Joan Burton (Dublin West, Labour)
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Question 49: To ask the Minister for Finance the steps the Revenue Commissioners are taking to deal with the problem of bogus subcontractor and agency worker phenomenon in the construction sector; and if he will make a statement on the matter. [8066/06]

Brian Cowen (Laois-Offaly, Fianna Fail)
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I am informed by the Revenue Commissioners that establishing employee or subcontractor status is one of the areas they specifically concentrate on in their monitoring of tax compliance in the construction sector. On an ongoing basis, Revenue auditors, based on risk assessment, audit the books and records of a considerable number of contractors and subcontractors. The matter of employee to subcontractor status is always examined as a routine part of such audits.

In this regard, I am informed that Revenue does not accept at face value assertions as to subcontractor or independent agent status. The true nature of the relationship between the parties is looked at having regard to factors such as the degree of control, obligation, integration or exclusivity involved in the relationship. These factors are set out in the code of practice in determining employment status that was published by Revenue with the assistance of the Department of Social and Family Affairs and the Department of Enterprise, Trade and Employment and the Irish Congress of Trade Unions.

During 2006, Revenue is devoting a quarter of its audit and compliance resource to policing building-related sectors. As part of this national project, the issue of misclassification of building operatives as self-employed will continue to be actively dealt with. Revenue also continues to meet industry representatives and trade unions to ensure compliance in this area and to help the industry get the status of their workers right. Ongoing improvements to Revenue's computer system used to monitor relevant contracts tax will also assist in targeting cases of likely misclassification of employees as subcontractors.

Joan Burton (Dublin West, Labour)
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Is the Minister concerned at the cost to compliant taxpayers including compliant building firms, of using the sub-contracting system? Would he agree that in some years it is possible that up to €400 million of taxation has been underpaid by the construction industry, which includes building, forestry and the meat industry? The Minister knows that for 18 months it was not possible for officers of the Revenue to go on site and I ask him who was responsible. When the health and safety legislation was introduced the tax inspectors did not have the boots or overalls and in particular did not have the training to safe-pass standard, which is required by anyone on a construction site regardless of whether they are construction workers or Revenue workers hoping to make checks.

Is the Minister concerned about the loss that would arise in relation to young building industry workers who, despite paying tax at 35% and being told they are compliant for tax purposes, have no PRSI cover in the event of an accident and for whom, consequently, if they were to end up badly injured, the cost would fall back on to the State? We have a booming construction industry, but that is no excuse for the Minister's complacency in allowing rogue players in the industry to get away with significant financial scams to avoid the payment of their proper tax.

Brian Cowen (Laois-Offaly, Fianna Fail)
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There is no complacency on my part or on the part of the Revenue Commissioners. The Finance Bill 2006 proposes a number of changes in relation to the legislation governing the administration of relevant contracts tax aimed at tightening control and discouraging fraud. First, the Bill provides a statutory basis for the limit that the Revenue currently applies administratively on the amount of gross payments that a principal contractor can pay to a subcontractor on foot of a relevant payments card. Second, the Bill contains provision to allow Revenue to refuse a certificate of authorisation to an applicant where a person connected to the applicant does not meet the compliance requirements of RCT legislation as regards payment of tax, making of returns and keeping of records. Third, the Bill provides for the Revenue to take into account an applicant's likely future tax compliance in determining whether a C2 should be issued.

Revenue has a continuous history of paying attention to the misclassification of building operatives as self-employed contractors. In 2004 Revenue devoted over 18.5% of audit programme activity to the industry and carried out 3,036 audits across all main programmes, out of a total of 16,321 audits. These audits yielded approximately €57 million which, out of a total audit yield of €549.6 million, amounts to approximately 10% of the total audit yield recovered that year. Approximately 45% of the audits were nil yielding, but that figure is not out of line with the percentage of nil-yielding audits across all programmes.

The focus on construction continued in 2005 with up to 20% of audit and compliance interventions being targeted on the construction sector. Up to the end of October 2005, the more than 4,400 compliance interventions that Revenue carried out in the sector yielded in excess of €73 million. Obviously, that total will rise when the annual figures are available.

The substantial increase in the level of Revenue's construction industry activities was enhanced in 2005 by a number of new special compliance initiatives. For example, in the east and south-east region significant audit resources were devoted to a special investigation of construction industry projects in the region. As part of this, in the first six months of 2005 the status of 500 subcontractors was examined. It was found that only three subcontractors should properly have been classified as employees.

As I said, we have undertaken an in-depth review and evaluation of the risks in the sector. A comprehensive action plan has been agreed by Revenue's management advisory committee to implement some technological and administrative changes and legislative proposals. These developments, together with the increased resources targeting the construction industry, will greatly increase tax compliance in the sector. Revenue will continue to refine risk evaluation and further target resources in the light of emerging results and insights from the 2005-06 results.

Joan Burton (Dublin West, Labour)
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Does the Minister have an estimate of the tax loss to the Exchequer from the construction industry's fraudulent use of bogus subcontractor status and agency arrangements?

Brian Cowen (Laois-Offaly, Fianna Fail)
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As I said, in what I thought was quite an informative reply, audits of the construction sector in 2004 yielded €57 million, or 10% of the total audit yield. Nearly 20% of the audit programme was devoted to the sector. The yield for 2005 up to October was €73 million. An in-depth investigation on projects in the east and south-east region showed three persons out of 500 were misclassified as subcontractors.

Data from the Central Statistics Office indicate that in the year to the third quarter of 2005 employment in the construction sector increased from an estimated 221,700 to 252,100, while the numbers of self-employed are estimated to have increased from 56,200 to 57,300. In other words, the increase in overall employment in the sector seems to have been in the employee rather than self-employment category.