It used to be so easy to evade your obligations. Even banks lent a hand. Asthe latest settlements show, times are changing. Cliff Taylor, Economics Editor reports
Tax evasion just isn't what it used to be. The latest list of tax settlements, published in the main section of today's newspaper, shows the ongoing drive to deal with the extraordinary evasion that took place in the 1970s and 1980s and right into the 1990s. And the Revenue Commissioners are likely to get many millions more from a new investigation into another structure often used to evade tax: offshore trusts. But is money still going into new versions of Ansbacher, likely to be uncovered in future years?
People will always try to hide money from the taxman, but the days when millions are shovelled into offshore bolt-holes may be ending. New powers given to the Revenue and a reorganisation of its approach to tax collection are making evasion more difficult and much riskier. The Revenue has started on a long road to restoring the credibility of a tax system that featured large-scale evasion while allowing the rich to legally shelter large proportions of their income from tax.
Only the little people pay taxes, according to New York's infamous queen of mean, the businesswoman and tax dodger Leona Helmsley. And so it appeared to be here for many years. Evasion - illegal hiding of money from the taxman - was just so easy for anyone not caught in the PAYE system. The means were there, the financial institutions turned a blind eye or actively helped and the Revenue did little to stop it.
Indeed, the evidence given to the Public Accounts Committee's probe into bogus non-resident accounts suggests tax collectors ignored a number of warning signs, for reasons that are still unclear. After all, you only had to listen to the radio to hear financial institutions advertising accounts that were, ahem, confidential.
So what has changed? In retrospect the bogus non-resident accounts affair may have been a turning point. By the time it broke, in 1998, we already knew many high rollers had hidden money through Ansbacher. But the scale of the use of bogus non-resident accounts - where people put money in Irish banks using false foreign addresses - was staggering.
The Revenue has been investigating more than 40,000 of them. And the subsequent settlements, now totalling €670 million, show that the bogus accounts were not only vehicles to avoid DIRT but also places to hide income never declared in the first place. In one Bank of Ireland branch alone, in Miltown Malbay, Co Clare, €2.5 million in back taxes was owed.
It left questions that were difficult to answer. Why had the Revenue done nothing about it despite warnings from some of its senior officials? Why was legislation in place since 1986 to examine bogus non-resident account forms not used until 1998? How could the banks explain their involvement, not least the DIRT that was not paid?
A climate for change was created. As the DIRT affair broke and it became clear that Ansbacher and NIB were merely reflections of what had been a general climate of tax evasion, the 1999 Finance Act gave the Revenue new powers to seek access to details of people's accounts from banks and building societies when they suspected evasion.
It is this legislation that has changed the climate, together with a perception that, after enduring the Public Accounts Committee's hearings into DIRT evasion, the banks feel it simply isn't worth the hassle to have customers hiding money in their accounts.
"It is an entirely new environment compared to 10 or 15 years ago," says one leading tax adviser. There are a lot of people "caught in historic traps" whose offshore affairs are being investigated, he says, "but only very stupid people are going into that territory now".
This is unlikely to reflect a great moral turnaround so much as a combination of carrot and stick in the tax system. The carrot is that tax rates are now much lower. The reduction in capital-gains tax from 40 to 20 per cent, for example, is a big reduction for anyone profiting from the sale of an asset. It's hardly worth moving to Portugal any more to avoid the bill. The stick is that the chance of an offshore account being uncovered is now much greater.
The Revenue not only has the new powers to examine bank records but also is working at using all the information about a taxpayer to best effect. As Frank Daly, the Revenue's chairman, has admitted, internal communication used to be poor and trails were not followed. Now if stamp duty is paid on a big property purchase it is much more likely that the buyer's income-tax returns will be examined, to see where the money to buy the house came from. And a unit has been established to keep an eye on the tax affairs of the major companies and the 250 richest taxpayers in the State.
Tax advisers say the Revenue has focused its resources and declare themselves surprised at its efficiency in investigating the sins of the past, with money put offshore as far back as the 1970s being uncovered. Many of the great and good, from former CRH chief executive Jim Culliton to former Kerry TD Denis Foley and property developer John Byrne, were named for involvement in the Ansbacher accounts. Many more participated in similar schemes in other tax havens, however, and they are now being pursued.
It may no longer be profitable to try to salt money offshore, but many, many millions sent abroad in the past to the Channel Islands, the Isle of Man and elsewhere are still there. It is being uncovered gradually; progress can be particularly slow in cases such as Ansbacher (Cayman), in which records were held in a foreign bank and where just 51 of the 289 outstanding cases have been settled.
The latest Revenue target is offshore trusts, structures to which money or assets are transferred from individuals. Often the people's families are the trust beneficiaries. The Revenue is seeking information on many of these trusts from the main banking groups; after an initial trawl focusing on Bank of Ireland in Jersey, more than 250 people made declarations to the Revenue and paid €8 million on account, pending full settlements.
It is now understood that a number of other banks are providing similar information about trusts in their offshore branches. The Revenue has the power to get High Court orders when it suspects evasion - it did this in the case of Bank of Ireland's Jersey structure - but it appears that some other banks are now opening their books without orders being sought, hoping to avoid the negative publicity of being forced in court to open their books.
Trust structures are one area where legal tax avoidance and illegal evasion meet. In certain circumstances such structures can be legal, allowing taxpayers to shelter income for a period. Increasingly, however, the Revenue will mount a challenge when it detects what is euphemistically called aggressive tax planning - pushing the boundaries of the law to try to avoid tax. And increasingly it has political support for closing tax loopholes.
A Revenue report showed that creative use of tax-avoidance schemes, many of them based on property allowances, meant that 51 of the top 400 earners in 1999-2000 paid less than 5 per cent of their incomes in tax, while 117 of them paid less than 30 per cent.
In the last Budget, Charlie McCreevy, the Minister for Finance, announced that many of the schemes would close next year. He then also moved to outlaw one particular scheme, which would have allowed a group of rich people to use €55 million of capital-tax allowances attached to a building in the IFSC to shelter income from taxation.
This game of advisers finding new ways to use tax reliefs and the Minister shutting them down is unlikely to end any time soon. As many of the property-based schemes are closed, however, the vehicles available to the rich are shrinking.
The Revenue's investigations and audits, meanwhile, are designed to catch the ever-present temptation of those in cash businesses to hide all or part of their earnings. Official figures showing that fewer than 22,500 of the 2.8 million taxpayers declared incomes of more than €100,000 a year in 2000 - in the middle of the biggest boom the State has seen - suggest that much income still goes undeclared. There is some distance to travel to ensure equity between the PAYE taxpayer and the self-employed.
And many people continue to try to simply hide money. Those who choose to go offshore now are likely to use overseas-owned banks, given that the Revenue has access to Irish institutions. Asset transactions, particularly in property, continue to be used to try to hide undeclared earnings from the Revenue, and some money is even believed to have gone into art. Overseas property may be seen as less likely to attract the tax authorities' attention than houses and apartments here. And many still resort to the age-old practice of spreading money around accounts and hoping the Revenue doesn't notice.
The Revenue must privately realise it still has a way to go to repair the tattered reputation of the Irish tax system. Progress is being made partly, to borrow a phrase used by the Revenue chairman, by "sticking like a limpet" to evasion cases. Charles Haughey has paid €6.3 million. So far almost €750 million has been collected from the investigations into the main evasion schemes - Ansbacher, National Irish Bank and the bogus non-resident accounts. The Revenue has reorganised, becoming more efficient, and stepped up its tactic of prosecuting serious evaders, with five successful prosecutions this year and a further 35 cases under active investigation.
We have yet to see an Irish Lester Piggott, however - somebody well known jailed for tax evasion. The courts have meted out suspended sentences and fines, but the increasingly regular appearance of evaders in the dock will be closely watched to see just how serious a view we take now of the crime of tax evasion.
Hidden worlds: a short history of tax evasion
Ansbacher
Clients: Only high rollers were invited into the Rolls-Royce of tax evasion.
What we know: The ultimate offshore scheme, which operated from the early 1970s until discovered, in 1997, allowing clients to hide money offshore while retaining the convenience of withdrawing it at home. The late Des Traynor used it to hide Charles Haughey's money; the crème de la crème of business at the time were also members of the Cayman tax evaders' club.
Where's the money?: The Revenue is investigating 289 cases. It has settled 51 of these and collected 25.6 million.
National Irish Bank
Clients: Those with a few bob to invest, including many business people, professionals and farmers.
What we know: During the late 1980s and early 1990s NIB marketed an unauthorised scheme, selling Clerical Medical International life-assurance schemes to more than 400 investors. Many were used to evade tax. Three investors have been prosecuted; two received suspended jail sentences. A report by two High Court inspectors - former Supreme Court judge John Blayney and accountant Tom Grace - is expected to be finalised by the end of the this year. The High Court has been told that some people against whom adverse findings may be made have not co-operated fully with the inspectors.
Where's the money?: The Revenue has investigated 452 cases, of which it has settled 379, with €42.3 million collected and a further €4.9 million paid on account. An additional 1.2 million has been collected in capital-gains tax related to compensation payments made by NIB to some account holders.
Bogus non-resident accounts
Clients: Anyone and everyone with an "uncle" in Boston, an "aunt" in Birmingham or a "brother" in Brisbane. As many as 80,000 names on some 40,000 accounts.
What we know: The way the ordinary Joe and Josephine used to hide money from the Revenue. Go to the local bank and open an account in the name of an overseas relative. For years banks turned a blind eye or sometimes actively encouraged it, as highlighted by the Public Accounts Committee inquiry chaired by the late Jim Mitchell. The banks paid 220 million to the Revenue to settle their DIRT liabilities.
Where's the money? The Revenue has collected 670 million including the money from the banks, a further €227 million from a voluntary-disclosure scheme and 223 million from subsequent investigations.
And there's more . . .
Slowly but surely the extent of past tax evasion is coming to light. The Revenue's latest target is offshore trusts, used by many people to evade - or avoid - tax. In some cases there is clear tax evasion - customers of Bank of Ireland in Jersey recently paid 8 million after an investigation was launched - whereas in others taxpayers will argue that the structure they have set up is within the law. And then, of course, there is the ongoing battle against those who simply choose not to declare all their earnings to the Revenue. This is combated through Revenue audits, which last year yielded €286 million from 16,000 cases.