Nothing certain about taxes except that some will always avoid them

TAX avoidance and evasion are two knacks of creative accountancy which most people — at least those of us unfortunately unencumbered by a few spare hundred thousand — believed would not rear their embarrassed heads again for a long time.

Tax avoidance is legal, although the lads in the Revenue Commissioners are never too impressed with it. Tax evasion is definitely illegal, and in between the two are some lovely grey areas for those who need them. An example of the first has surfaced from the deep recesses of the tax laws and is a classic of the sort that definitely does not impress the Revenue.

In this case, it involves that paragon of probity, the AIB, and third level institutions which, as we all know, believe that you can always profit from education.

You might, understandably, have been under the impression that our universities are way ahead of the pack when it comes to matters educational. So they are, but what our revered institutions of learning need, apart from wannabe doctors and lawyers, is funding.

And when it comes to filthy lucre, they are no more aloof than the rest of us in picking up a few tips.

That’s where the AIB’s programme on further learning came in. It was greeted summa cum laude, as they are inclined to remark on occasions in the groves of academe.

This nice little earner had nothing to do with non-resident bank accounts nor exotic foreign islands. It was a loophole in the tax laws which one of the bright sparks in the bank spotted, and which an even brighter spark in the Department of Finance let slip through.

The Government had a scheme called Section 50 relief under which a private enterprise which built student accommodation was entitled to a tax incentive. The investor, who built the accommodation, would be entitled to offset the construction costs against the rental income.

That’s where the cute hoor syndrome came into play. The rental income from student accommodation, which would normally attract 42%, was, however, diverted to a charitable company, where it was exempt from any tax. This one definitely believed that charity begins at home and stays there.

So what happened, was that some people got two forms of tax relief. They got tax relief on the money used to construct the building and then, by using other incentives in the tax law aimed at charitable and educational projects, they got away without paying the 42% tax on the money which students were paying to rent the accommodation.

Lovely jubbly, as Del Boy was wont to say when he managed to palm off a load of dodgy VCRs, which usually came back to haunt him in any case.

The difference here, of course, is that there was nothing legally wrong with the AIB plan, and they can be smug in that there is nothing to come back to haunt them. Not this time, anyway.

The Revenue Commissioners have described this little scheme as “totally unacceptable” and “an abuse of tax relief,” and conveyed that opinion to the Minister for Finance, Charlie McCreevy.

Naturally, the AIB, that pillar of the financial community, rejected any allegation of abuse of the tax laws and insisted it was a legitimate scheme they had been operating under the 1999 Finance Act for a year and a half.

The Department of Finance, with the dexterity of the Cork football team, moved immediately and the Minister ordered the loophole to be closed off. A year and a half too late.

In the meantime, the Exchequer lost millions of euro and will continue to be a loser because investors in any scheme already in place will continue to benefit over the course of such schemes, which run for ten years.

This is not the first time that loopholes in Finance Acts have been used by eagle eyed investors with an eye to capitalising on rich veins of bureaucratic bungling.

But you would have to wonder how these things manage to slip through, because there are more than enough exorbitantly paid experts inside and outside his Department at the Minister’s beck and call.

This latest one was spotted by the Revenue Commissioners, so it would stand to reason that in future whatever tax incentive schemes are being put together, should be run past them first.

In this instance, the student accommodation windfall for investors has been going on for a year and a half. Those which have been established can legitimately continue for the next eight and a half years, and enjoy huge tax free benefits.

This loophole escaped the scrutiny of those who are paid to act on behalf of the taxpayers to make sure such mistakes don’t happen.

This brings up the question of the Competition Authority, another agency which was supposed to look after our interests. It was set up five years ago to stamp out cartels and price fixing, and in meantime its performance has been deplorable.

Since its inception, the Authority has not exactly turned in an Oscar winning performance. Last year it failed to initiate a single cartel prosecution and a British-based research company described its performance as “next to dire.”

So what happens? They send to Uncle Sam and import a cartel buster called Terry Calvani, who as been described as “tough talking” and a “heavy hitter”.

His credentials are seemingly impressive. He served for seven years as a Commissioner on the US Federal Trade Commission up to 1990; was a Professor of law at Vanderbilt School of Law in Nashville, and was a law lecturer at Duke University, North Carolina and Harvard, Massachusetts.

How all of that is going to help him burst cartels here, I’m not sure.

But Mr Calvani is quite optimistic that soon cartels, like June, will be burstin’ out all over.

An inkling into his thinking is that he places much hope in something called the Cartel Immunity Programme, which is a new weapon the Competition Authority has taken on board.

Basically, it seems to allow employees to blow the whistle on their employers who are engaged in cartels, and thus save themselves the prospect of going to jail. It seems to have worked in the States.

“When, instead of fines and community services, people started going off to jail, that caught the attention of everyone,” he said in an interview with this newspaper during the week.

“In the US you have a number of high profile people who have been prosecuted, such as the godson of a former US vice president.”

Is it just me, or can anybody else see a system of prosecuting high profile people and those with good political connections having a snowball’s chance in hell of working here?

I thought so.