Tuesday, 17 May 2005
Dáil Eireann Debate
Dr. Cowley: I do not condone the dodging of tax. Everyone should pay his or her fair share of tax. However, there is currently an anomaly where older people in their mid-70s and mid-80s are being treated unfairly in a trawl by the Revenue Commissioners where their aggregate investment in insurance company schemes exceeds €20,000.
Is the Minister aware that in many cases the original or initial investment was very small, for example, £2,000 and that this fund has grown due to reinvestment in other insurance companies by the investment manager? Investments grew rapidly in the early years, achieving 30% growth per annum. The accumulation of money from that reinvestment by investment managers has driven many thousands of older people into the tax net now, whereas they would not be liable based on the original amount invested. In many cases the original amount cannot be traced due to the fact that many of those original insurance companies have gone out of business, for example, Norwich Union, Abbey Life, Royal Life, CGNU etc.
While I agree that everyone should pay his or her fair share of tax, is it not unfair to go back 25 years considering the small amount of the original investment in many cases, particularly as no tax may be owed at all in some of these situations? The Minister may say they need not worry, but older people worry and do not eat or sleep. This issue is causing terrible worry and consternation among older people with such insurance policies and who must make a declaration to the Revenue Commissioners by 23 May 2005.
A quarter of a century ago people put a few bob aside for the rainy day. Now they are expected to be able to account for all of the original investment. This seems unfair treatment for older people in their mid 70s and 80s, considering that the Government is using the Statute of Limitations to its liability to nursing home payments to older people to six years. However, it has no trouble going back 25 years to get older people into its net in this situation.
These investment type products were launched in the mid-1970s. The biggest supplier and market leader was Irish Life Assurance Company, which was State owned. Pre 2001, the glossy brochure inducing people to join stated: “Tax — All returns from [this product] are taxed — currently at 24%. We pay this tax for you so then when you cash in your [product], you have no further tax to pay.” Post 2001, due to the change to exit tax by former Minister for Finance, Deputy McCreevy, the brochures stated:
Many older people in the west are affected by this measure. The Government is doing well from it. It got tax on the gains over the years and the money was used to build property on the east coast. The Government has already got its pound of flesh. I am not in favour of letting off the hook anybody who has invested large amounts of money in order to avoid tax. However, thousands of people are affected by this Revenue trawl, mainly the small investors who made provision for the rainy day. They are being treated unfairly, like big tax dodgers. They face the same penalties and are liable for possible prosecution and naming and shaming. Many of them were on small farmers dole payments and were not liable for tax. When they got a few bob on the headage, it was put aside for the rainy day or children’s education. They paid their tax on the gains.
The people in the Revenue Commission do not seem to know or care that there is inherent unfairness in this measure. People who do not have money to pay fines are worried sick and quite desperate. Perhaps there are cases where tax should have been paid, but the person was not in the tax net at the time. Now, 25 years later, the Government is looking for this money. Whose fault is it these people were not in the tax net? The difficulty with trying to get these people to pay tax 25 years later is that those involved are now in their 70s and 80s. They are scared out of their lives and afraid to talk to anyone. Some may have phoned the Revenue Commission line, but many are afraid to do so. However, by the end of the week they will have to make a declaration to the Revenue Commission as to whether they have paid tax on this insurance investment. Many are unsure about that. Even if they were sure they had paid, many of the companies have gone out of business. If they do not make a declaration to the Revenue Commission, they will be liable for even greater penalties, naming and shaming and possible prosecution as well as persecution.
Will the Minister intervene with the Revenue Commission on this issue? Why should the trawl go back 25 years? Why should the lower limit of the threshold be €20,000? Something must be done. Entire life savings are being wiped out. Can the Minister help?
I assure the House that the fact that some people have invested in life assurance investment products and have legitimately profited from such investment does not lead the Revenue Commissioners to assume they are engaged in tax evasion. The focus of the Revenue investigation is on the source of the money invested in insurance products and whether it was money that should have been, but was not, disclosed to the Revenue Commissioners. Ordinary taxpayers who invested money from sources such as redundancy payments, accident compensation funds, retirement lump sums or savings from moneys that were subjected to tax have no further obligations and need have no concerns about this investigation.
I am, however, informed by the Revenue Commissioners that following on from information gleaned from previous large scale investigation projects and other research, it was clear that some individuals had used life assurance investment products to hide taxable income, gains or acquisitions. The number of investors combined with the volume of funds invested suggested that the matter was best dealt with on a similar basis to that used for previous large scale projects such as the bogus non-resident account and the offshore account investigations. This involves a voluntary phase with time deadlines, during which individuals can come forward voluntarily and disclose outstanding liabilities, and a follow up investigation phase to identify those who do not come forward voluntarily. Those who come forward voluntarily will benefit from reduced penalties, their names will not be published in the quarterly defaulters lists and they will not be considered for prosecution, or even persecution. As with the previous investigations, this one is aimed at those who have not fully disclosed their income, gains or acquisitions in the past and who owe tax to the Exchequer. Those who have previously declared their incomes and paid their taxes are compliant taxpayers and are not required to do anything in connection with the investigation.
The Revenue Commission contacted all the relevant insurance companies and requested that they write to their investors where the investment was in aggregate greater than €20,000. It is understood that as a result many individuals have received letters from their insurance companies in recent weeks outlining the background to the Revenue investigation. The issuing of mail shots by insurance companies to investors is to be commended.
I welcome the opportunity to clarify a number of issues relating to the current investigation. First, the investigation applies only to those who invested in insurance products using money that should have been but was not disclosed to the Revenue Commissioners — money colloquially known as “hot money”. Accordingly, most people do not have a tax problem since they would have funded their investment with redundancy payments, accident compensation, lump sums received from a pension fund on retirement, personal savings from moneys that were subjected to tax etc. These people are not affected by this investigation.
Second, I refer to a matter specifically mentioned in the matter raised by the Deputy, namely the growth in funds invested in the life assurance companies. While the moneys were with the insurance companies the funds in which they were invested were taxed and therefore the individual investor has no further liability to pay on those profits. The Revenue Commission is satisfied that the life assurance companies have correctly accounted for all tax due on the growth of the investment and accordingly it is only interested in any undisclosed funds invested.
Third, this investigation does not apply to anybody who fully rectified their tax affairs previously, for example under the 1993 amnesty or the recent Revenue investigations. In the current phase of this investigation, the Revenue Commission is concentrating on cases where the individual investment or the aggregate investments exceeded €20,000. Based on experience this is where it perceives the greatest risk to be and setting such a threshold enables it to manage this project effectively. Therefore, the deadlines set for making a qualifying disclosure, namely 23 May and 22 July, will not apply to investors whose investments in aggregate are €20,000 or below.
It is not the Revenue Commission’s intention currently to initiate an investigation into cases below the €20,000 threshold. However, should new data emerge from the current phase which makes it necessary for it to rethink this approach, there would be a further opportunity for such cases to avail of the qualifying disclosure scheme outlined in the code of practice for revenue auditors and disclosure dates would be announced as appropriate.
Authorised Revenue officers will shortly carry out a sampling process in the insurance companies as provided for in this year’s Finance Act. Preparatory work has already taken place and I am advised that full co-operation in this process is being received from all the insurance companies. Takeovers, mergers etc. are not posing any particular difficulty and records are generally available for the period covered by the investigation — 1980 and subsequent years. At a later stage the Revenue Commission will ask the High Court to make orders under which the insurance companies will be required to furnish particulars relating to investments and investors.
Any people in doubt as to whether the current scheme applies to them should consult their tax adviser or the Revenue help line at 01- 6474818. Notice of intention to make a disclosure must be sent to The Revenue Commissiom, 1 Clanwilliam Court, Mount Street, Dublin by 23 May. As always, any person whose tax affairs are not correct should take steps to rectify them at the earliest opportunity.
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