Dáil Éireann - Volume 580 - 17 February, 2004

Written Answers - Tax Code.

  119. Mr. Howlin asked the Minister for Finance the number of cases detected by the Revenue Commissioners in regard to the Financial Resolution of Dáil Éireann on budget day 2003 to close off a VAT loophole being exploited by certain developers and builders; the total loss to the Exchequer in terms of tax foregone; when the matter first came to the attention of the Revenue Commissioners; and if he will make a statement on the matter. [4751/04]

  Mr. McCreevy: As the Deputy is aware, I took the first available opportunity in budget 2004 to deal with an unacceptable interpretation of the VAT law in this area. Developers have attempted to avoid VAT by artificial means by attempting to put themselves in a position where they are not entitled to take a deduction for VAT incurred on the development of a site and thereby claimed that they did not have to charge VAT on the sale of such sites. This is an abuse of VAT law as there are few cases, if any, where a developer is not entitled to a deduction for VAT suffered on the development of residential sites.

On budget night, it was then indicated that the potential loss of VAT in respect of one case could amount to €18 million. However, I am now [163] informed by the Revenue Commissioners that while it is not possible to establish with any certainty the total amount of tax that would have been paid but for this particular VAT scheme the €18 million figure identified in one case is now significantly less. To date the particular interpretation of VAT law has been found to be in use in a total of 20 cases but a countrywide investigation is ongoing in relation to other cases in which there are indications that the scheme may have been used. Revenue continue to contest the validity of the scheme with a view to recouping any VAT not correctly accounted for.

I am informed that the Revenue Commissioners first became aware of the use of such an interpretation in a number of cases last summer. The Revenue Commissioners had previously encountered isolated similar instances of efforts by taxpayers to take sites out of the VAT net. These had been challenged successfully in most instances on a case by case basis. The Revenue Commissioners are devoting considerable resources to identifying the incidence of the scheme and pursuing the correct VAT liability.

  120. Mr. Broughan asked the Minister for Finance the progress which has been made by the Revenue Commissioners in their discussions with the Portuguese authorities with a view to closing off a tax loophole which allows those who sell off assets here to avoid tax by taking up residence in such countries as Portugal; and if he will make a statement on the matter. [4744/04]

  Mr. McCreevy: In response to a parliamentary question on 10 December 2003, I stated that I had been informed by the Revenue Commissioners that a first round of negotiations for a protocol to amend certain provisions of the Ireland-Portugal double taxation convention was held between the relevant Irish and Portuguese tax officials in Lisbon on 19 to 21 May 2003. The Revenue Commissioners have now informed me that a second round of negotiations has been scheduled for the week commencing 8 March 2004.

Section 69 of the Finance Act 2003 contains an amendment to Irish domestic law which imposes a charge to capital gains tax on an individual in respect of a deemed disposal of certain assets on the last day of the last year of assessment for which the individual is taxable in the State, prior to becoming taxable elsewhere, where the individual disposes of these assets while resident outside the State and returns to the State within five years. I announced this anti-avoidance measure in my 2003 budget on 4 December 2002 with effect from that date.