Richard Bruton (Dublin North Central, Fine Gael)
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Question 177: To ask the Minister for Finance if a report has been carried out on the compliance cost of the C2 certification system; if its regulations continue to be required for the protection of tax revenue; and if he will make a statement on the matter. [46108/08]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I have been advised by the Revenue Commissioners that no report has been carried out on the compliance cost of the C2 certification system. Prior to the introduction of Relevant Contracts Tax (RCT), there were significant difficulties with tax compliance in the construction sector. RCT was introduced in 1970 as a measure to tackle that non-compliance problem, and has been significantly enhanced since then, including the inclusion of the meat processing and forestry sectors in 1998. The Revenue Commissioners are satisfied that RCT continues to be a vital instrument in striving to protect tax compliance in the construction sector, and also in the forestry and meat-processing sectors.

The reasons why these special compliance provisions are necessary in these sectors include:

The mobility of business within the sectors which makes it difficult for Revenue to ensure tax compliance.

The fact that cash payments are common in the sectors and can be disguised as payments for other supplies, such as, materials or equipment, or payments to fictitious, or non-involved persons.

The significant costs of labour as a percentage of turnover.

The difficulties in tackling non-compliance in the construction sector are recognised internationally and different jurisdictions have come up with their own responses to the problem. The Revenue Commissioners consider the RCT system is an appropriate and essential response for the protection of tax revenues. RCT provides an audit trail linking main and sub-contractors. It provides for certification of compliant sub-contractors and ongoing monitoring to prevent abuses. It also provides for a mandatory withholding tax operated by the main contractor in relation to sub-contractors who do not hold certificates or where payment is not authorised. This arrangement tilts the balance of behaviour towards tax compliance.

In the context of concerns expressed by the social partners, Revenue gave a commitment under Towards 2016 — The Ten-Year Social Partnership Framework Agreement — to strengthen the RCT system as a means to ensuring compliance in the sector. This is being done in consultation with the Social Partners and, where appropriate, in liaison with the Department of Social & Family Affairs, the National Employments Rights Authority and the Department of Enterprise Trade and Employment. The construction industry continues to be an area of concern for Revenue, and 25% of its audit and compliance resources were assigned to this sector in 2006 & 2007. Resources are currently assigned based on the identified risks in individual Districts and Regions.