Revenue's failure to find developer resulted in major tax bill write-off

A property developer who built apartment blocks, townhouse schemes and a shopping centre had a number of substantial tax bills written off because the Revenue couldn't find him.

His case is one of a number highlighted in the latest report of the Comptroller and Auditor General (C&AG), Mr John Purcell. The report found that substantial amounts of tax were inappropriately written off by the Revenue because of shortcomings in its operations.

Basic cross-checking of various data bases was not being conducted and business people were using limited liability companies to evade the Revenue, he found. Property developers and publicans were particularly problematic, according to the report.

The unnamed developer cited in Mr Purcell's report operated through a number of registered companies and had at least 35 companies involved in multimillion-euro property developments during the 1990s.

His recent developments were worth in excess of €125 million.

He entered the tax system by availing of the 1988 amnesty. He paid €79,000 for the period 1970 to 1989. This was considered inadequate but was accepted by the Revenue. The same year a company he operated had a €442,000 Corporation Tax bill which went unpaid. A demand sent in 1990 was returned undelivered, and 10 years later the debt was written off "on the basis that neither of the two directors could be contacted".

The developer had 35 companies registered with the Revenue for VAT but none for PAYE. An agent for one company told the Revenue it was dormant but in fact it had built two townhouse developments and an apartment block in the early 1990s which sold for €10 million.

A Revenue officer who called to the registered address of a related company - which owed €34,000 in VAT - was told the company had moved and that the directors' whereabouts were unknown. The address was owned by another of the companies owned by the developer. The case was one of a number which emerged when the C&AG began a study into the background of cases where tax bills had been written off.

He discovered a number of cases of "multiple ongoing business involvements which gave every indication of deliberate abuse of the tax system". He found that when Revenue officials were contemplating a write-off, they examined the particular tax bill to hand without checking other data bases such as the Companies Registration Office or the tax history of the taxpayer or related entities.

"The Revenue write-off review could only be considered to be superficial in nature," the report stated. The Revenue has since begun checking the CRO when considering write-offs so as to consider related tax matters concerning the same client. It has also begun checking its own files to check on the client's tax history.

Mr Purcell also found that "the monitoring of Corporation Tax compliance appeared to have a low priority in the cases examined, particularly in comparison with the high yielding VAT and PAYE". He noted that institutions financing private companies had ways of "penetrating the company veil" by using such things as liens and charges in advance, personal guarantees and insistence on tight deadline payments.

The Revenue is to identify related cases where there is a history of non compliance and is to introduce "systmatic and vigorous pursuit" by a Dedicated Pursuit Unit in the Collector General's Office.

The new unit is to be used in pursuit of the cases discovered by the C&AG in the course of its study of a selected number of write off cases. Further cases are to be brought into the programme as they are discovered. "Revenue is confident that the particular measures now being implemented provide an effective remedy against people abusing limited liability."