New controversy has emerged about tax evasion in the banking system, with a senior tax inspector contending that special low-tax savings accounts are being used to hide money from the Revenue Commissioners.
Last night, the Revenue Commissioners distanced themselves from the inspector's view that the Special Savings Accounts (SSAs), held by thousands of depositors since 1993, are being abused on a wide scale to evade tax.
A spokesman said the claim by Mr Tony Mac Carthaigh that SSAs provided the "greatest haven for tax evasion today" was a personal view and was not shared by the Revenue. According to Department of Finance figures, £162.9 million was held in such accounts at the end of last year.
Mr Mac Carthaigh, the senior inspector, told the DIRT hearings in the Dail Committee of Public Accounts that the Revenue didn't have the powers to police properly SSAs which, in his view, were being widely used to evade tax. While investors are allowed to hold one SSA with up to a maximum of £50,000, he suggested that a large number of individuals had more than one such account spread over different financial institutions.
In relation to the SSAs, the Revenue spokesman said the Comptroller and Auditor General had recently pointed to a relatively good level of compliance throughout the financial sector. The C&AG's report found that "in general, compliance with conditions including notice periods and investment limits was good. Most institutions had some form of systems control to monitor compliance."
The Fine Gael spokesman on finance, Mr Michael Noonan, said Mr Mac Carthaigh's claim posed a serious cause for concern.
"It is extraordinary that a senior inspector of the Revenue Commissioners can inform the PAC that the greatest haven for tax evasion today is the use of Special Savings Accounts, that there is no policing of accounts to ensure that taxpayers confine their deposits to the limits in the Act, and that because the 20 per cent is a full and final settlement the Revenue has no way of establishing the legitimacy of the capital sums in these accounts."
The accounts were set up in 1993 to avoid a flight of capital as exchange controls were abolished. A memorandum for government at the time made the priority explicit. "The government is faced with conflicting policy objectives. To support the exchange rate and keep interest rates down, an adequate level of external reserves must be maintained. This clearly infers that if the taxation regime in force were to encourage outflows of capital, it must be changed."
Earlier, Mr Mac Carthaigh described his exchanges with AIB, saying it was "extraordinary" that the bank would not admit to its "wrongdoings". He also told the committee about a visit to an AIB branch, after which he was told the matter "would be brought immediately to the Minister's attention".