Revenue promises no let up on tax dodgers in 2005

Review: For the past number of years the Revenue Commissioners has been discovering pots of gold in various locations.

During 2004 hundreds of millions of "tax-sensitive" money was located in offshore locations including such places as the Channel Islands, Switzerland and even Hong Kong.

For 2005 all the indications are that the latest pot of gold will be found closer to home. The Revenue is to target single premium life insurance policy holders, going back over a period of 20 years.

The Revenue has been using a successful policy of initiating special schemes that encourage people who have money stashed in certain accounts or locations to come forward so as to avail of reduced interest and penalties, while simultaneously telling them that if they don't come forward they will be discovered anyway, and punished.

Those availing of these special initiatives have to make comprehensive tax settlements, including in them details of all the tax-sensitive money in their possession, no matter what the location.

Some people who have come forward to declare money held in, for example, a bogus non-resident account, have subsequently been found to have failed to disclose funds held in Northern Ireland, England, or some other "offshore" location. The benefits of the earlier, partial disclosure have been taken from them.

An aspect of the series of initiatives being run by the Revenue is that it is accumulating a more precise picture of where exactly money was hidden during the years of high non-compliancy in the 1980s and 1990s.

In November of this year the chairman of the Revenue Commissioners, Mr Frank Daly, announced that a new initiative to begin in January will be targeting funds hidden by way of single-premium insurance policies.

The Revenue's belief is that a large amount of hot money was hidden by way of these policies during the 1980s and 1990s. Mr Daly told the committee there was no evidence to suggest that "this will not be a significant investigation".

Up to January 2001, the policies were of use for hiding money because the funds that emerged at the maturation of the policies did not have to be declared to the Revenue. In other words, the money that came out was by definition clean money. However, in many instances, the Revenue believes, the money that was used in the first instance to set up the policies was hot or undeclared income.

Mr Daly told a Dáil committee in November that he believed a substantial amount of money could be raised by this latest Revenue lookback initiative.

He said that in the period 1988 to 2001, €33 billion had been written in single premium insurance.

Even if only a very small percentage of this money had been undeclared, the resultant windfall for the Exchequer would be very significant. The inquiry is to look back to the early 1980s.

The recent Budget from the new Minister for Finance, Mr Cowen, included a provision for €200 million to come from the Revenue's various special inquiries. The inclusion of such a provision has become traditional in recent years. For 2004, the provision was for €150 million but the actual yield was €750 million.

A similar ratio between provision and outcome cannot of course be assumed, though some commentators have speculated that the single premium inquiry could lead to a windfall of up to €1 billion.

The haul from the Revenue's various special inquiries contributed significantly to the €2 billion projected tax overshoot that existed when Mr Cowen took over from his predecessor, Mr Charlie McCreevy, in September.

During 2004 the Revenue took in €650 million from 11,000 individuals with money in accounts in, amongst other locations, the UK, Northern Ireland, the Channel Islands and Switzerland.

It is now in the process of pursuing those people it believes have hot money abroad but did not come forward.

Meanwhile the Revenue is continuing to bring in money from its various other inquiries such as those into NIB, Ansbacher and bogus non-resident accounts.

In March of this year the total yield from all these inquiries broke the €1 billion mark and as the year progressed the figure headed towards €1.5 billion.

More than 30,000 people have now come forward, paid the money they owed, and made their contribution to the picture the Revenue has been building of past malfeasance.

Mr Daly has also pointed out that another positive aspect of this phenomenon is that new income sources are being revealed to the Revenue and individuals are making the switch from being non-compliant to being compliant.

He has hinted that those who came forward as part of the various schemes are likely to be watched in the future, to ensure they do not slip back into old ways.

Information already available to the Revenue from taxpayers who have come forward, and from "contacts with people who knew what was going on in the area", as Mr Daly put it, have allowed the Revenue to decide to focus initially on 10 to 12 of the 26 companies selling single premium insurance products in the period due to be examined in 2005.

Mr Daly made it clear during attendances before the Dáil Committee on Public Accounts during 2004 that he does not believe tax evasion today is at the scale it was during previous decades.

However, he indicated there were a number of areas where improvements could be made in tax enforcement.

One is in the sentencing policies of the courts. Having acknowledged that sentencing is a matter for the courts, he seemed to express dissatisfaction with the disinclination of the courts to send serious tax offenders to jail.

He also told a meeting of the committee that he would "love to be able" to prosecute tax advisers and others who aid and abet clients in tax evasion.

He said the Revenue had prepared files for the DPP concerning the actions of some financial institutions and advisers but had been told there was not sufficient evidence to justify the bringing of charges.

The law as it stands focuses on aiding and abetting a person in knowingly making a false tax return and Mr Daly said he would like to see this changed, so the focus was more on the act of helping someone "putting money offshore".

Any such new law would not, of course, be retrospective.