Revenue Commissioners’ strategy on tax evasion, Ireland

This measure concerns the activities of Ireland’s Revenue Commissioners in ensuring tax compliance during 2011, with a particular focus on its targeted ‘shadow economy’ activities. The activities targeted particular sectors and occupations such as construction, bars and restaurants, landlords/rental sector and white-collar professionals.

Background

The assumption of most experts is that there are only tentative links between the size of the shadow economy (undeclared work) and changes in taxation levels. However, recent evidence suggests that increased rigour in the application of the tax regime is more likely to impact on undeclared work than are taxation levels (fraud investigations have uncovered large-scale evasion of tax, mainly by well-off individuals, who were declaring only part of their incomes). Greater access to bank accounts by the Revenue Commissioners has been a significant feature here. Also, in specific industries – like construction, bars and restaurants – there is evidence of employers classifying workers as self-employed, thus increasing the likelihood of undeclared work.

Objectives

Tighter monitoring of tax evasion by the Revenue Commissioners.

Specific measures

This measure concerns the activities of Ireland’s Revenue Commissioners in ensuring tax compliance during 2011, with a particular focus on its targeted ‘shadow economy’ activities. The measures are outlined in the Revenue Commissioners’ 2011 annual report, and the main findings are summarised here.

Actors involved

Revenue Commissioners.

Outcome of evaluations: lessons and conclusions

Achievement of objectives

The Revenue Commissioners seems to have enjoyed some success in targeting specific shadow economy activities to reduce tax evasion.

Obstacles and problems

Recession in Ireland means that the overall tax take is down on the ‘Celtic Tiger’ boom years.

Some observers suggest that the tax authorities could do more to close off tax loopholes availed of by the wealthiest in Irish society, and increase (criminal) penalties for tax fraud.

Impact indicators

According to the Revenue Commissioners Annual report 2011, while overall tax and duty receipts in Ireland were €831 million below the budget target, net tax and duty receipts in 2011 increased by 7.3% to €34.2 billion; reversing three years of falling returns to the Exchequer. Perhaps more significantly from the revenue’s point of view, is the fact that the level of outstanding tax debt stabilised in 2011 and is now beginning to decrease. The overall debt reduced from €2.08 billion in 2010 to €1.99 billion in 2011. The debt available for collection also fell by almost 5.2% to €1.32 billion in 2011. This is an extremely important performance indicator according to the revenue and to achieve it, it increased the staff resources deployed on debt collection and recovery by 11.5% in 2011.

In 2011, the revenue said it increased the level of its audit and assurance activity by almost 20% with the resulting yield increasing by nearly €30 million. It carried out 11,000 audits and 546,000 assurance checks, which between them yielded more than €520 million. There were 30 court convictions for serious tax and duty evasion, up from 13 in 2010. Eight custodial sentences, ranging from seven to 36 months, were imposed, with a further 15 custodial sentences suspended.

Included in these numbers are the results of a particular focus on ‘shadow economy’ activity in certain sectors:

• construction: 1,833 audits yielding €58.8 million
• bars and restaurants: 613 audits yielding €16.9 million;
• legal activities: 142 audits yielding €4.6 million;
• landlords/rental properties: 908 audits yielding €35.1 million;
• professionals (accountants, doctors, dentists): 350 audits yielding €8.9 million.

Shadow economy activity also includes evading excise of duty on diesel. In 2011, the Revenue Commissioners completely revised its strategy to confront the risks in this sector. It tightened regulations for licensed mineral oil traders to strengthen the control and supervision of the supply and distribution of diesel and followed up by vigorous enforcement action against unlicensed outlets and those in breach of the licensing conditions, resulting in the closure of 32 filling stations between July and December 2011. At the same time, it seized over one million litres of mineral oil and detected nine oil laundries. When businesses evade excise duty on oil, they are also likely to be evading other taxes. For this reason the Revenue devoted 10% of its compliance effort to the oils sector generally.

Transferability

Although Member States have different tax regimes, there may be potential for the stepping-up of their monitoring of tax evasion.

Contacts

• Revenue Commissioners: http://www.revenue.ie/en/index.html

Bibliography

Indecon International Economic Consultants (2002), ‘Review of active labour market programmes’.

National Employment Rights Authority (2012), ‘NERA review of 2011’.

Revenue Commissioners (2012), Annual report 2011.

Tony Dobbins, Bangor University