Mr. Seamus McCarthy:

As members are aware, the Revenue Commissioners are responsible for the collection of taxes, duties and other levies and charges and for their prompt transfer, either to the Central Fund of the Exchequer, or to other fund accounts or public bodies as provided for in law. Revenue accounts for these receipts and transfers in what is generally referred to as the Revenue account.

The account indicates that tax receipts payable to the Exchequer in 2021 amounted to a net €67.5 billion, an increase of €11.3 billion, or 20%, when compared with 2020. Non-Exchequer receipts collected by Revenue on behalf of other agencies amounted to a net €17.4 billion, an increase of nearly 14% year on year. The 2021 account was certified by me on 22 April 2022 and received a clear audit opinion.

In parallel with the audit of the Revenue account, I carry out on a cyclical basis examination of Revenue's systems for the assessment, collection and proper allocation of tax revenue. In Chapter 17, I draw attention to an error in the reported level of unallocated tax deposits. These are amounts received by Revenue which have not yet been allocated to either a tax head or a taxpayer record. The statement of balances in the 2021 Revenue account includes a liability amount of €85.4 million in respect of unallocated tax deposits. The audit found that this incorrectly included an estimated €32.5 million received as Revenue audit settlements that should have been allocated to the relevant tax heads. The error means that the tax head receipts reported in the account were understated by an estimated €32.5 million and the unallocated tax deposits amount was overstated by the same amount. The tax settlement amounts were transferred to the Exchequer in a timely way and had been allocated to the taxpayer records correctly. The error arose due to Revenue caseworkers in some cases failing to input manually the relevant tax head. As a result, this was an accounting error. Given the scale of the Revenue account, it would not be regarded as a material error or misstatement requiring correction in the 2021 account. However, the occurrence of the error underlines the importance of strong controls being in place for manual interventions and, where possible, manual interventions being replaced with suitable automated processes.

E-commerce sales are an important income stream for many Irish businesses. The European Commission's 2022 report on digital economy and society index shows that 33% of Irish SMEs sell online, with 11% selling across borders. This is significantly above the EU averages of 18% and 9% respectively. The rapid growth of e-commerce poses a number of challenges to the administration of taxation systems and significant changes in that regard are being implemented at EU level. In general, for EU businesses, EU base businesses, VAT is due in the member state where goods are consumed or services are received by the final consumer. VAT is not charged on goods exported to countries outside the EU. In 2021, the amount of VAT collected by Revenue was a net €15.4 billion, making it one of the Exchequer's main revenue streams. Revenue also collected €3.1 billion on behalf of other member states via what is called the VAT one-stop-shop scheme. Revenue does not require taxpayers in their tax returns to quantify their e-commerce turnover. As a result, it cannot identify the volume and nature of online trading on an ongoing basis. Revenue considers that it is not practical to disaggregate e-commerce risk management activities from routine risk management activities, except insofar as niche regulatory or compliance issues require specialist resources. Given the significant changes that are being implemented at EU level to ensure that effective and co-ordinated arrangements are in place to manage the taxation system, this is likely to be an area that will be kept under review by my office.

A taxpayer may require a current tax clearance certificate issued by the Revenue Commissioners for a range of purposes. In order to qualify for a tax clearance certificate, the taxpayer's tax filing must be up to date and any amounts of tax due must be paid. In normal circumstances, Revenue operates an electronic system that automatically checks, on a six-monthly basis, that current holders of tax clearance certificates remain tax compliant. Where this identifies taxpayers who are no longer compliant, the tax clearance status is withdrawn. In March 2020, as part of the Covid-19 response, Revenue suspended the automated review process. In parallel, under the tax debt warehousing scheme, taxpayers could remain tax compliant by filing their tax returns on time, with no immediate obligation to pay any related tax liability.

The holding of a tax clearance certificate was a requirement for Covid-19 support schemes administered by Revenue, such as the employer wage subsidy scheme and Covid-19 restrictions support scheme. Existing tax clearance certificate status was accepted for the schemes. Those without a certificate could also apply, but had to satisfy the tax clearance test. Revenue carried out two targeted campaigns, in February and July 2021, with a view to identifying and following up with taxpayers claiming under the Covid support schemes that were found not to be tax compliant. Following engagement, the first campaign resulted in 6% of claimants having their tax clearance status withdrawn, while the second campaign resulted in 7% of claimants having their tax clearance withdrawn. Scheme supports then ended for those claimants. Revenue takes the view that all payments made under the schemes were regular, since payees held tax clearance certificates at the time of payment. I have a concern that a significant proportion of claimants continued to receive support payments when they were not tax compliant in respect of their tax returns, because if they had presented as claimants without tax clearance in place, they would not have been admitted to the schemes.

Turning to the Revenue Commissioners Appropriation Account 2021, Revenue’s administration and operational expenses are charged to Vote 9 - Office of the Revenue Commissioners, rather than to the Revenue account. Revenue’s total gross expenditure in 2021 was €489 million. Salary costs of €340 million account for 70% of the spend. Taking account of appropriations-in-aid of €57 million, net expenditure under the Vote amounted to €432 million. I issued a clear audit opinion in respect of the Appropriation Account. However, I drew attention to the non-compliance with procurement rules disclosed by the Accounting Officer in the statement on internal financial control.

The committee previously considered the issue of reallocation of voted funds that was not in compliance with the procedures set out in the Department of Public Expenditure and Reform's public financial procedures, as outlined in Chapter 4. One of the cases referred to in the chapter relates to Vote 9.

In summary, Revenue spent a total of €15.8 million more than provided for under a number of vote subheads. Savings were available elsewhere in the Vote to cover the excesses, but Revenue did not apply to the Department of Public Expenditure and Reform for provisional sanction for the re-allocation before the year–end, as required. Instead, sanction was sought in February 2022. During the audit, it was also found that the analysis supporting the sanction request was incomplete. As a result, Revenue had to apply to the Department for sanction of virement of additional funds, and this was granted on 6 September 2022.