another year we might be looking at another research and development claim.
Catherine Connolly (Galway West, Independent)
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Defects might be too strong a word, but the Comptroller and Auditor General's report identified concerns in that regard. How is Revenue dealing with the collation of information?
Mr. Niall Cody:
The Comptroller and Auditor General focused on the question of how we could pinpoint the number of interventions we did specifically on research and development, given the scale of the relief. The way our systems are organised means we record by tax head. In this case, that would be corporation tax. Our case management system would have identified the intervention as being in respect of corporation tax and the yield. The Comptroller and Auditor General asked us to look at our ability to identify how much of the intervention yield was a result of research and development. For the Comptroller and Auditor General's study, we had to produce those cases manually. Our revenue case management system is the bedrock of our compliance interventions.
We constantly invest in upgrading it to ensure that it is as rich a source of management information as possible.
It is particularly important that information is populated from the systems and manual intervention by our case workers is minimised because there is scope for mistakes in manual interventions and they interfere with case workers doing their audits. We have now improved the facility to identify the R&D interventions. We also examine how to identify the yield for R&D. We are changing our corporation tax return in order to be able to, when we get a recovery, raise an assessment in respect of R&D. From 2017 on, we will be able to identify from the systems as opposed to manually. All of the information is in the system. We previously had to extract the information manually. We are now trying to ensure that if the Comptroller and Auditor General in three or four years' time wants to look at figures for R&D, he or she will be able to pull the information from our systems and use it in his or her work.
Catherine Connolly (Galway West, Independent)
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A tax and duty manual was to be prepared. Has that been done?
Catherine Connolly (Galway West, Independent)
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In terms of Taxes Consolidation Act, I did not understand the issue in regard to mandating section 766.
Mr. Niall Cody:
I was referring to the idea that it is an assessment under that section which deals with R&D. From our systems, we will then be able to say that all assessments raised under that heading are as a result of our R&D compliance intervention. The figure will be in the system rather than having to manually produce it.
Catherine Connolly (Galway West, Independent)
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From when will that be effective?
Catherine Connolly (Galway West, Independent)
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When in this year?
Catherine Connolly (Galway West, Independent)
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Going forward.
Catherine Connolly (Galway West, Independent)
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I thank the witness.
Shane Cassells (Meath West, Fianna Fail)
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I welcome Mr. Cody and all the other witnesses. There is a more sedate atmosphere at the committee this morning than was the case yesterday. It is great to see the four witnesses getting on well this morning, passing notes to each other and smiling.
Seán Fleming (Laois, Fianna Fail)
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There are a few cases we could send to have sorted out.
Mr. Niall Cody:
I have a couple of questions for Mr. Cody in respect of research and development. He stated earlier that he regards it as critical. All members and witnesses can understand and appreciate how important the R&D tax credit is in terms of supporting small businesses across Ireland, be they in manufacturing, wholesale or communications, and how the 37.5% tax relief helps fund innovation. The witness also referred to the 2013 review which said the tax credit plays an important role in assisting Ireland in meeting its 2020 target for R&D expenditure. The significant importance of R&D investment decisions was mentioned. The tax credit is an important element of Ireland's corporation tax regime in terms of attracting foreign direct investment to Ireland. The success of the scheme is evident. As Mr. Cody said, it has grown from €71 million to €500 million in over a decade.
In terms of statistics, the Revenue report, An Analysis of 2015 Corporation Tax Returns and 2016 Payments, published in April 2017, shows that the number of companies claiming the R&D tax credit fell.
Shane Cassells (Meath West, Fianna Fail)
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Deputy Connolly asked the witness about that issue. There was a five-year period of exponential growth. In 2009, 900 companies claimed the R&D credit. That cost the Exchequer €216 million. In 2010, 1,172 companies claimed the credit. The number of companies claiming the credit grew steadily through to 2013, when 1,576 companies did so at a cost of €421 million. In 2014, there was a slight drop in the number of claimants but the cost to the Exchequer was €100 million more than 2013. According to the Revenue report, in 2015, there was a further significant drop to 1,276 companies yet the cost to the Exchequer was €639 million. In a two-year period the cost to the Exchequer increased by €200 million or 15.5% while there was an 18.7% drop in the number of companies claiming the credit. Can the witness explain why that is the case?
Shane Cassells (Meath West, Fianna Fail)
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The witness is saying there are 1,534 companies claiming in which year?
Shane Cassells (Meath West, Fianna Fail)
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The relevant graph in the 2017 Revenue report indicates a figure of 1,276 companies for that year.
Shane Cassells (Meath West, Fianna Fail)
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That report was published in April 2017.
Mr. Niall Cody:
The figures for 2015 are not finalised. One reason the cost has increased while the number of claims has decreased is the manner in which the repayable credit is paid over a 33-month period. There are unused credits in the system that will be paid in the following year but relate to the previous year. There is a formula for how the repayable credit is paid over a 33-month period. There are in-built figures for claimed but not repaid R&D credits which span onto the next year. That accounts for the increase in the amount paid each year. Does the Deputy understand my point?
Shane Cassells (Meath West, Fianna Fail)
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I do. The significant drop in claimants at that point threw me. Notwithstanding that the figures for 2015 have not been finalised, in April 2017 there were 1,276 claims at a cost of €639 million, which is €200 million more than two years previous to that in spite of there being significantly fewer claims in 2015.
Mr. Niall Cody:
There have been changes in the legislation in the base year to improve the amount that can be repaid under the system. Since the R&D credit was introduced, there has been expansion of and changes to the scheme to make it more advantageous to companies. That is set out in the Department of Finance report. If the Deputy wishes, I can forward a note on the R&D credit figures after the meeting.
Shane Cassells (Meath West, Fianna Fail)
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I would appreciate that. The witness said the Revenue was being slated by certain people in the industry for being too heavy-handed in terms of audits that were being carried out. There are two ways it can approach the issue, being a full Revenue audit or the lesser intervention of issuing an aspect query letter. In the context of people saying Revenue is too heavy-handed, what is the scope for what is being achieved and the manner in which it is being done?
Shane Cassells (Meath West, Fianna Fail)
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There are two areas there that the witness-----
Mr. Niall Cody:
-----rigorous enough in others. Generally, when we are being complained about in that way, we are probably getting it at least partly right. I referred to the OECD report, which said that heavy auditing by the Revenue Commissioners and the unpredictability of its rulings as to whether research activity is eligible for a credit are disincentives for enterprise to take up that credit. We wrote back to the OECD to challenge that view. Its response was that that view was partly based on what had been indicated to it by people with whom it met. We try to consider what would be the appropriate intervention. Most of our interventions are aspect queries which involve a series of questions to be answered by the company-----
Shane Cassells (Meath West, Fianna Fail)
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There are 23 of those questions.
Shane Cassells (Meath West, Fianna Fail)
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Is Mr. Cody happy with the issue raised by the Comptroller and Auditor General regarding Revenue's engagement of experts?
Mr. Niall Cody:
Yes. We have tightened up our procedures and guidelines on it. The issue with public procurement and the €10,000 limit in respect of which a tax clearance certificate must be in place is that, due to there being different projects, five of the experts went over the in-year limit. We have issued guidelines to get tax clearance certificates from all of them so that each of the people involved is fully qualified in that regard.
The other process related to academic qualifications. We have tightened up on that, but all of the experts had academic qualifications. If we sent in someone who was not of a suitable standard, that person would be challenged quickly if he or she suggested that the science did not work.
Shane Cassells (Meath West, Fianna Fail)
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May I ask Mr. Cody about the analysis of companies claiming the start-up tax credit? According to the review, the research and development tax credit is vital to our country, but is it clear that the credit is doing enough for smaller and younger companies, which is where we need to see research and development innovation, or are older and larger companies benefitting from it? Does Mr. Cody have some stats on that?
Shane Cassells (Meath West, Fianna Fail)
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I know that and I appreciate Revenue's remit. Revenue is obviously an expert and I am trying to gain from that expertise. In its analysis, are the older and bigger companies benefitting from the credit as opposed to smaller and younger companies, which is where it is needed?
Mr. Niall Cody:
The largest proportion of the money is claimed by the large multinationals because they are carrying out the most research and development in value terms, but the credit is probably more valuable proportionally to Enterprise Ireland-supported companies. We can give the committee a breakdown of the analysis and develop the piece of the paper from our corporation tax receipts, if that would be useful. The issue must be considered in its context. The credit is probably of greater proportional benefit to a small company carrying out research and development than it is to larger companies.
We work closely with the IDA and Enterprise Ireland on improving the guidance that we issue and simplifying the process. We have recently issued a briefing on research and development tax credit claims of a value up to €50,000 and simplified procedures to deal with the type of small company that is carrying out research and development that is small in total terms but significant from the point of view of those companies' success.
Shane Cassells (Meath West, Fianna Fail)
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In the same way as corporation tax receipts are distinguished between indigenous companies and FDI, can Revenue identify the companies claiming the research and development tax credit?
Mr. Niall Cody:
Yes. My colleagues on the statistical side of the house have done a preliminary paper on the research and development credit. It is a bit like fleshing out the corporation tax report and would have made all of those figures available to Department of Finance in carrying out its review. If the Deputy would like additional figures, we can provide them.
Shane Cassells (Meath West, Fianna Fail)
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Is Mr. Cody happy with the manner in which the scheme is working and being administered?
Seán Fleming (Laois, Fianna Fail)
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Mr. Cody is not paid to be happy.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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He does not like giving money back - he likes taking it.
Seán Fleming (Laois, Fianna Fail)
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The day he is happy, there is something wrong.
Mr. Niall Cody:
The scheme exists. In 2012 or 2013, we had concerns about some of the accounting practices. We reissued our guidelines in 2015 to make the situation clear. It is important that research and development be properly documented by those involved. Our review of cases shows that the standard of documentation now is much better and there is a clearer understanding. We are working with the various sectors. I hear feedback from indigenous food companies to the effect that it can be onerous in their view, so we are trying to ensure that the guidance is as clear as can be. Our 2015 guidance was welcomed by the sectors, but they wondered whether we could do more about certain aspects. We will consider that, but only in accordance with the law. Some of the issues that people have difficulties with would require legislative change, which is a matter for-----
Shane Cassells (Meath West, Fianna Fail)
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I am glad to hear that, specifically as regards helping food companies. A couple of large producers in my constituency export to China, which forms a large part of their houses. I welcome Revenue's help, given what it means for regional centres and their economic plans.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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I welcome Revenue. I was going to drop all of my questions and have a chat with Mr. Cody about Saturday week, the Kilkenny line-out and whether he had any insight from having a chat with Brian Cody. He could fill me in.
Seán Fleming (Laois, Fianna Fail)
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We are getting near the end, Deputy.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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We might have a chat later.
Seán Fleming (Laois, Fianna Fail)
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Before Deputy Aylward started, I asked the clerk how long it would take him to get into hurling.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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I started off on it. I threw in the ball first.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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That is a non-event. We made sure of that.
I will follow on from Deputy Cassells regarding the research and development tax credit and how important it is to small business, particularly in light of Brexit and the many other global challenges that are coming down the line. Brexit will be severe. This credit will play a major role in our future, so I welcome it and hope that it stays.
Did the 178 research and development credit interventions in 2015 represent the total number of taxpayers with research and development tax credit claims who were subject to Revenue audit and received aspect query letters from Revenue or does the figure just relate to full Revenue audits?
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Will Mr. Cody provide some of the details of the profile of companies that made research and development tax credit claims in 2015? What types of company are involved?
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Are they food companies, pharmaceutical companies or something else?
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Mr. Cody can forward it with the information on Deputy Cassells' question.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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And by size.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Deputy Cassells referred to small companies. We all know about large companies, especially American and German multinationals. Would they be getting a bite of this credit? Would the likes of large Irish companies like Glanbia or Kerry Group get it or would it only be for small companies of ten or 20 workers undertaking small research? I suppose that the bulk of the credit is going to the bigger companies.
Mr. Niall Cody:
The bulk of the money goes to the bigger companies because the research and development credit is based on expenditure. As I told Deputy Cassells, we are working on guidelines, having issued some already in terms of Enterprise Ireland-supported companies where expenditure was up to €50,000.
The issue is that it has to qualify as research and development. When a small company spends money to find out how to do what a big company does, it does not mean that it qualifies as research and development. It has to be new learning and research.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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If a small company in a village in County Kilkenny was starting something innovative, it would be fully entitled to claim.
Mr. Niall Cody:
Absolutely, it would be fully entitled to do so. Many start-up companies which are raising funds from Enterprise Ireland or seeking an equity injection spend the money in the first few years on research and development and probably have very few sales. They are entitled to the credit. That is why the repayable amount is different. When the research and development started, the money spent was set off against the corporation tax liability, but a lot of these small start-up companies do not have a corporation tax liability and the repayable credit is a cheque, cash in hand, which can then be used to support research and development.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Does the research and development credit attract international companies when we compete against Britain, Germany, America or Canada? Is it another incentive for them to come?
Mr. Niall Cody:
The Irish corporation tax system is broad based and there is a 12.5% rate across the board. The research and development credit is one of the only areas where the rate can be reduced. It is an important part of the corporation tax system, which is really important for IDA Ireland, the Department of Jobs, Enterprise and Innovation which see it as a valuable part of the-----
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Does Mr. Cody personally think the €639 million spent represented good value in terms of job creation?
Mr. Niall Cody:
As Chairman of the Revenue Commissioner my responsibility - our responsibility - is to ensure the credit is claimed in accordance with the legislation. The Department of Finance has reviewed the findings of the study and found it to be a valuable contribution to economic development.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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It is good to hear that. Will Mr. Cody explain why the research and development compliance interventions have not historically been maintained?
Mr. Niall Cody:
Our revenue case management, RCM, system records interventions generally by the nature of the tax with which we are dealing, whether it be value added tax, VAT or corporation tax. We do not break down our recording system to every element of credit or relief, but because of its scale the Comptroller and Auditor General recommended that we identify the research and development credit it in the RCM system. We have instigated that process and will be able to record the level. It is not that it was not recorded, but it had to be extracted manually. We have a series of developments for the RCM system and incorporated this into it to try to ensure the Comptroller and Auditor General who has full access to our case management system will be able to produce statistics and see if they are worth looking at.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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What was the outcome of the consideration of how information on research and development compliance could be collated?
Mr. Niall Cody:
As I outlined to Deputy Catherine Connolly, we have changed our instructions for recoveries of yield from interventions in respect of the research and development credit. With effect from 2017, they will be captured through an assessment under the research and development category and we will be able to report specifically how much of the recovery in an audit, where we are analysing research and development but possibly other corporation tax issues, relates to research and development. We will have those figures in the future.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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When will the tax and duty manual be finalised?
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Mr. Cody referred to capital acquisitions tax. As a farmer who represent a rural county, I want to know what arrangements a son or a daughter who inherits a farm, particularly land, can make with the Revenue Commissioners to pay off capital acquisition tax long term, if he or she does not have the income to pay it and may have to borrow the money to do so? Do the Revenue Commissioners make arrangements for it to be paid over a spell of perhaps five or ten years?
Mr. Niall Cody:
There are significant inheritance reliefs where a farm or a business is passed on intergenerationally. There are rules that limit the capital acquisitions tax in some cases to 10% of the value. If there is a liability left, there is provision to pay it over a period of time. There are also various insurance policies that people can take out to ensure the liability is covered. There are all sorts of arrangement. We talked about the increase in debt in using instalment arrangements. In any case where there is a difficulty we engage. Generally, the reliefs on inheritance of a farm from father to son or daughter are quite generous.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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They are, if everything is in order.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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They can pay the tax in instalments over a period of five or ten years to give a person breathing space.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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A lot of people who had avoided tax and were caught for €50,000 or €100,000 found that charges and penalties doubled the sum. Are the Revenue Commissioners very severe when it comes to interest penalties and surcharges? I know a person who was caught for avoiding a payment of €90,000 but paid more than €200,000 over a period of ten years, which seemed very severe.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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How is it calculated? Is it an average payment in the period involved?
Mr. Niall Cody:
On income tax, it is 8% a year. That is set out in law and we do not have the option of waiving that charge. Penalties are different. They are set out in law, but it depends on the nature of the default and the level of co-operation given. There is a table in the chapter of the Comptroller and Auditor General's report on medical consultants.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Who decides the penalties to be paid? Is it the Revenue Commissioners?
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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I think all Deputies receive a copy every year.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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I would probably not be able to read it.
Mr. Niall Cody:
It sets out the arrangements that apply. Generally, in a settlement process we agree the penalties to be paid, having regard to the nature of the default. If the taxpayer does not agree to the penalty, it is a matter for the courts. We cannot impose a penalty; we have to go to court.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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Is there an appeals system for the individuals concerned?
Mr. Niall Cody:
The penalties are imposed by the courts and depending on the level involved, the case will either go to the Circuit Court or the High Court.
The appeal system has regard to issues around tax liability. The nature of the tax liability is subject to appeal to the Appeal Commissioners. I mentioned earlier in the context of medical consultants that we have 84 open appeals on aspects of the settlements that we are looking at.
Bobby Aylward (Carlow-Kilkenny, Fianna Fail)
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That is all I have to ask.
Seán Fleming (Laois, Fianna Fail)
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I have some questions, primarily dealing with the research and development credit issue taken from the report. On page 191, paragraph 14.14, in that chart, essentially it says there that reviews on a number of cases have been done. Some 520 cases have been done over the past five years. Revenue had a yield of €46 million. The figure in just 2015 alone was €13.5 million for 178 cases, with an average yield of €76,000. Without going into detail, those are cases that Revenue examined as part of the audit in which it found there had been over-claims.
Seán Fleming (Laois, Fianna Fail)
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Were the names of those 520 people that yielded €46 million over the past five years and the 178 in 2015 alone that yielded an average of €76,079 published in the tax defaulters list?
Seán Fleming (Laois, Fianna Fail)
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Just €33,000? It used to be €10,000.
Seán Fleming (Laois, Fianna Fail)
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Since what year?
Seán Fleming (Laois, Fianna Fail)
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Right, so it is now €33,000.
Mr. Niall Cody:
Again, the code of practice sets out our rules around publication. In most cases, and I think it is set out again in the chapter, around research and development, it is a technical discussion. If it is a technical issue, penalties cannot apply, and so, by its nature, it cannot be published.
Seán Fleming (Laois, Fianna Fail)
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That is the legislation. Maybe it is not Mr. Cody's remit, but where I am sitting, as Chairman of the Committee of Public Accounts, and Mr. Cody has a different perspective, a person can owe the taxman, through income tax or whatever else, such as company or corporation tax, a figure of €50,000 or whatever, and that is published. We are seeing a situation where, from the taxpayer's point of view, 178 people or companies in 2015 had an average of over-claim of €76,000, and those are not published. I am just saying how it is under this regime. I want Mr. Cody to explain if anyone who has over-claimed a tax exemption, even if it runs into very high figures, can have his or her name published like the people who might have much smaller amounts owed and have their names published on the tax defaulters list. He might clarify the position for us.
Seán Fleming (Laois, Fianna Fail)
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Do the tax exemptions-----
Mr. Niall Cody:
A yield from an intervention does not necessarily result in publication. We publish about 400 cases a year. Last year, we had 6,700 audits and we would have had yields in probably around 4,000 of them. Of the 4,000, only 400 would be published because of the scale, but also because they have not used the opportunity to make a voluntary disclosure.
Seán Fleming (Laois, Fianna Fail)
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Yes, the declaration.
Mr. Niall Cody:
There is a whole methodology of coming within the scale of publication. There has to be tax liability and there has to be interest. In certain cases, what happens in research and development credits is that there is no interest because this is a claim that has not been repaid. That would arise in certain VAT cases where people have claimed VAT incorrectly and we do not give it to them. There is the issue around penalties. Penalties only happen where there is gross carelessness or deliberate default. There is a grid in the chapter on medical consultants' tax affairs that sets out when the default happens and when it attracts a penalty above 15%. Many of our recoveries do not involve gross carelessness or deliberate default and are not published. For considerable sums of money and for small sums of money to be published, one has to meet certain rigorous conditions. I think I said it at the committee. It is really hard to be published. I am constantly surprised at how cases manage to get published and when those involved do not avail of the opportunities for disclosure.
Seán Fleming (Laois, Fianna Fail)
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Mr. Cody mentioned the issue of taxation. Ultimately, from the taxpayer point of view, some of a tax credit is money that has been repaid. Have there been many cases where Revenue had paid out the money, paid out the cheque to those people, by way of payable credit and, as in those 178 cases, money had to come back?
Seán Fleming (Laois, Fianna Fail)
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Fine, but in these that we are looking at here, which are Mr. Cody's input, had the payments gone out in many cases?
Seán Fleming (Laois, Fianna Fail)
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That could happen, though.
Seán Fleming (Laois, Fianna Fail)
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On tax credits other than for research and development, it is the same situation. If someone has put in quite a big claim and has got the benefit of it, the scale of it does not matter. The legislation will not allow the publication-----
Seán Fleming (Laois, Fianna Fail)
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Explain this now. Does Mr. Cody mean some of these could, in some situations under this thing, be published?
Mr. Niall Cody:
One could, for example, look at a case in which there is a repayable tax credit for this year and where there was also a repayable tax credit for the previous year which had not been selected for an audit. One then goes and looks and finds that that entity is not entitled to that amount and the previous year's case is also reopened. That could lead to a clawback. The level of repayments on all taxes with the exception of VAT is quite small. VAT has an inbuilt repayment system. It is part of the structure of the tax.
Seán Fleming (Laois, Fianna Fail)
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One can claim it back. What I found interesting about the chart on page 142, which feeds directly into what Mr. Cody is saying, is that when one goes back to 2009 or 2010, when the repayments system really started to kick in, practically all this was by way of corporation tax forgone and there was very little in payments. When I look at the figure for 2014, the only year for which we have information available, in recent years, 2013 and 2014, the balance of this scheme has changed substantially in that I would estimate, looking at that chart, 60% of that €553 million is now through repayments and only 40% is by way of tax forgone. I would have said that in the past two years, that is a dramatic shift in the operation of this scheme and the nature of the claimants.
To give an example, with the 1,600 cases in 2014 worth €553 million, the average was €345,000 per case. Some 40% of that was dealt with by way of tax forgone, an average of €138,000. The tax repayments are €207,000. Mr. Cody has just given us figures for 2015. He said there were only 1,534 cases. It has now gone up €150 million to €708 million in that year, so the average amount is €461,000. I am assuming it is still around 60%. Is there a change in the percentage of what is paid out versus tax forgone in the past year or two? It has really gone very high.
Seán Fleming (Laois, Fianna Fail)
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On the cash rebate scheme, it used to be a tax forgone scheme but the balance has now moved to a grant in respect of expenditure. It is a grant scheme now.
Seán Fleming (Laois, Fianna Fail)
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There is a different question. I want the officials from the Department of Public Expenditure and Reform to listen to this and take it back to the Department of Finance as well. Up to 2008, this scheme was exclusively a tax forgone scheme. I can fully understand why it was administered by Revenue. However, now the scheme is a grant scheme for expenditure, the vast majority of the payments in the past two or three years have been by way of direct Exchequer grants back to the company and only a minority of the scheme relate to tax forgone. While I know the Revenue Commissioners can administer it very efficiently, is there a case for it to be done by the Department of Jobs, Enterprise and Innovation or some other Department given that it is now a grant scheme for research rather than a tax refund scheme? Does Mr. Cody get the point?
Mr. Niall Cody:
I understand perfectly. A feature of corporation tax regimes internationally is a research and development credit. Various member states in the European Union and countries outside the EU have formats of a research and development credit integrated into the tax system. I presume it is an efficient way of implementing the scheme. There are many things that we are involved in where one could say that a direct grant scheme might be a way of doing it. However, what one would also be setting up then is a parallel operation system. Ultimately, this is handled very efficiently within the self-assessment system. The companies claim it, do the process, and we check it.
Seán Fleming (Laois, Fianna Fail)
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The most recent figures relate to 2015. Do the Revenue Commissioners have estimates for 2016? What is the international comparison of research and development schemes for companies? How much of it is by way of tax forgone as opposed to grants?
Seán Fleming (Laois, Fianna Fail)
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Is that 60:40 split now-----
Seán Fleming (Laois, Fianna Fail)
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I ask Mr. Cody to get that this evening in order that we can see how that compares internationally.
Mr. Niall Cody:
Off the top of my head, I am sure the 60-40 type is still definitely there. I am not sure whether the Department of Finance paper has looked at international comparisons. On the area of international comparisons, I am sure our colleagues in IDA Ireland and Enterprise Ireland would be able to set out-----
Seán Fleming (Laois, Fianna Fail)
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My next question relates to the first paragraph in the Comptroller and Auditor General's report which reads:
The R&D tax credit can be claimed in addition to the standard 12.5% corporation tax deduction [because the scheme is worth 25%]. Therefore, the total tax benefit is 37.5%.
Is that correct?
Seán Fleming (Laois, Fianna Fail)
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As Mr. Cody said, the emphasis is on the bigger foreign multinational companies. In 2013, the Department of Finance reviewed the important role it is playing. The scheme is also viewed as a very important element of Ireland’s corporation tax regime in terms of attracting foreign direct investment to Ireland. In light of Brexit and homegrown industries needing to increase their tax credits, the officials from the Department of Public Expenditure and Reform should ask the Department of Finance whenever it is looking at this scheme to give at least equal consideration to homegrown industry.
Paragraph 14.9 of the Comptroller and Auditor General's report places the emphasis on foreign multinational companies. Foreign multinational companies account for a substantial amount of the income we covered earlier. Can they get the value of the 25% and can they get the value of the 12.5% on top of that, notwithstanding their effective tax rate might be 2%, 3% or 4%? Can they get the 37.5% value of this? An Irish company paying 12.5% gets a write-off of that tax forgone at 12.5% and gets 25% on top of that, which is 37.5%. We all know the effective rate. I am not talking about the marginal rate. The effective rate for many of these international companies is very low and nowhere near the 12.5%. Do they get it at their effective rate plus the 25% or at the 12.5% plus the 25%?
Mr. Niall Cody:
All companies carrying out research and development, whether they are indigenous or foreign owned, are entitled to the same basis. It is the same system. I do not agree with the Chairman that their effective rate is 2%, 3% or 4%. The Department of Finance has published figures and the effective rate of the Irish operation is 12.5% and then the research and development credit is the biggest reduction. There are published figures that suggest that. I think it is set out at the start of our corporation tax review. The main statutory CT rate in Ireland is 12.5% with the effective tax rate for 2015 provisionally calculated at 9.8%. This represents a marginal increase on the rate of 9.7% estimated for 2014. Due to the nature of various tax reliefs and credits, an effective rate of tax will always be lower than a statutory rate. The paper that is based on is a technical paper published by the Department of Finance in 2014 which looks at the effective tax rate for multinationals and the rest of the corporations. When people talk about the low rate, what they are doing is applying the rate as against their worldwide income. That is the debate that goes on.
Seán Fleming (Laois, Fianna Fail)
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That is a bigger debate. We will not go there today. Essentially, does a company need to be paying tax at 12.5% to get the value of the corporation tax forgone?
Seán Fleming (Laois, Fianna Fail)
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Not assessable at that rate, but do they need to be-----
Seán Fleming (Laois, Fianna Fail)
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I think we are nearly there and I might ask the Comptroller and Auditor General to qualify. Everyone who is getting it at the 12.5% rate is paying some element of tax. If a company's credit is more than its tax liability, it might not only have no tax to pay but might also get a payable credit on top of that.
Seán Fleming (Laois, Fianna Fail)
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The Comptroller and Auditor General is looking at me. Let me clarify. A company does not have to be paying. It could be a combination.
Seán Fleming (Laois, Fianna Fail)
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It could cover all its profits.
Mr. Seamus McCarthy:
Where a company is in a start-up situation and effectively not making any profit, it would not be paying any tax but could be benefiting from a payment. That is the type of company that is at risk of getting into a bind if it makes a mistake and claims a payable credit and subsequently it is found it is not entitled to that. It can then get caught into a kind of cash bind.
Seán Fleming (Laois, Fianna Fail)
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Paragraph 14.15 of the Comptroller and Auditor General's report reads, "However, analysis still needs to be carried out on a case-by-case basis to identify the specific R&D yield." That paragraph suggests that when the Revenue Commissioners go in as a result of an intervention, they might uncover VAT or some other issues.
Seán Fleming (Laois, Fianna Fail)
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Therefore, not all that €46 million has to be research and development. Some of it could be VAT that the Revenue Commissioners picked up.
Seán Fleming (Laois, Fianna Fail)
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That is going in.
Seán Fleming (Laois, Fianna Fail)
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There is a reference to the effect that, "The yield amount quoted ... includes yield from other tax heads such as VAT, income tax etc." I am looking at paragraph 14.15.
Seán Fleming (Laois, Fianna Fail)
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Revenue separated it out.
Seán Fleming (Laois, Fianna Fail)
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Generally they were compliant. There were no other big issues.
Seán Fleming (Laois, Fianna Fail)
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That is all right. I just wanted to clear that up.
We have finished our business. We agree to dispose of Chapters 13,14 and 16 of the 2015 Annual Report of the Comptroller and Auditor General. On behalf of the Committee on Public Accounts, I thank the witnesses from the Revenue Commissioners and the Comptroller and Auditor General. The meeting is adjourned.