Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

I have a written reply to Deputy Griffin's Question No. 34, so I will read that first, and I will see what I can do with the other issues that have been raised.

I am aware that a number of Deputies have tabled questions for answer today in connection with ongoing Revenue aspect queries relating to patronage shares issued by Kerry Co-op to some of its members. At the outset of the discussions, it is important to note that the Revenue Commissioners are statutorily independent in the exercise of their functions relating to the tax affairs of any individual under tax and customs legislation. That independence has long been recognised and respected by this House as being critical to maintaining the integrity of the taxation system and it forms a key pillar of Revenue's governance framework.

Regarding Deputy Griffin's question, I am advised by the Revenue Commissioners that there has been no change in policy in respect of this matter and that the position being adopted by Revenue is in accordance with long-established taxation principles to the effect that, where consideration is received for services rendered or produce sold, said consideration is subject to taxation as part of the individual's income in the relevant tax year. Accordingly, in the view of Revenue, there is no element of retrospection or change in interpretation.

Where there are different views as to the correct tax treatment of any particular item or transaction, an appeal may be made to the Tax Appeals Commission where the matter will be adjudicated on in the first instance by an Appeal Commissioner. Where the issue relates to a point of law, the matter can be further appealed by either party to the superior courts.

Deputies will be aware that officials of the Revenue Commissioners appeared before the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach on 7 December and engaged fully with the questions of Members of this House and the Seanad on the issue. I understand that, during that appearance, Revenue committed to facilitate the appeals process should a taxpayer raise an appeal to the independent Tax Appeals Commission. Furthermore, it also confirmed that there would be no action by Revenue in the interim period to seek to collect the tax liability in the assessment raised by it while appeal processes were under way. It is incumbent on the House to allow these legal due processes to take place in accordance with the law.

That was the written answer to Deputy Griffin's question. Down somewhere, buried in that bundle, there are individual answers to the other questions, but since we took them together, it is difficult to search them out now. From memory, the Minister for Finance has no function in the matter. It is a function of Revenue to assess people for taxes and to collect those taxes. There is no political crossover.

As to retrospection, self-employed people pay tax on the basis of self-assessment. If that self-assessment does not reveal the full level of income as Revenue perceives it, Revenue goes back. There is no retrospection. This is not a charge imposed by Revenue in the first instance, rather, it is self-assessment. The Deputies know the circumstances in this case. Shares were allowed at a discount in proportion to the amount of milk being supplied by individual suppliers to Kerry Group. I believe that it was €1.25 per share for 1,000 gallons or litres of milk. Revenue, in its look-back, deemed that to be another way of farmers being compensated for their supply of milk in addition to the price that they got for the litres. I am only telling the Deputies what is Revenue's position. I know that they Deputies have a different view.

Consequently, Revenue has decided that there may be an income tax liability in respect of the fact that the shares were given at a discounted rate. There may also be a capital gains tax liability. There is a grey market in these shares and it is not difficult to establish what is their value on the market. Capital gains tax applies to the gain between the acquisition price of an asset and its selling price. However, it is difficult to say when individual cases are examined whether people will have an additional liability or a rebate. I will cite an example.

Additional information not given on the floor of the House

Question No. 36 would appear to suggest that Revenue should, or indeed could, analyse a transaction and select a tax treatment based on the maximum potential yield for the Exchequer. This is most certainly not the case as the Oireachtas sets out in legislation the relevant tax treatment that should be applicable to various sources of income or gains.

The Revenue Commissioners are a statutorily independent body charged with collecting the taxes lawfully owing to the Exchequer, and they do so in accordance with the legislation enacted by these Houses of the Oireachtas. The Revenue Commissioners interpret the underpinning legislation and are charged with application of that law equally to ensure fair treatment of all taxpayers.

I again reiterate that I have been advised by Revenue that there has been no change in policy in relation to this matter and the position being adopted by Revenue is in accordance with long-established taxation principles that consideration received that is directly related to produce sold, whether in the form of cash or shares, is subject to taxation as income.

As there has been no change in policy by the Revenue Commissioners, I do not see the benefit of providing a tax yield impact analysis as sought by the Deputy. Such calculations are normally completed where a change of policy is being brought forward by Government and the associated estimated cost or yield is calculated in order to inform the Oireachtas in respect of the impact on the Exchequer of such a policy change. Such costings help to inform the associated debates in these Houses. In this case, however, the position is that the Revenue Commissioners are interpreting and implementing tax law as it stands and there has been no departure from existing policy and interpretation.

Depending on the particular circumstances and incomes of each taxpayer involved, the setting out of this tax treatment by the Revenue Commissioners could result in additional taxes being due, or indeed in a reduced tax burden for some. Calculation of a tax yield impact analysis in such a scenario would be difficult and, as outlined previously, unwarranted given the position of the Revenue Commissioners that there has been no change in practice on their part in terms of the appropriate tax treatment of such income.

As Deputy Brassil will be aware, the taxation of business profits is governed by a self-assessment regime. The general principles of self-assessment include persons submitting their tax returns in time, making a self-assessment of their tax liabilities and paying those tax liabilities in time without intervention by, or request from, Revenue. As the Deputy will also be aware, the main oversights of the self-assessment tax regime include the range of legislative provisions and the various compliance interventions that Revenue have in place to ensure that persons have paid the correct tax due to the Exchequer and in time.

I am informed by Revenue that a main aspect of their compliance interventions is to ensure that self-assessment taxpayers have not underdeclared a source of income or omitted a source of income from their tax returns. The type of compliance intervention initiated by Revenue is guided by the nature of the risks identified. Each Revenue intervention is intended to be in the form that is most efficient in terms of time and resources and imposes the least cost on the taxpayer while addressing the perceived risk. Consequently, not all Revenue interventions take the form of a formal Revenue audit.

I am further informed by Revenue that, from time to time, certain matters come to its attention that indicate that a person, or a cohort of persons, may have incorrectly claimed an allowance, relief or credit or may have omitted to declare a source of income. In such cases, those persons may be asked to reconsider his or her tax positions for a relevant tax year or accounting period and to consider availing of the benefits of making qualifying disclosure to Revenue.

There are, of course, occasions where there may be differences of opinion as between a person and Revenue as to the amount of tax that person is liable to pay. Where such differences occur on receipt of an assessment from Revenue, the person can, within 30 days of receiving that assessment, lodge an appeal to the Tax Appeals Commission, which adjudicates on tax assessments. I might add that the Tax Appeals Commission is a statutory body that is independent of the Revenue Commissioners.

As to the Deputy's questions as regard the controls that my Department has in place as regards the collection and audit functions of Revenue, I am informed by my officials that no such controls are in place, nor would it be appropriate to have such controls due to the independence of Revenue in carrying out their functions.

Regarding Question No. 39, a taxpayer's average effective rate of income tax is the average rate of tax he or she pays on his or her income as a whole in any tax year. Due to the nature of the Irish tax system, incorporating tax credits and standard rate bands, this effective rate varies from person to person depending on income and personal circumstances. For example, low-income individuals can have a zero or very low effective tax rate where their income is largely sheltered from tax by personal tax credits, whereas individuals with higher incomes paying tax at the higher rate would have higher average effective rates of tax.

What may be of more relevance is the marginal rate of tax, which is the rate of tax paid on any additional income received by a taxpayer in a given tax year. Again, this would vary from person to person based on individual circumstances.

In the most recent analysis conducted by Revenue in respect of the farming sector, published in July 2016, there was no specific analysis of the average effective rate of tax. However, the analysis provided a breakdown of the average farming income by county. For the counties of Cork, Kerry and Limerick, the average farm income, being the net farming profit subject to income tax, was €32,398, €20,851 and €27,268, respectively. This report is available on Revenue's website, at the link set out in this response.

I have been informed by Revenue that the average value received by farmers in respect of patronage shares in the years 2011 to 2013 was between €3,510 and €4,860. Based on these figures and the average farm incomes listed above, it is possible that the marginal rate of tax on this additional income may be the standard rate of tax for many farmers. Farmers whose other income in the relevant year has already exceeded their standard rate bands would be liable to income tax at the higher rate of tax.

Deputy Ferris's question would appear to suggest that Revenue should conduct a tax yield analysis and use this to decide the tax treatment which should apply to a given transaction. As I already stated, this is neither possible nor, as I am sure the Deputies would agree, desirable. Revenue's role is to collect the taxes lawfully owing to the Exchequer, in accordance with the legislation enacted by these Houses. www.revenue.ie/en/about/publications/farming-profile-2016.pdf

The issue raised in Question No. 42 relates to Revenue's tax treatment of patronage shares issued by Kerry Co-op to certain of its members. Deputies will be aware that Revenue has committed to facilitate the appeals process should a taxpayer raise an appeal to the independent Tax Appeals Commission in relation to this issue.

Regarding share-based remuneration schemes, in general, employees are subject to income tax on share issues where the employer issues such shares and charges the employee less than the market value for them. Income tax is due on the difference in the relevant values and is generally collected via the PAYE system, while income tax due on share options must be returned within 30 days of the exercise of such options. In certain cases the relevant shares may be subject to a clog, restricting the employee from selling such shares for a set period of time. However, notwithstanding this restriction on sale, any income tax due is payable at the time of the share award.

A more favourable treatment may apply under certain Revenue approved share schemes, but such schemes are subject to a range of restrictions, and are used primarily by larger, quoted companies. Deputies will be aware that in budget 2017, I announced my intention to introduce a new, SME-focused share-based remuneration incentive in budget 2018. This is a complex undertaking, as a focused scheme of this nature will need to comply with state aid regulations and is likely to require EU approval. Therefore, in the years in which the patronage scheme was active, employees who received share based remuneration in an SME company would in most cases have been subject to income tax on any value received at the outset, regardless of when the shares were sold.

As such, there would not appear to be a policy rationale to legislate for different treatment specifically for patronage shares in those years. Furthermore, an amendment of the nature proposed by the Deputy would be retrospective, in that it would change the tax treatment of transactions occurring in the years 2011 to 2013. Retrospective changes undermine the certainty of the tax system for all taxpayers and can be subject to constitutional challenge in the courts, and as such I do not believe it would be appropriate in this instance.

Question No. 59 would appear to suggest that Revenue should, or indeed could, analyse a transaction and select a tax treatment based on the maximum potential yield for the Exchequer. This is most certainly not the case. It would also be unfair to taxpayers in the event that they ended up paying more to the Exchequer than actually required by the law.

The Revenue Commissioners, as I said already, are a statutorily independent body, charged with collecting the taxes lawfully owing to the Exchequer, and they do so in accordance with the legislation enacted by these Houses of the Oireachtas.

The deployment of Revenue resources is a matter entirely for Revenue. I again reiterate that I have been advised by Revenue that the position being adopted by Revenue is in accordance with long-established taxation principles that consideration received which is directly related to produce sold, whether in the form of cash or shares, is subject to taxation as income. In this case, the Revenue Commissioners are interpreting and implementing tax law as it stands and they have assured me that there has been no departure from existing policy and interpretation.

Where there are different views as to the correct tax treatment of any particular item or transaction an appeal may be made to the Tax Appeal Commission where the matter will be adjudicated on, in the first instance, by an Appeal Commissioner. Where the issue relates to a point of law the matter can be further appealed, by either party, to the superior courts.

Deputies will be aware that officials of the Revenue Commissioners appeared before the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach on 7 December last, and engaged fully with the questions of Members of both this House and the Seanad on this issue. I understand that, during that appearance, Revenue committed to facilitate the appeals process should a taxpayer raise an appeal to the independent Tax Appeals Commission. Furthermore, Revenue also confirmed that there would be no action by Revenue in the interim period to seek to collect the tax liability in the assessment raised by Revenue while appeal processes are under way. It is incumbent on this House to allow these legal due processes to take place in accordance with the law.

The issue raised in Question No. 74 relates to Revenue's treatment of patronage shares issued by Kerry Co-op to certain of its members. I am advised by Revenue that the position adopted is in accordance with long established taxation principles that, where consideration is received for produce sold, that consideration is subject to taxation as part of the individual's income.

Regarding share-based remuneration schemes, in general, employees are subject to income tax on share issues where the employer issues such shares and charges the employee less than the market value for them. Income tax is due on the difference in the relevant values and is generally collected via the PAYE system, while income tax due on share options must be returned within 30 days of the exercise of such options. In certain cases the relevant shares may be subject to a clog, restricting the employee from selling such shares for a set period of time. However, notwithstanding this restriction on sale, any income tax due is payable at the time of the share award.

A more favourable treatment may apply under certain Revenue approved share schemes, but such schemes are subject to a range of restrictions and are used primarily by larger, quoted companies. Deputies will be aware that, in budget 2017, I announced my intention to introduce a new, SME-focused share-based remuneration incentive in budget 2018. This is a complex undertaking, as a focused scheme of this nature will need to comply with state aid regulations and is likely to require EU approval.

Therefore, in the years in which the patronage scheme was active, employees who received share awards or the right to acquire shares at a discount in an SME company would in most cases have been subject to income tax on any value received. As such, there would not appear to be a policy rationale to legislate for different treatment specifically for patronage shares in those years. Furthermore, an amendment of the nature proposed by the Deputy would be retrospective, in that it would change the tax treatment of transactions occurring in the years 2011 to 2013. Retrospective changes undermine the certainty of the tax system for all taxpayers and can be subject to constitutional challenge in the courts, and I do not believe it would be appropriate in this instance.

I understand that Question No. 82 relates to the ongoing Revenue aspect queries relating to patronage shares issued by Kerry Co-op to some of its members. In this context I again note that the Revenue Commissioners are statutorily independent in the exercise of their functions relating to the tax affairs of any individual under tax and customs legislation. That independence has long been recognised and respected by this House as being critical to maintaining the integrity of the taxation system, and it forms a key pillar of Revenue's governance framework.

With regard to Deputy Danny Healy-Rae's question, I am advised by the Revenue Commissioners that there has been no change in policy in respect of this matter, and the position being adopted by Revenue is in accordance with long established taxation principles that, where consideration is received for services rendered or produce sold, that consideration is subject to taxation as part of the individual's income in the relevant tax year. Accordingly, in the view of Revenue, there is no element of retrospection or change in interpretation.

Where there are different views as to the correct tax treatment of any particular item or transaction an appeal may be made to the Tax Appeals Commission where the matter will be adjudicated on, in the first instance, by an Appeal Commissioner. Where the issue relates to a point of law the matter can be further appealed, by either party, to the superior courts.

Deputy Danny Healy-Rae will be aware that officials of the Revenue Commissioners appeared before the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach on 7 December last and engaged fully with the questions of Members of both this House and the Seanad on this issue. I understand that, during that appearance, Revenue committed to facilitate the appeals process should a taxpayer raise an appeal to the independent Tax Appeals Commission. Furthermore, Revenue also confirmed that there would be no action by Revenue in the interim period to seek to collect the tax liability in the assessment raised by Revenue while appeal processes are under way.

It is incumbent on this House to allow these legal due processes to take place in accordance with the law.

If they get a discounted rate of €1, the real value of it is €10 and they sell it at €15, then from a capital gains point of view they should, in theory, be paying tax on €14 but if they have already paid income tax on €9, one can see how the difficulty arises. There is a difficult piece of arithmetic. I think the best way to proceed is as the Revenue Commissioners suggested when they met the finance committee, namely, put a test case to the Appeal Commissioners and let the test case run. Revenue has committed that it will not move to collect tax from anybody until the test case is conducted and it will facilitate the Appeal Commissioners.

We must remember the Appeal Commissioners are independent. One cannot tell them how to proceed with the case. All we know is that Revenue will give them, neutrally, all the information they require to make a decision and then we will see where it lands after that. Otherwise, we are going around in a circle speculating. What I have in my brief is that if a test case is taken, it will be pursued until there is an adjudication, and in the meantime there will be no attempt to collect. The assessment so far is in respect of the shares offered in 2011 and there may be liabilities in 2012 and 2013 but Revenue is not moving into that space yet. I will take any supplementary questions that might arise.

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