Public Accounts Committee Meeting 7 December 2006

Thank you Chairman for giving me the opportunity to make this short opening statement. As there is quite an amount of ground covered by the four Paragraphs under consideration by the Committee today, I will just touch upon some of the main areas included in each of the paragraphs.

Paragraph 2.7 which is the first Paragraph today deals mainly with the non-customs aspects of Revenue's international business. This international business is largely conducted in the context of our Double Taxation Agreement network, EU membership and affiliation to international bodies such as the OECD.

From a tax administration perspective Double Taxation Agreements serve the dual purpose of eliminating double taxation and reducing tax evasion. Revenue attaches great importance to the role of Double Taxation Agreements in facilitating investment and international trade, especially in an economy as open as ours. I am also conscious that, at present, despite the almost doubling of Double Taxation Agreement numbers in the last decade or so, we are still on the low side (with 44 Double Taxations Agreements in place) by comparison with some of our EU/OECD partners. It is our intention, in line with Government policy, to increase this number and there are negotiations currently ongoing with 10 new countries. It is not all about numbers of treaties of course-the important thing is that our treaty effort is focused on areas and countries which are significant for Ireland's existing business and for emerging opportunities. The Committee can be assured that we are actively examining ways and means of accelerating future growth in the Double Taxation Agreement network.

Paragraph 2.8 which deals with the impact of e Commerce on VAT administration is an area which also has a strong international dimension. As can be seen from this Paragraph, Revenue has been vigilant since the 1990s in regard to any potential tax risk that could arise in this area given the borderless world of the internet and the bordered world within which taxation systems operate. We are reasonably confident from our own risk analysis and from the buoyant VAT receipts of recent years that e commerce has not impacted negatively to any significant extent on VAT collection. Indeed, to the extent that it has generated additional taxable commerce that otherwise might not have taken place, it has added to those receipts.

Taking on board the EU nature of our VAT rules and regulations together with the internationalism of the internet, it seems clear to me that the best way Revenue can play its part in safeguarding the national exchequer is through active participation with our EU and OECD partners in this area. Paragraph 2.8 makes reference to the fact that Revenue had just been accepted for membership of an EU Project Group to investigate tools and techniques to aid in the detection of internet traders. I am pleased to say that Revenue has now been jointly appointed to lead the Steering Group for this project with our U.K. and Polish colleagues. So we are well placed in regard to the developing taxation challenges posed by electronic commerce.

Paragraph 2.9 deals with the Assessment and Collection of Capital Gains Tax. The yield from this tax has grown very significantly in recent years, from €876m in 2001 to an estimated €3,100m for 2006. This Paragraph includes an analysis by the Comptroller and Auditor General of studies undertaken in Revenue to investigate whether there was any evidence to support “the substitution effect” whereby high marginal rate income tax payers could attempt to shift income to gains to avail of the lower capital gains rate of tax. The conclusions based on the position at July of this year are laid out in the Paragraph. Broadly, these conclusions were:

• that there was no evidence to indicate that the re-categorisation by taxpayers of income as gains was widespread and
• that Capital Gains Tax is a significant tax which should attract an equivalent level of compliance attention.

Since July we have not found any further indications or evidence of a substitution effect. Nonetheless, in keeping with sound risk management, Revenue is continuing to keep the situation under review. I should say that although Capital Gains Tax is a self assessment tax, Revenue has in the past and will again in the future take the initiative where we can in advising specific taxpayers, or groups of taxpayers, as to their obligations regarding payment of this tax. For example, Revenue undertook an extensive campaign in September 2004 which highlighted the CGT compliance requirements for taxpayers who sold First Active shares to the Royal Bank of Scotland. That campaign yielded some €36 million.

Finally, Paragraph 2.10 deals with the Management of Tax Appeals. It traces the management of tax appeals through the two separate Offices of the Revenue Commissioners and the Appeals Commissioners. As regards the length of time it can take to process some cases in Revenue, I don't think I can improve on the explanations in the Paragraph. Basically, any generalisations in this area need to carry a “health warning” and it is only through an examination of the complexity of individual cases that one can come to reasonably safe conclusions.

Thank you Chairman.