Charlie McCreevy (Kildare North, Fianna Fail)

This section governs relevant contracts tax, generally referred to as RCT. It is a tax that principal contractors are obliged to deduct from payments made to certain sub-contractors in the construction, meat processing and forestry industries.

There are three aspects to the amended section. The first relates to the setting up and maintenance by Revenue of a register of principal contractors and the creation of a formal registration procedure for new principal contractors. At present, the role of principal contractors in the operation of the RCT system requires them to deduct the relevant contracts tax from a certified sub-contractor and to remit it to the Collector General on a monthly basis. The relationship between principal contractors and the Revenue Commissioners is, therefore, fiduciary in nature just like employers' relationships in operating the PAYE system and registered persons to the operations of VAT in the business system. Employers and VAT registered persons are required to formally register with the Revenue Commissioners in respect of each of these functions. This straightforward registration process establishes the fiduciary relationship between Revenue and those persons with regard to those taxes.

However, no similar arrangement exists between the principal contractors involved in the operation of the RCT system. This section, therefore, includes an enabling provision in the primary legislation dealing with the making of RCT regulations which will allow the Revenue Commissioners to set up and maintain a register of all principal contractors and to where new contractors must formally register with them in that capacity. The enabling rule for the register will have effect from the date of passing of the Finance Bill while details of the form, the requirements to be met in the registration procedure and any time limits applying will be set out in new income tax relevant contracts that are collated later this year. Apart from this approach, registration will also help in establishing the bona fides of persons contacting Revenue as principal contractors regarding various aspects of the RCT system.

The second proposal in this section deals with the renewal of certificates of authorisation. This issue concerns the Revenue Commissioners' entitlement to renew certificates of authorisation, C2s as they are commonly called. These certificates, when produced to a principal contractor, allow the contractor to apply to Revenue for a relevant payment card in respect of the sub-contractor. The relevant payments card permits the principal contractor to pay the sub-contractor without deduction of tax. At present, primary legislation governing RCT provides that the Revenue Commissioners shall issue a certificate of authorisation on application to them in that regard by a person if certain requirements for permits are met. However, in order to smooth the transition of the RCT system and reduce compliant costs on the sub-contractors involved, the Revenue Commissioners will be able to renew C2s subject to a compliance check without the need for the sub-contractor to make a fresh application. Strictly speaking, current legislation does not support this administrative arrangement, except that it puts beyond doubt wherever there is entitlement in an appropriate case to renew C2 in this manner. It will bring the legislation into line with administrative practice. Confirmation by Revenue of this type of the new C2 will have effect from 1 January 2004.

The third issue in this section concerns technical cross-referencing. The Finance Act 1999 amended the RCT legislation and provided the right of appeal to the Revenue Commissioners where certificates of authorisation were cancelled. At that time, a cross-reference to the new provisions in section 17A and section 531 of the Taxes Consolidation Act 1997 was inadvertently omitted from subsection (20) of that section which provided for the Revenue Commissioners to nominate an officer to act on their behalf at an appeal. It has now been corrected and is deemed to apply with respect to 1999, 2000 and subsequent years of assessment. The commencement date is amended.

Senator McDowell asked how successful the Revenue Commissioners have been in ensuring compliance in the relevant contractors tax area. This is an area of taxation which has bedevilled Administrations for the past 30 years. The Finance Act 1970 introduced the sub-contractors' C2 system. Many changes have been made over the years in almost every Finance Act with attempts to tighten up the scheme. This section is a provision to tighten it further. In the past number of years the investigations carried out by the Revenue Commissioners and the Department of Social and Family Affairs, through their joint investigative teams on site, have been successful. In the construction sector, this is the one area where there has been tax evasion over the years. However, in my professional and political opinion, this has been dramatically tightened up over the past seven years. One can never say that one can eliminate tax evasion in PAYE, PRSI levies and construction tax. However, tremendous changes have been made in recent years.