Address by Revenue Chairman, Frank Daly, to the Cork Chamber of Commerce Business Breakfast on 25 February 2005.

Exploring common ground
Tax Compliance and Corporate Social Responsibility

Introduction

At the outset let me express my thanks to Michael Geary and the Cork Chamber of Commerce for this opportunity to strengthen the relationship between Revenue and the Cork Business community. It's always nice to come to Cork - it is a unique place!

President Mary McAleese recently described how "those most humble of Irish men and women, the citizens of the Real Republic" brought the honour of hosting the European City of Culture to Cork. The President indeed described how you saw off the opposition like you would on "a September Sunday in Croke Park". As a Waterford man I might have preferred her to focus on an earlier Sunday in Semple Stadium!

James Plunkett, the author of Strumpet City, who died two years ago, once remarked that: "The natives of Cork have certain characteristics. They speak with a rapidity which can leave a stranger in difficulties and they have a habit of expressing an opinion by canvassing yours!"

I'd like to express some of my opinions here this morning around a theme of Exploring Common Ground in the matter of Tax Compliance and Corporate Social Responsibility. And, with due regard to Plunkett's remarks, I hope to receive your opinions in response - and you can give them as rapidly as you like!

The Real Challenge - tax compliance
Underlying my theme here this morning is the real challenge of building in this country a positive culture and positive attitudes to tax compliance. And my thesis is that this is a challenge for Revenue but not for Revenue alone. Certainly Revenue has major responsibility for a tax compliant culture - maybe even the major responsibility - but (and contrary perhaps to perceived wisdom in some quarters) it is not ours alone.

In fact the building of a tax compliant culture is also the responsibility of all our citizens, of our political, civic and religious leaders, of the media and of our schools. It is also a responsibility of yourselves here this morning as business leaders and key influencers in the community.

So at this breakfast I'd like to put forward this proposition of shared responsibility for the promotion of a culture of tax compliance and explore some issues around it.

Revenue's role - promoting the message that compliance matters to everybody
Firstly, and accepting our major responsibility here, what's Revenue doing to build a compliant culture?

Obviously one of the first things we have to do is promote the message that tax compliance matters to everybody.

Like many of the businesses represented here Revenue is a service organisation. We have customers and we exist to serve them. But (perhaps unlike business) our relationship with our customers exists on two very distinct levels. We serve individual businesses and citizens in the daily course of tax and customs administration, but we also serve the community as a whole. Our key tasks - collecting over 93% of exchequer funding and protecting trade and frontiers, are vital to the general well being of this country, and indeed to the well-being of the wider European Union.

The bottom line for both levels of relationship then is that we must collect the taxes and duties due from each citizen and each business. This is what is expected of us. The Community expects it so that Government programmes can be funded. Taxpayers expect it so that they are treated fairly compared to their neighbours. Business expects it so that the pitch on which they compete is a level one and not distorted by fraud and evasion.

That's the first thing Revenue does - promote the message that compliance matters to everybody.

It's equally important though that Revenue encourages compliance by our activities.

Revenue's role - promoting compliance by our actions
And those activities can be categorised into soft (service) and hard (enforcement) measures. The soft side involves us working to make compliance easy and attractive. The hard side involves us delivering a sharp, uncompromising response to evasion, smuggling and all forms of non-compliance.

Firstly some points on the soft or service side:

Customer Service Developments
Since the 1980s we have progressively adopted a customer service mentality, long before this was a general trend in public services. We continue to develop this area, providing an increasing range of services on-line on a 24/7 basis - everything from our highly successful Revenue Online Service (ROS) to our latest initiatives launched earlier this month using interactive web, text and touchtone services.

Engagement with Customers
We now actively engage with customer groups, such as yourselves, and with tax and customs professionals. This is to ensure that we impose the minimum cost and complexity on business while ensuring the effective administration of tax and customs legislation.

Measuring Costs
I believe indeed that we can do more in this area of minimising cost and complexity. Later this year I intend to initiate a study of the cost burden that compliance with revenue obligations places on business. I would suggest that in doing so, we would work in collaboration with the Chambers of Commerce and other interested bodies. Such a collaborative approach, besides bringing the knowledge and expertise of both sides to bear on a difficult subject, would contribute to validation and acceptance of the objectivity of the findings.

A Customer-facing structure
We have completely re-structured our organisation to focus on our customer base and to devolve decision making to local managers. Here, in the capital of Revenue's South West Region Gerry Harrahill and his team are working to develop a deeper understanding of local economic activity. This will enable them to provide focussed services that meet your needs as well, of course, as building up intelligence to target their audit and investigation activity.

Matching Resource to Risk
We are continually matching our resources to risk. Our strategic approach emphasises the importance of effectively assessing risk and deploying resources to match it. New units, such as the Special Compliance District here in Cork are focussed on identifying risk. We are deploying sophisticated software tools to analyse risk and target our interventions. This has a twofold advantage. For Revenue it means improved identification, investigation and prosecution of evasion. For legitimate business it should mean less Revenue intervention as we progressively improve our accuracy.

This brings me into the harder or enforcement side of Revenue's activity.

Tackling Non-Compliance
I believe that a tough and uncompromising response to non-compliance is an essential part of our service to the community. We have had a lot of success in recent years in addressing a legacy of tax evasion in certain areas. For many, the investigation into Bogus Non Resident accounts proved a rude awakening to the fact that Revenue means business. During that investigation only 3,750 cases came forward during the initial voluntary phase. Many people obviously believed that if they kept their heads down, we would lack either the will, the information or the resources to pursue them. They were wrong. We subsequently identified and pursued a further 8,500.

The impact of this demonstration of our determination became clear during the more recent offshore assets investigation. In the voluntary phase of that investigation over 14,000 cases came forward. We are now identifying and will shortly begin to pursue those who did not.

Our latest Legacy Investigation (and believe me nobody hopes more than myself that it might prove to be our last one of major significance) is into the use by individuals (not, I emphasise, the Insurance Industry) of Single Premium Insurance Policies to evade tax from the eighties onwards. We will be making an announcement about the detail of that investigation shortly.

I know there have been some commentators who did not fully support Revenue's determination to pursue these legacy cases - arguing that this was all in the past and that we should leave it there; arguing that it was unfair and inequitable to pursue people now for old debts and liabilities; pointing out that in some cases payment of these liabilities was creating hardship.

As far as Revenue is concerned however there could never be the option of walking away from this systemic and widespread evasion - and as for those who advance arguments about unfairness and inequity, I have to remind them of the inequity and unfairness that was visited for many years on those who struggled every week to pay their taxes; the inequity and unfairness to those who struggled to keep businesses going in the face of unfair competition subsidised by tax evasion; the inequity and unfairness to those who may have been deprived of better services because tax revenues were not what they ought to have been during those years.

So for Revenue it is not an option to walk away.

Attitudes to Tax Compliance
All of these Legacy Investigations have so far yielded nearly €1.7 billion for the Exchequer.

But clearing up a legacy of evasion is not just about money - it's not just about collecting tax arrears.

It's about something much more important.

These campaigns, the publicity that goes with them and the demonstrated determination of Revenue not to ignore evasion by any sector, have proved to be key drivers in a growing public intolerance of tax evasion, and an increasing public awareness of the obligations of tax compliance. This shift in attitude is central to any real and lasting culture change - it is the real bonus from the Legacy Investigations.
That's a brief summary of what Revenue is doing to promote a tax compliant culture. I'd like to talk for a minute about what role business might play and how we might work together for this common objective.

Maybe the first point I should address is whether we should be doing things together as I realise a "partnership" approach between Revenue and business might seem to some a radical proposal! I'm sure some of you see taxation as a mere burden on business - something to be minimised and avoided entirely if possible (and there's nothing wrong with that provided you do it within the law). Some others may view it as best policy to keep Revenue at arm's length, in the hope (misguided perhaps!) that, with luck, we will go away.

So why should we work together to promote a culture of tax compliance?

Mutual Dependence
Mainly because, like it or not, we are mutually dependent. Let me explain.

Nowadays we in Revenue always use the term "customer" when we talk about our relationship with taxpayers. It's a valid enough term in most circumstances - certainly valid for example in the context of analysing how quickly we clear your goods at import or how efficiently we review your tax liabilities or how quickly we repay you tax you might have overpaid.

But it falls far short of addressing the totality of the relationship between taxpayers and the State. In an essay on this area Canadian Professor Henry Mintzberg asserts that "I am not a mere customer of my Government, thank you!" The rights and responsibilities of citizens, whether corporate or individual, are far more complex than a simple customer relationship. I believe that a deeper understanding of that relationship is necessary to foster a more positive attitude to tax and customs compliance.

This involves the acceptance that tax is not merely a burden. As I said earlier, it is the means by which public goods such as infrastructure, security, economic policy and even Government itself are funded. You will all be familiar with the principle, first enshrined in the Magna Carta and later employed as a rallying call of the American revolution - of "no taxation without representation". It is also worth considering the corollary - that democratic representation is dependent on taxation.

I believe that the time is right for a mature debate on the role of taxation in society.

Such a debate should remind us that in order to thrive, business needs public goods such as infrastructure and security - all paid for by taxation.

Such a debate should remind us that business needs and should value a fair and consistent tax administration, and a customs service which balances its regulatory role with the free flow of legitimate goods.

Such a debate should remind us that the provision of services to all our citizens, and particularly the less well off, depends on the revenues gathered through taxation.

Such a debate should remind us that the levels of taxation which Government needs to impose depend on the willingness with which taxes are paid and the effectiveness with which they are collected.

Such a debate, I believe, can only serve to strengthen the willingness of every citizen, whether corporate or individual, to meet their revenue obligations - to subscribe to a tax compliant culture.

A debate like this won't happen simply because Revenue suggests that it should. And of course it's unlikely that a debate like this will be in the standard format of the those debates we all took part in at school or college or wherever.

I'd be happy if this one took place in the forums like this - but I'd be equally happy if it took place in the pub, or in the yacht, or in the car or at the quiz - anyplace where people meet in convivial or business surroundings. Because this might well be a slightly "underground" debate. (I was tempted to use the word "subversive" but right now that has associations which do not particularly resonate with tax compliance).

And in can be kick started if influencers in the community, like yourselves and your organisation, support it.

It starts with the personal example of compliance with one's own tax and customs obligations - and I know that in this group that is not an issue.

It can be built on by your wider support in promoting a culture of compliance.

· by the standards we apply in our business dealings;
· by the intolerance we display towards underhand deals;
· by the message we give in conversation and discussion that tax compliance is important to us and that we will not do business in any other fashion;
· by reminding people of what tax pays for;
· by contradicting the bar stool expert when he expresses a "sneakin regard" for the flyboy who did the Revenue - the flyboy did nobody but his neighbours.

People often ask me if Ireland is now a tax compliant country. I think it would be naive to claim that - and whatever else we are, Chairmen of Revenue tend not to be naïve. We are however moving in that direction - and I believe at a reasonable pace. It's partly driven by Revenue's recent initiatives and partly by a growing acceptance that people should pay their share. We'll keep doing the former but it's the latter that we need to build on for the lasting, systemic step change to a tax compliant culture in Ireland. This is the era of Corporate Social Responsibility - and indeed I know that this has been on the Chamber's agenda in recent months. Tax compliance represents, not just civic duty, but a central element of social responsibility and a core component of good citizenship.

Conclusion
In conclusion may I again thank you for the invitation. Revenue has a long association with Cork since the Custom House was established here in 1724. As you know we are currently seeking a new Headquarters Building for Cork. You will understand that I can make little comment on this during the tender process. But rest assured that it will be in the City Centre and that, wherever it is, the Revenue Team in Cork will ensure that highest standards of service are maintained throughout the transition.

Ladies and Gentlemen, thank you for your attention at this early hour.

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