Inquiry told of Revenue anger over '93 amnesty

A senior tax official who recommended selective use of the Revenue Commissioners' powers on non-resident accounts in 1987 did not use the powers until 10 years later when the National Irish Bank scandal broke.

Mr Christopher Clayton, chief inspector of taxes, said that when they investigated NIB's books they "did not reveal one bogus non-resident account". The NIB affair related to an offshore scheme which appeared to facilitate tax evasion by Irish residents.

Mr Clayton told the DIRT inquiry that his proposals in 1987 to investigate the declarations in non-resident accounts "would have shown just how superficial the power really was". What the 1987 exercise might have led to was a "paper compliance" and nothing more.

He also told the inquiry of the Revenue Commissioners' anger and total opposition to the tax amnesty in 1993.

The Revenue official wrote his 1987 memo two years before he became chief inspector of taxes, when they were dealing with "what old geographers might have called terra incognita". No action was taken.

In that memo he quoted a speech to the Dail by the minister for finance, Mr Ray MacSharry, in which he said of non-resident accounts that "such deposits are entirely free of retention tax in our jurisdiction. I can give assurances that we have no intention of changing this arrangement. Non-residents can lodge deposits here in complete confidence."

Mr Clayton agreed with Mr Sean Doherty that if the Minister had not made that speech they would have found it desirable and appropriate to carry out "indiscriminate and widespread inquiries".

He said if they had had a non-resident declaration which showed an address in Chicago, they could have asked the US tax authorities whether the tax declaration of "Mr O'Hara or Mr Mankiewicz" was likely to be genuine.

That would have been an indiscriminate inquiry and it could have been a serious problem later for the banking sector and the Irish economy. The IRS in the US might have examined him and said he had funds enabling him to have a substantial account and "PS he's in deep trouble with us as a result of what you have told us".

His recommendations for dealing with bogus accounts, and those of other tax officials over a number of years, were "synthesised" and summarised in a major paper by a senior tax official, Mr Sean Moriarty, which he saw in 1992.

Mr Clayton said the situation in 1987 was different from 1992.

"The economic situation had improved, but there was an amnesty debate which seemed to be getting uncontrolled at that stage, and the Revenue Commissioners were totally opposed to the idea of an amnesty."

Mr Moriarty's recommendations for action were rejected by the Revenue, primarily because of his comments about a tax amnesty. Mr Clayton referred to a note he wrote strongly opposing an amnesty because he doubted "if it would tempt back a significantly large part of the offshore funds".

Evasion could be curbed in a number of ways, including deterring actions. He felt they had "a long way to go before we could be accused of harshness towards tax-evaders".

He saw Mr Moriarty's paper in February 1992, and it raised "very serious and delicate issues". He had a call from the chairman of the Revenue Commissioners, asking him about the paper. Mr Clayton said he had not completed his examination of it but passed the paper to the chairman neither "approved nor unapproved".

He added that any paper which raised issues about the banks would have led to the financial institutions approaching the minister and saying it would be vital to have an amnesty. "It would have lent an enormous amount of weight to the pro-amnesty camp."