Board's Review
Annual Report 2010
Eighty-eighth Annual Report of the Revenue Commissioners for the year ended 31 December 2010, including progress on the implementation of Revenue's Statement of Strategy, in accordance with the Public Service Management Act 1997, presented to the Minister for Finance.
April 2011
Josephine Feehily
Chairman
Michael O'Grady
Commissioner
Liam Irwin
Commissioner
Board's Review of 2010
Following two years during which the Irish economy contracted sharply, the indications at the end of 2010 were that the contraction, though ongoing, was moderating. The scale of the retrenchment in fiscal terms, however, has been enormous. Net tax and duty receipts for 2010, at €31.9 billion, while 2.25% ahead of the Budget target, were at levels last seen in 2003, and down 33% on peak receipts in 2007. That said, receipts stabilised as the year progressed, exceeding expectations by increasing amounts in the final three quarters of the year, supported in the main by stronger than expected Corporation Tax results. However, Income Tax receipts remained weak, reflecting growing unemployment and widespread wage reductions.
Total outstanding tax debt fell by 1.6% year on year to €2.08 billion, but still remains at a high level. Debt available for collection fell by almost 3.8% to €1.39 billion.
The rate of timely compliance held firm in 2010 across all case sizes - a significant achievement in light of the extremely challenging economic and financial environment in which businesses have been operating.
The maintenance of a high level of timely compliance is a task that requires sensitivity and sound judgement, as many businesses and individuals struggle to make ends meet. Our approach is tempered by a concern not to impose undue burdens on taxpayers experiencing temporary cash flow difficulties. We can, and do, put alternative payment arrangements in place to help customers through difficult periods. That said, Revenue is not a lender of last resort and our guiding principles are to ensure that all tax due is paid and that all customers operate on a level playing field. We repeatedly advise taxpayers with cash flow problems to engage with us at the earliest possible opportunity.
Revenue's Customs Service applied a similarly measured approach to protecting our borders. Our interventions were intelligence-led and risk-based, designed to maximise results while minimising the impact on legitimate trade. International security concerns also informed our interventions and we worked in partnership with overseas Customs and law enforcement agencies to combat organised crime and terrorist threats.
Following the loss of 227 staff last year, we filled some of the key vacancies by a programme of targeted recruitment, including candidates from outside the public sector. Mitigating the effects of loss of corporate knowledge will feed into our training and recruitment policies for the foreseeable future.
Revenue's role in Irish society has never been more important. The current economic situation requires that we do all in our power to assist the Government to put the national finances back on track. Our mission: 'To serve the community by fairly and efficiently collecting taxes and duties and implementing Customs controls’ means that the day-to-day work we do in offices up and down the country is vital for the future wellbeing of our economy and of the Irish people. And, despite – or maybe because of - the challenging circumstances, we are doing a good job. This was independently acknowledged in the Government’s Organisational Review Programme (ORP) Report.
Refining our Strategic Direction
During 2009 we reviewed and revised our Statement of Strategy 2008 – 2010 to ensure that it remained fit for purpose in a rapidly changing economic environment. In January 2010, on foot of the revised Statement of Strategy, we circulated to staff our key corporate priorities for the year ahead, to ensure that everyone had a clear understanding of where we were headed as an organisation.
Later in 2010, we organised an intranet-based, Revenue-wide consultation process to canvass staff for suggestions for our next Statement of Strategy, covering the period 2011 – 2013. We also undertook an extensive consultation process with our external stakeholders. The consultation processes contributed significantly to the shape of the final document.
Collection
Net receipts amounted to €31.92 billion, just over €0.7 billion (2.25%) ahead of the Budget estimate, but down €1.36 billion (4.1%) on the corresponding figure for 2009.
Most taxheads showed year on year decreases, with Capital Gains Tax exhibiting the biggest fall, down 36.7% on the 2009 figure. By way of contrast, both Customs and Corporation Tax receipts increased by 10.1% and 1.4% respectively.
The Income Levy, in its second year, increased by 27.1% to €1.45 billion. [Table 2: Total Revenue/Net Receipts].
Debt Management
Debt available for collection in 2010 was €1.389 billion, down from €1.443 billion in 2009. Debt available for collection as a percentage of total gross receipts was 2.92%, up from 2.8% in 2009. Debt over 3 years old available for collection in 2010 was €472 million, up from €366 million in 2009.
Revenue is developing a model to analyse and forecast the debt available for collection.
Compliance
Non-compliance is an ever-present challenge for Revenue administrations, but in periods of recession this challenge grows. In the current economic environment in Ireland, with many financially distressed businesses struggling to survive and individual taxpayers experiencing significant reductions in their incomes, non-compliance will grow unless there is a very strong and visible response by Revenue. Nothing less can maintain public confidence in the administration of the tax system and customs controls.
The emphasis in 2010 was on tackling the shadow economy by a combination of risk analysis, intelligence collation, assurance checks and outdoor operations including audit and investigation. All four Revenue Regions conducted a wide range of investigations into shadow economy activity and cash businesses. These ranged from sector-specific projects targeting business areas including headshops, security companies, fast-food outlets, building sites and car clampers to 'streetscapes', where every business in a particular street is visited. Many of these projects included using the Joint Investigation Units, in conjunction with the Department of Social Protection, the National Employment Rights Authority and other agencies to combat tax and social welfare fraud and protect employment rights.
Our auditors carried out 11,008 audits resulting in a yield of €434.7 million. A total of 454,796 assurance checks, a less intrusive form of intervention, produced a yield of €58 million. [Table 6: Audit and Assurance Interventions 2010].
At the sharp end of compliance, Revenue secured 13 Court convictions for serious tax and duty evasion in 2010. One 15-month custodial sentence, seven suspended sentences and fines amounting to €16,350 were also imposed. [Table 12: Prosecutions for Serious Evasion 2010].
In addition, fines amounting to €1.1 million were imposed in 519 summary prosecution cases.
The Financial Services Banking area in Large Cases Division monitored and responded to tax issues arising from the banking crisis and the restructuring currently taking place in the sector.
We enhanced our Risk Evaluation and Analysis Programme (REAP) during the year by adding new information sources, including Taxi Regulator data, Non-Principal Private Residence Levy (NPPR) data, Private Residential Tenancies Board (PRTB) data, Excise licence details, non-filer prosecution lists and suspicious transaction reports. In addition, the system to predict potential audit yield set up by Revenue in 2009 as an extension to REAP was successfully piloted. A further model was developed in 2010 and the summarised output from this model has now been incorporated in the current live REAP runs to assist in better target selection.
Revenue is also receiving information and documents from NAMA on certain eligible bank assets and the details are being analysed to identify any tax implications.
Following a request made by Revenue in 2010 we received information from a Treaty partner which gave details of accounts held in Switzerland by Irish residents. Having cross checked the information received against Revenue's records it became clear that some individuals had already made a disclosure to Revenue under the 2004 offshore disclosure incentive. However, a small number of individuals have been identified with undeclared funds and challenge letters have issued. This is an ongoing investigation.
Protecting Society
Revenue plays a frontline role in protecting society from smuggling and associated criminal activity. Our interventions are intelligence-led and tightly focussed in order to minimise disruption to legitimate trade.
The threat posed to Exchequer receipts from cigarette smuggling is substantial. In July 2010, we initiated a programme of nationwide blitz-type tobacco operations, which concentrated additional Revenue resources at ports, airports and at various retail points for the purpose of identifying and seizing illicit tobacco products. Three such operations were mounted in 2010, resulting in the seizure of more than 15 million cigarettes and 370kgs of tobacco.
In total, during 2010, we made over 9,000 seizures of 178 million cigarettes and over 1,000 seizures of tobacco, with an overall value of €76.4 million. In addition, we established a new confidential hotline for information on cigarette smuggling and participated in the newly established Cross Border Tobacco Enforcement Group. We also co-hosted a conference on EU-US cooperation to combat tobacco smuggling.
On the illicit drugs front, seizures of cannabis were down by almost 38% on 2009 levels while seizures of cocaine and heroin increased by 25%. Seizures of criminal cash increased by 26% to €1.7 million. Revenue works on an ongoing basis in the fight against drug smuggling with our Joint Task Force colleagues in An Garda Síochána and the Naval Service.
The second series of the fly-on-the-wall documentary 'Customs' was screened on RTE 1 towards the end of 2010. The series gave an unvarnished look at the daily work of Customs officers around the country and served to highlight the vital role they play in protecting society from the consequences of smuggling and other cross-border crime.
Service to Taxpayers and Business
Throughout 2010, Revenue continued to encourage taxpayers to claim their entitlements. Activities undertaken include advertising; provision of information on our website and to journalists, and direct marketing. For example, 110,000 information leaflets on Tax Relief for Medical Expenses were produced and placed in doctors' surgeries. Increasingly, we are encouraging customers to claim those expenses online. It gives them a better service and is more efficient for Revenue.
Our programme of making automatic tax refunds wherever possible continued. We issued over 33,000 automatic refunds to the value of €3.3 million in respect of the costs of prescription drugs. 408 automatic refunds amounting to over €205,000 were issued in respect of tuition fees paid for approved third level college courses.
During 2010, we comprehensively updated our Employer's Guide to PAYE and the VAT on Property Guide to take account of recent legislative changes.
A measure of our success in doing so is the fact that, for the fourth year running, Ireland was ranked the easiest country in the EU in which to pay taxes (according to 'Paying Taxes 2011 – The Global Picture', a report by PricewaterhouseCoopers, the World Bank and the International Finance Corporation). The second report published under the Government’s Organisation Review Programme was also complimentary – 'In terms of managing delivery, customer service is very strong and there is openness to innovation that will continue to serve the organisation well'. This recognition has not made us complacent, however, but rather spurred us on to make further improvements.
Online Services
The range and quality of the online services we have made available to our customers has increased substantially in recent years. By the end of 2010, a total of 504,557 customers had registered for our on-line 'PAYE Anytime' service, an increase of over 36% on 2009. There were 360,624 transactions through the service, up 7.1% on the previous year.
Phase Two of Mandatory e-Filing came into effect on 1 January 2010 and extended the mandatory provisions for e-filing and paying via the Revenue Online Service (ROS) to various public bodies, local authorities and state agencies and other large companies.
The scope of our eRegistration service was widened to enable businesses to register via ROS for a wide range of taxes, including Income Tax, Corporation Tax, Employer's PAYE/PRSI, VAT and Relevant Contracts Tax.
Ireland is now ranked 1st in Europe for the provision and sophistication of online services to businesses and citizens – according to the 9th European Commission eGovernment Benchmarking exercise, Digitising Public Services in Europe: Putting ambition into action.
Simplification
Extensive work was carried out on drafting the VAT Consolidation Bill 2010, culminating in its enactment in November 2010. The Act has been modelled, as far as possible, on the EU VAT Directive. The language has been modernised and the Act structured to make it more accessible and user-friendly for all users.
We also modernised and simplified the operation of Capital Acquisitions Tax (CAT) to bring it into line with other taxes. eFiling was introduced, enabling customers to pay and file via the Revenue Online System (ROS). Mandatory eFiling of CAT returns is required where a relief or exemption is claimed. A further change of benefit to both taxpayers and practitioners is the introduction of a single pay and file date in line with other self-assessed taxes.
The operation of Relevant Contracts Tax was reviewed in 2010 and recommendations were made to introduce significant reforms to enhance its effectiveness, reduce opportunities for fraud and help decrease the administrative burden for businesses and Revenue. These were reflected in the Finance Act, 2011 and we will be working to implement them this year.
Since 1 September 2010, the National Car Testing Service (NCTS) operates a range of vehicle registration functions on behalf of Revenue. This means that registration of used imported vehicles now takes place in 24 NCTS Centres around the country and has allowed Revenue to redeploy staff to other duties.
Listening to our Customers
Revenue conducted a postal survey of PAYE customers between November 2009 and March 2010 to gather information on a number of key areas, including customer satisfaction, communication channels and the PAYE Anytime service. The results were very positive, with around 91% of respondents either 'very satisfied' or 'satisfied' with overall customer service delivery. This represents an increase on the 88% recorded in a similar survey conducted in 2007.
During 2010, Revenue conducted a consultation exercise to canvass views in relation to new mandatory disclosure obligations on promoters of certain tax-avoidance transactions. The consultation allowed interested parties to comment on and suggest amendments to the draft Regulations. As a result of the exercise, a number of changes were made, primarily to improve operational aspects of the new regime. The Regulations came into effect in January 2011.
The main purpose of the new disclosure regime is to constitute an 'early-warning' system for Revenue so that information on tax avoidance schemes can be obtained at an early stage and, where illegal, closed down before they can do significant damage to tax revenues. It is not the intention of the disclosure rules to stop tax advisors advising clients in the normal way on their tax affairs or on the use of the various legitimate tax incentives that are provided for in the tax code.
Following extensive consultation with the Taxes Administration Liaison Committee representing tax practitioners, a Revised Code of Practice for Revenue Audit was published in September 2010.
Contributing to Economic & Social Development
On the domestic front, one of Revenue’s key functions is to provide practical advice and technical assistance to the Department of Finance. During 2010, we were heavily involved in preparing the groundwork and supplying draft legislation to the Department in connection with a wide range of measures contained in the Finance Act 2010. These included a new carbon tax, transfer pricing rules for associated-person transactions, a scrappage scheme for VRT, a new tax regime for Islamic finance, amendments to the scheme of capital allowances, simplified administrative procedures for non-resident corporate shareholders, a provision to ease the administrative burden on certain collective investment funds, and amendments to the DIRT regime.
Revenue also played an active role in a range of international bodies, including contributing to policy development and implementation at EU, OECD and World Customs Organisation (WCO) level.
Ireland has a steadily growing network of double taxation agreements (DTAs) and Tax Information Exchange Agreements (TIEAs) with countries worldwide. By the end of 2010, Ireland had signed comprehensive DTAs with 62 countries, of which 54 are in effect. Seven TIEAs were in effect and a further fourteen were at various stages of negotiation/ratification.
During the year the legal framework for, and on-the-ground delivery of, exchange of information for tax purposes under Ireland's Double Taxation Agreements and Tax Information Exchange Agreements was subject to review by the Global Forum on Transparency and Exchange of Information for Tax Purposes. The resulting report found that Ireland has an effective system for exchange of information for tax purposes. This finding is an important international confirmation of Ireland’s standing as a transparent jurisdiction for tax purposes.
Developing our People and our Organisation
A significant medium term challenge facing Revenue is to replace the corporate knowledge that was lost due to the sudden recent outflow of experienced staff. While we continue to manage our overall staff numbers downwards in accordance with Government policy, work on addressing this challenge began in 2010 when, we filled 120 critical posts by way of targeted, open recruitment, redeployment and internal promotion.
Our successful relationship with the University of Limerick saw a new cadre of Revenue students graduate in January 2011; 48 with a BA (Hons.) in Applied Taxation and 67 with a Diploma in Applied Taxation. To date, a total of 577 Revenue students have graduated from UL through the Applied Taxation programme.
In February 2010, Revenue achieved the ISO 27001 Information Security Standard for our websites, www.revenue.ie and www.ros.ie. In December, our Information, Communications Technology & Logistics Division achieved the BS 25999 Business Continuity Management Standard. Revenue is the first organisation in Ireland to achieve this certification.
Revenue takes its responsibilities for data security very seriously. The confidentiality of taxpayer information held by Revenue is critical in delivering on our core business and in maintaining our reputation for integrity and fairness. Section 77 of the Finance Act 2011 introduced a new provision that places the confidentiality of taxpayer information held by Revenue on a statutory basis.
Looking Ahead
Looking to next year and beyond, it is clear that we face challenges on several fronts – continuing pressure on collection and compliance, risks of growth in the shadow economy and in smuggling, the implementation of major tax changes, and the need to show that we are delivering even more with even less across all business areas. This means that we are continually reviewing and refining our business programmes to optimise our performance and effectiveness. We are prioritising according to risk and to the resources available to us; putting huge emphasis on e-services; continuing to learn and innovate.
Revenue's huge range of activities in difficult circumstances would not be possible without the dedication, flexibility and hard work of all of our staff. We take this opportunity to say thank you to our colleagues who show, day in and day out, what public service means in practice. There are many challenges ahead, but we are confident that Revenue will not be found wanting in the months and years ahead.
Josephine Feehily
Chairman
Michael O'Grady
Commissioner
Liam Irwin
Commissioner