Mr. Niall Cody:

I thank the Chairman for this opportunity to make my opening statement. Today's meeting is to focus on the Revenue Vote and three chapters of the 2017 Report of the Comptroller and Auditor General published in September. These are chapter 17 - Tackling Tobacco Smuggling, chapter 18 - Management of High Wealth Individuals' Tax Liabilities and chapter 19 - Corporation Tax Losses. In welcoming this opportunity to address the findings of the report, I draw the committee's attention to section 851A of the Taxes Consolidation Act 1997 and my obligation to uphold taxpayer confidentiality.

Revenue's role is to serve the community by fairly and efficiently collecting taxes and duties and implementing customs controls. Our aim is to protect Exchequer funds and ensure that everyone meets their tax and duty obligations in accordance with the law. Our strategy is consistent across all taxpayer segments. We provide the service to make it as easy as possible for taxpayers to understand and meet their tax and duty obligations and we prioritise the protection of Exchequer funds and support compliant taxpayers by identifying, targeting, and tackling non-compliance on a risk basis.

Revenue's response to non-compliance in all its forms, from the more straightforward non-filing of tax returns to complex tax avoidance schemes and criminal tax and excise fraud, is risk based, proportionate and responsive to taxpayer behaviour.

In chapter 17, the Comptroller and Auditor General reviews Revenue's progress in tackling tobacco smuggling and acknowledges that this is a global problem. The European Anti-Fraud Office, OLAF, estimates that cigarette smuggling costs national and EU budgets more than €10 billion annually. The illicit tobacco trade is known to be dominated by internationally organised criminal groups who are often also involved in other crime such as drug smuggling, money laundering and people trafficking.

In Ireland, tobacco taxation is a key policy instrument in reducing tobacco consumption. In keeping with the Government's public health objectives, we have one of the highest rates of tobacco tax in Europe. In the most popular price category of cigarettes, total tax, excise and VAT, now represents just over 79% of the retail price per pack in Ireland. Tobacco tax is a significant source of revenue and generated €1.4 billion in tax receipts in 2017. While the high tax policy has resulted in progress in reducing tobacco consumption, the trade-off is that it incentivises illicit trade. Tackling this is a key priority for Revenue.

Measurement of the illicit tobacco trade is known to be challenging. In a report in 2014, the World Health Organization, WHO, Framework Convention on Tobacco Control, FCTC, recognised that all methods to estimate illicit tobacco trade have their limitations. That report indicated the very wide variations between countries in the percentage of the national cigarette market constituted by illicit cigarettes, for example, Latvia at 41%, Sweden at 20%, and Italy at 3.5%, and estimated the market share for illicit cigarettes within the EU at 10.4%.

Revenue's best estimate of the scale of the illicit tobacco market in Ireland is provided by an annual survey conducted by Ipsos MRBI on behalf of Revenue and the national tobacco control office of the HSE. The primary usefulness of this measure is to track the trend over time. The 2017 survey found 13% of packs to be illegal, up from 10% in 2016 and 12% in 2015. This follows the recognised trend Europe wide. For comparative purposes, in the UK, where a high tobacco tax policy similarly applies, in 2016-2017 the illicit cigarette market was 15%, up from 13% in 2015-2016 and 8% in 2014-2015.

Based on 2017 survey results, the nominal loss to the Exchequer in 2017 is approximately €229 million in excise and VAT. While this provides an indication of the financial significance of the problem, it is based on the improbable assumption that if there were no illicit cheap cigarettes, those smokers would buy the same number of more expensive, taxed cigarettes using money they are currently not spending on any form of taxable consumption. That aside, we know that the illicit tobacco trade represents a significant threat to Government health policy, Exchequer funds, legitimate trade and Revenue's strategy to maximise voluntary compliance. We also know that it funds international organised crime. Revenue devotes considerable resources to challenging all stages in the supply chain for illicit tobacco products. We work to identify and target those involved in smuggling, supplying or selling illicit tobacco products, with a view to disrupting supply, seizing the illicit products and maximising our impact by prosecuting those involved, wherever possible.

In 2017 we seized more than 34.24 million cigarettes and 1,768 kg of tobacco with a combined retail value of €20.34 million. The comparative figures to the end of October this year are 58.9 million cigarettes and 1,685 kg of tobacco with a total retail value of €36.5 million. This includes tobacco products seized in March 2018, when a Revenue-led operation resulted in the discovery and closure of a counterfeit cigarette factory in County Louth, the first of its kind to be discovered in the State. Up to the end of October this year, our prosecution cases for tobacco smuggling or selling offences have resulted in 60 summary convictions, five indictable convictions, fines totalling €140,250, nine suspended sentences and one custodial sentence of six months' imprisonment. Alongside this, Revenue has worked with the Department of Health over the past two years on a new "track and trace" system to regulate the legitimate tobacco supply chain across Europe. Revenue was recently designated by the Government as the competent authority in Ireland for this new system, which is due to be introduced during 2019.

To summarise, we aim to contain and diminish the illicit tobacco market to the greatest extent possible. Our performance is probably most appropriately measured by the outcomes of our efforts and changes in the size of the illicit tobacco market here relative to other countries with similar tobacco tax policies. I assure the committee that tackling the illicit tobacco trade will continue to be a key Revenue priority as, in tandem with facilitating the free flow of legitimate trade, we work to identify, target and confront a diverse and agile smuggling trade operated at global level with significant involvement of both national and international organised crime groups. We meet these challenges by prioritising national and international co-operation, investment in technology, and intelligence development. We work closely with An Garda Síochána, the Criminal Assets Bureau, Her Majesty's Revenue and Customs, the Police Service of Northern Ireland, the European Anti-Fraud Office, Europol and fellow customs administrations in the EU and beyond. In the context of our structural realignment, our actions will be co-ordinated in a national operational plan to maximise our impact on those involved at every stage of the illegal supply chain and deliver the best possible outcome in protecting Exchequer funds.

Turning to chapter 18 on the management of high-wealth individuals' tax liabilities, the Comptroller and Auditor General reports that in 2015, 334 high-worth individuals, HWIs, paid a total €545 million in income tax, capital gains tax and capital acquisitions tax. In line with best international practice, and since 2003, Revenue has dealt with large corporates and HWIs in a dedicated large cases division. In a further refinement to this model this year, we have divided the large cases division, LCD, into two: one division focuses on large corporates, and the other on HWIs, including family members and related entities. A significant feature of the HWI segment is that HWIs' income derives largely from capital rather than earnings. The IMF notes that globally, HWIs maintain more than half of their wealth portfolio in cash and equities, the balance in property and investments - for example, funds, derivatives, currency, and commodities. A stock of wealth may be held personally, in trusts, and in legal entities effectively controlled by an individual or family group. Flows of income may fluctuate and may be planned and managed. From our experience, we also know that individuals who have a high level of accumulated net wealth are likely to be actively engaged in wealth management and personal tax planning and subject to taxation in multiple jurisdictions and, in the context of wealth preservation, pay attention to global and local tax policy and legislation.

There is no evidence, and Revenue does not assume, that wealthy individuals are more likely to be tax non-compliant. As a result of the financial complexities and potential tax yield in the HWI segment, Revenue applies close individual attention, and considerable skill and expertise, to managing tax compliance across the sector. Revenue case managers use their detailed case knowledge, together with our data analytics capabilities and the extensive available range of Revenue, third party and internationally exchanged information, to manage compliance, profile risk and identify cases for intervention. In 2017, the total yield in tax, interest and penalties from our HWI compliance interventions was €15.3 million.

This chapter also refers to tax avoidance, which occurs where transactions are undertaken primarily to give rise to a tax advantage. The focus of Revenue anti-avoidance teams encompasses the entire case base because use of legislation other than as intended can present real risks to the tax base and the perceived fairness of the tax system. Also, and in line with international best practice, our HWI and anti-avoidance units work closely together. We identify and investigate schemes and oversee legal challenges up to the High Court, Court of Appeal or Supreme Court, as may be required, or negotiate a tax settlement, including interest and penalties, as appropriate. We make any necessary recommendations for legislative amendments to prevent tax leakage.

The Comptroller and Auditor General goes on in chapter 19 to consider corporation tax trading losses, capital allowances and losses carried forward. There are no recommendations for Revenue in this chapter. Last month I wrote to the committee, as requested, setting out Revenue's work on the estimation of corporation tax receipts, operating as we do in a supporting role to the Department of Finance, which compiles and publishes forecasts of all taxes, including corporation tax.

In summary, the Comptroller and Auditor General makes five recommendations on tackling tobacco smuggling and three on the management of HWIs' tax liabilities, all of which are agreed. Consistent with Revenue's focus on continuous improvement to achieve the best possible return on resources, our new national structure deploys staff across a broad geographical spread, our national operational plan will co-ordinate and integrate our anti-smuggling actions and we are engaged in a significant risk-based shift of resources towards our medium enterprise, HWI and large corporates divisions. I have provided a separate note to the committee on our structural realignment under way. The purpose of our realignment is to provide a greater match of resources to risk, to reflect the changes in the economic environment in which we operate and to maximise the use of our resources across the country. Among the levers that make this possible are the digital dividends and efficiencies created by our ongoing investment in data analytics, our extended range of online services, and key projects such as PAYE modernisation. Finally, and given the focus of chapter 18 on a very small, distinct group of taxpayers, I again draw the committee's attention to section 851A of the Taxes Consolidation Act 1997 and my obligation to uphold taxpayer confidentiality. Subject to this constraint, I am happy to answer any questions from the committee.