While the Ansbacher accounts have attracted great public attention, amuch bigger "Moby Dick" is lurking just below the surface and waitingto break, reckons taxation consultant Frank Brennan.
The long period of waiting for the Ansbacher report ended at the weekend, and 190 names have been placed on the public record for the mild amusement and indignation of the public.
Before indulging in any exercise as to the guilt or otherwise of those names, it should be borne in mind that the Revenue Commissioners' report for 2001 indicated that in the first Ansbacher case they investigated no tax liability arose. This is likely to prove the case with others. Irrespective of the existence of a liability or not, it is a safe bet that each of those named will receive a request from the Revenue Commissioners to clarify their position.
To facilitate this a special unit was set up in the Revenue in 1999 consisting of eight investigators and a back-up staff of 22 other officers. The unit is headed by a redoubtable senior Inspector of Taxes with long experience in investigation work. Any of the names coming before this man can expect a thorough investigation.
The Ansbacher scheme appears to have involved holding money in an offshore trust and using those funds as collateral for loans or simply used as a withdrawal facility which could be operated from Ireland. Such an operation raises many complex taxation issues.
If a named person were to place funds on which they had already paid tax in an offshore discretionary trust and they themselves did not control or obtain any payment from the trust then there is a strong argument that such a fund can accumulate in a tax-free manner until the funds are withdrawn.
The two crucial tests here would appear to be the strength or otherwise of the discretionary trust and whether in fact the individual either controlled it or extracted funds from the trust during its lifetime. An examination of the evidence in the report would indicate that such a favourable technical outcome is a forlorn hope for many of those named.
If, on the the other hand, funds had not passed through the tax system - and the report points towards that as being the motivating factor for most of those involved - then a very substantial liability will arise for the individuals.
A person who failed to pay their tax in, let's say, the 1970s or early 1980s, when it would appear these schemes were in full flow, faces a pretty horrific tax bill. First, tax rates in those days varied between 60 and 65 per cent, reaching a high of 77 per cent in some of the mid-1970 years. If such a liability were to arise the interest running from the time the tax was due would amount to between 300 and 350 per cent of the tax liability.
The matter doesn't end there, insofar as a penalty equal to the tax would also arise. Thus a tax bill of £25,000 which was evaded in 1980 could result in a payment today of £125,000. The public are not in general aware that tax settlements involving arrears of tax often reach this type of leverage.
For the last decade the Revenue have consistently increased their powers. At first this involved taking powers to call on a taxpayer to hand over records, books, various items of information, etc. However, with the emergence of issues at the DIRT inquiry, the Revenue moved in 1999 to take powers to go directly to financial institutions. The Revenue have been using a judicious mix of these powers in cases since then.
The Revenue Commissioners' report for 2001 gives a good indication of how the Ansbacher investigation was progressing. At that point €15.77m had been collected from 47 cases. Some 39 of these could be described as the classical Ansbacher-type arrangements and they yielded €10.21m or an average of €261,795 per case.
It should be borne in mind, however, that these were payments on account rather than final settlements. A somewhat higher figure might be expected to fully resolve each of these cases.
Interestingly enough, that same report under the Ansbacher heading referred to "cases involving offshore funds and deposits" which obviously did not fall within the Ansbacher-type arrangements. A mere eight of these cases yielded €5.56m on account or almost €700,000 each. Clearly the Ansbacher trawl has led into an even more lucrative source of Revenue funds.
Experience shows that tracking down and finalising these cases will be a relatively slow process. In the first instance there may be many strong technical arguments to be resolved which do not often arise in tax investigation work. The Revenue Commissioners have acknowledged that they have received some 150,000 documents as a result of High Court applications in the the Ansbacher cases.
In 1997 the Revenue were handed details relating to 430 cases in an offshore arrangement run by the National Irish Bank. At the end of 2001, 303 of those cases had been settled. If one excludes the year 1999, whe145 were settled, figures of 50, 51 and 57 were settled for each of the other years. These matters were much simpler than Ansbacher is likely to be.
Settling the Ansbacher cases will be extremely painful for those who were in breach of tax regulations but will make a very small additional contribution to the Exchequer. At present the Collector General takes some €28 billion a year.
If one breaks this down per working day that would represent roughtly €50 million before lunchtime each day. If the Ansbacher trawl were to yield €250,000 per case, which is the average on those already settled, that would come to some €45 million. However, we have no way of knowing as there may well be some very big fish lurking out there.
While the Ansbacher accounts, by reason of the high profile of the named people have attracted great public attention, a much bigger "Moby Dick" is lurking just below and waiting to break the surface. The DIRT inquiry seemed to indicate that up to 50,000 bogus non-resident accounts might have existed.
An appeal to those who have such accounts to come forward and settle their liabilities resulted in 3,675 such account-holders disclosing 8,380 accounts by November 15th last. Those people lodged a total of €227 million in settlement of their cases.
If the estimates of bogus non-resident accounts in the banking system is accurate, it would appear that this type of tax scheme propagated by bank clerks and golf club bores, which in many ways could be described as the "poor man's Ansbacher", is likely to dwarf the more exotic Cayman species now being hunted.
One must not lose sight of the fact that over half of those asked indicated that they were aware they were involved in tax evasion.
This raises the appalling vista of high-ranking and respected individuals being known to a relatively wide circle of people as providing such a service while other struggled, on a yearly basis, to keep up to date with the complex tax legislation emerging in the 1970s and 1980s to ensure their clients were properly advised.
Frank Brennan is a taxation consultant and author of several books on the subject.