In 2020 Revenue went from tax taker to cash maker and kept the day job

Tom Maguire discusses the Revenue Commissioners 2020 annual report

The Revenue Commissioners published their 2020 annual report since my last column. It goes without saying that their job is to collect the tax which we all lawfully owe. But 2020 was different; they had to metamorphose into a cash maker for taxpayers as opposed to the Exchequer.

The report’s accompanying press release quotes Revenue’s chairman as saying “…during 2020. We continued to deliver our core business, collecting gross receipts of over €82 billion, including over €15 billion on behalf of other Government Departments and Agencies. Net Exchequer receipts were €56 billion, a decrease of 3.6% or €2.1 billion on 2019” while outlining the flip side. On that point, a document accompanying the annual report explains that between March 2020 and March 2021, Revenue implemented or administered a series of support schemes whose value for that period was €9.1 billion. To put that in perspective, gross income tax receipts for year to 31 December 2020 were €25 billion, gross corporation tax receipts for the same year was almost €14 billion.

That €9.1 billion breaks down as follows: The Temporary Wage Subsidy Scheme’s (“TWSS”) cost of 66,600 employers receiving subsidy payments was €2.8 billion in respect of 664,500 employees. By the end of March of this year, €2.62 billion in subsidies was paid to 48,400 employers in respect of 546,300 employees under Employment Wage Subsidy Scheme (“EWSS”). Employer Pay Related Social Insurance (“PRSI”) forgone due to the reduced PRSI on wages eligible for EWSS and TWSS was estimated at €437 million and €460 million respectively. By the end of March 2021, €2.3 billion of tax debt had been warehoused for 81,400 businesses and €426 million in Covid Restrictions Support Scheme (“CRSS”) payments had been paid to 21,800 businesses. The VAT rate reduction and use of certain losses and other initiatives comprise the remainder.

All of the above gave rise to Revenue’s business model metamorphosis. As I mentioned in my last column, I published a book in January of this year entitled “Crisis; 25 Business Leaders on Surviving Troubled Times” with Covid19 as backdrop. Yes, another shameless plug but all royalties go to Our Lady’s Hospice in Harold’s Cross. One of the 25 contributors was Niall Cody, Chairman of the Revenue Commissioners. In the book, I mentioned that all contributors had to try to “improvise, overcome and adapt” to the Jurassic economy and Revenue was no different. The Chairman heaped praise on his staff in that chat and so too did the annual report for the changes implemented at pace.

The annual report explains that each new scheme involved the immediate mobilisation of an organisation-wide, cross-functional team, covering legislation, operational design, systems changes, system testing, and frontline service readiness. Revenue had to communicate with businesses, individuals and tax agents, including providing detailed operational guidance, so that the required information in respect of the different supports was appropriately available.

The report explains that while a significant number of staff were working from home, a relatively small number continued to work on-site in essential roles. I met the Chairman in September of last year when we chatted on the book in Revenue’s Boardroom in Dublin Castle on a suitably socially distanced basis. I’m used to going into ‘the Castle’ for meetings with Revenue officials as part of the day job but I hadn’t been in Dublin City Centre since March 2020 and it was somewhat eerie walking through this huge tourist location with such an absence of tourists and Revenue staff. Therefore, all of the above business model changes had to happen remotely. Indeed, in the annual report two of Revenue’s staff talk about developing the wage subsidy schemes and explain that “At critical stages of the project, when we needed to attend the office, the excitement of meeting each other and getting burritos for lunch was on a par with waiting for Santa on Christmas Eve”.

I mention all of the above because 2020 was a significant year of change but the future will be no different. By that I mean the pace will be similar but hopefully the issues won’t be the same as we renounce the Jurassic economy in favour of the next stage of our economic evolution. In their report Revenue explain that it will contribute to the evaluation, development and implementation of national tax policy, as well as on EU and Organisation for Economic Cooperation and Development (OECD) proposals to address the international taxation of companies.

So we will have to contend with the restriction of borrowing costs from a corporate tax perspective, the sci-fi sounding issue of reverse hybrids, and OECD developments regarding its Pillar one and two initiatives which may lead to an EU directive on the matter. That’s before we get anywhere near Budget season and what that brings. Of course we will also have to contend with how the reliefs mentioned above and others such as the PUP etc. will run their course; but Minister Donohoe’s recent comment to the Budget Oversight Committee that “there will be no ‘cliff-edge’ to the most important supports” is welcome.

But staying with Budget 2022 for a minute, Revenue’s report is also accompanied by a document reviewing corporate taxes. There’s a commentary regarding large companies but one point on the issue of “close companies” struck. The nutshell version of a ‘close company’ is one that’s controlled by five or fewer “participators” (together with their associates, i.e. relatives etc.), or any number of participators (and their associates) who are directors. A participator is, broadly speaking, any person with a share or interest in the capital or income of the respective company. Therefore, “close-ers” can comprise owner-managed companies.

The report points out that in 2019 there were 135,136 of such companies and about 7,000 of them paid surcharges on undistributed income on top of their usual tax bills of almost €50 million. The surcharges arose because these companies didn’t make certain pay-outs to shareholders. Had they done so then the cash that “left the building” would not have been available to reinvest in the business. So the surcharge was the price paid. Revenue made certain concessions around such surcharges with Covid19. Maybe, and hopefully to help renouncing Jurassic status, we might amend the “close-ers” surcharge in the statute books, making it easier for them to just focus on the business.

Please note this article first featured in the Business Post on Sunday, 9 May 2021 and was re-published kindly with their permission on our website.

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