Brian Cowen (Laois-Offaly, Fianna Fail)

I appreciate the opportunity to address this motion and to speak in support of the amendment put down by the Government which points to the very significant and increasing successes of the Revenue Commissioners in recent years in protecting the State's revenues and tackling tax evasion.

The Labour Party motion contains a wholly unsupported and outrageous allegation that there is a policy in place to protect the well off from the rigours of the law. Decisions to prosecute in individual cases are the prerogative of the Revenue Commissioners and the DPP. I know of no evidence that would support this unwarranted allegation. The Senators who put down the motion should think again about this wording, which strikes me as entirely inappropriate. Unless it is a claim that can be supported with real and substantive evidence, they should not lend their names to it.

The Revenue Commissioners are charged by law with tax collection. The role of the Minister for Finance in this area is circumscribed by law and by practice, for obvious reasons and that is as it should be. The Revenue Commissioners have made it very clear, both by their actions and commitments, that they have no tolerance of tax evasion and non-compliance. The Government entirely supports them in this regard. In their most recent statement of strategy for 2005 to 2007 they affirm the commitment to "improving compliance and maximising tax collection" and to achieving this by a balanced approach combining a sharp and uncompromising response to evasion and default while providing high quality services to compliant tax payers. The Revenue Commissioners' primary goal of ensuring that everyone complies with their tax and customs responsibilities remains at the core of their activities. Their main compliance interventions are firmly focused on those who pose the greatest risk to the Exchequer, namely, those who fail to comply. This requires a balancing of resources between various programmes so they are deployed effectively and efficiently in identifying and combating risk to the Exchequer.

This approach to risk has clearly been successful, with over €2 billion recovered for the benefit of the Exchequer through the special investigation projects initiated in recent years. Over €1 billion of this amount was recovered in the past 18 months. This sum is in addition to the recoveries made under the normal audit programmes of the Revenue Commissioners, which result in around 16,000 audits being conducted annually.

The modern approach to revenue collection, supported by extra powers given by the Government, has succeeded in reducing debt to an historically low level of 2.5% of gross collection, a figure which stands up well in international comparisons. This 2.5% compares to 4% in 1999, 15% in 1994 and 30% in 1989. The reduction has been achieved by improving timely compliance rates combined with vigorous and focused collection initiatives, using all of the available powers.

The level of tax debts for VAT, for instance, for 2004 amounted to €289 million, or 2.1% of gross VAT receipts in 2004, which totalled €13,635 million. This is down from €345 million, or 2.8%, in 2003 and reflects the continually improving rate of collection. To indicate the scale of activity in VAT, a total of €9,984 million in new tax charges were raised during 2004, of which €8,184 million was in respect of 2004 tax periods.

The essential function of the Revenue Commissioners is to collect tax. Inevitably, cases will arise where, because of the particular circumstances, collection is not possible or the tax cannot be collected without disproportionate cost to the State. Even in a time of significant economic growth, the reality of commercial life is that some businesses fail. As Members of this House will be aware, requests to Revenue to be understanding in such circumstances are not unheard of. Moreover, because of Revenue's unique position in being a creditor to all, most business failures will involve at least some tax debt. In these circumstances and where recovery of the debt is not possible or the cost of recovery is not proportionate to the return, arrangements are made to pass the tax as irrecoverable, also known as writing-off the tax. This is done to distinguish the uncollectible tax on Revenue's records and thus allow collection and pursuit efforts to focus on the outstanding tax liabilities that remain collectible. For example, the level of tax debts for VAT for 2004 amounted to €289 million or 2.1% of gross VAT receipts in 2004 of €13.635 billion. This is down from €345 million or 2.8% in 2003 and reflects the continually improving rate of collection. To indicate the scale of activity in VAT, a total of €9.984 billion in new tax charges was raised during 2004, of which €8.184 billion was in respect of the 2004 tax period.

The essential function of Revenue is to collect tax. Inevitably, cases will arise where, because of the particular circumstances, collection is not possible or the tax cannot be collected without disproportionate cost to the State. Even in a time of significant economic growth, the reality of commercial life is that some businesses fail. As Members of this House will be aware, requests to Revenue to be understanding in such circumstances are not unheard of. Moreover, due to Revenue's unique position in being a creditor to all, most business failures will involve at least some tax debt. In these circumstances and where recovery of the debt is not possible or the cost of recovery is not proportionate to the return, arrangements are made to pass the tax as irrecoverable, which is also known as the writing off the tax. This is done to distinguish the uncollectible tax on Revenue's records and thus allow collection and pursuit efforts to focus on the outstanding tax liabilities that remain collectible.

However, write off of tax is not irreversible and if information subsequently comes to light, such as an improvement in financial circumstances, Revenue can reinstate the tax debt and collection can then be pursued in the normal way. There is broad agreement between Revenue and the Comptroller and Auditor General on the criteria and procedures to be followed in the writing off of tax and the decision to write off tax is only taken on the basis of detailed guidelines that contain a series of checks and balances. In addition, all write off decisions are subject to review by a team of internal auditors in Revenue and by the Comptroller and Auditor General.

The majority of cases where evasion is discovered are concluded on the basis of a negotiated settlement with the taxpayer, which involves collection of the unpaid tax together with heavy interest and civil penalties. The level of civil penalties imposed is usually far greater than the level of fines imposed by the courts in similar cases and settlements are published on a quarterly basis in the tax defaulters list in Iris Oifigiúil if the terms requiring such publication are met. Generally, the civil penalties imposed vary with the amount of tax involved and in cases of serious evasion can equal the total tax evaded. I mentioned earlier the €2 billion yield from various special investigations. Senators may be interested to know that nearly 60% of this figure, €1.2 billion, was interest and penalties. These non-compliant taxpayers certainly did not get off scot free.

However, we fully recognise that in addition to initiating programmes whose focus is largely on the recovery of unpaid taxes and the imposition of heavy penalties, offenders should also be prosecuted where possible. The Revenue statement of strategy for 2005-07 signals as one of its key strategies the "increased investigation and prosecution of tax evasion and fraudulent activity". This is regarded as a vital element in maximising compliance and ensuring the proper taxes and duties are paid on a timely basis to the Exchequer.

The Government supports the approach of the Revenue Commissioners in increasingly pursuing a greater numbers of cases for criminal investigation with a view to their referral to the Director of Public Prosecutions, DPP. To this end and as part of their restructuring programme, the Revenue Commissioners have established a special investigations and prosecutions division. This division, which has spearheaded the major project investigations in recent years, is also charged with co-ordinating all criminal investigation activity undertaken by Revenue and has been provided with additional resources to enable it to conduct more criminal investigations into serious cases of evasion. All other areas of Revenue have been mandated to identify cases that are potentially suitable for prosecution and refer them to the investigations and prosecutions division.

For the record, 35 individuals and companies have been convicted of a variety of serious tax offences since 1996, seven of these since the beginning of 2005. Jail sentences were imposed in 13 of these cases, although seven of these sentences were suspended. One conviction and sentence is currently under appeal and in another three cases terms of community service in lieu of custodial sentences were imposed. Fines were imposed in the rest of the cases. Currently, there are 52 cases of serious tax evasion under investigation with a view to prosecution. The DPP is considering a further 12 cases and has given directions to prosecute in another four cases. There are six cases in the courts process. Additionally, there are a further two cases in respect of which bench warrants have been issued by the court because the defendants have absconded.

This is the highest ever number of cases of serious evasion that has been tackled on a criminal investigation footing by Revenue, which is consistent with the commitments given by it to the public. With the procedures now in place in the investigations and prosecutions division and the arrangements between it and other areas of Revenue, new cases are being identified and added each month. This represents a considerable ratcheting up by the Revenue Commissioners in a relatively short timeframe of their prosecution activity. In addition to the aforementioned prosecutions, over 6,500 individuals and companies have, in the same period, been convicted of offences of failing to file tax returns. Since the beginning of 2004, over 700 individuals and companies have been convicted of customs and excise offences following action by the Revenue Commissioners. These prosecutions must also be factored in when, as is frequently the case, comparisons are made with prosecutions under the social welfare code.

Experience in the criminal investigation of tax cases to date indicates there are very exacting evidential standards to be met to satisfy the criteria for a successful prosecution. Particular difficulties arise where vital documentation is not available, often due to the lapse of time or where witnesses are not available due to their location or reluctance to become involved where the suspect is an employer or business associate. This is in line with the experience of dealing with white collar crime generally. A practical approach must be adopted to avoid Revenue resources being tied up in what is an extremely labour-intensive process and where the outcome may ultimately be non-productive. Consequently, resources tend to be focused on cases in which it is reasonably clear from the outset that evidence of wrongdoing is available or likely to become available in the course of an investigation.

Equally, the courts must be satisfied that the standards applied by investigators in conducting the investigation and gathering the evidence meet the requirements of fair procedure and due process in light of the potentially serious consequences for a suspect. Revenue officers must take care at all stages of the investigation that in addition to the evidential aspects, the appropriate standards are also met. Investigating a case with a view to possible prosecution and then taking suitable cases through the courts can be a slow and resource-intensive undertaking regardless of who is involved. This is a simple mundane fact of life. Getting exercised over it or calling with indignation for more convictions is no substitute for doing the leg-work actually required. Maybe those in the Opposition do not like it but this is the way the system works to protect the innocent while punishing the guilty.