As the Comptroller and Auditor General stated, this issue first came onto the agenda of the committee arising from his office's report in 2001, and I will not reiterate the concerns. However, he recognised that we in Revenue were taking steps administratively to improve our response to the issues, and then went on to recommend changes in the law, as Mr. Buckley outlined. The committee in its annual report supported, in principle, changes in the law to restrict limited liability so as to make persons controlling companies responsible for unpaid fiduciary taxes by those companies.
In response to that recommendation, Revenue developed proposals to have such a legislative amendment included in a number of Finance Bills, and the committee has seen the relevant correspondence. We felt that the proposal we developed was a measured one which did not seek to impose a duty on all directors but only on those with a track record of non-compliance. We felt that the existence of the possibility that in very defined circumstances a director might lose the protection of limited liability might act as a deterrent to deliberate failure to remit fiduciary taxes. In other words, we saw it as an aid to prevention rather than a cure. Those proposals were considered in detail, and I recall personally discussing them at a meeting of the tax strategy group. In the event, it was decided, as a matter of policy, not to proceed with them.
Revenue acknowledges that there are many different perspectives on this question. Rightly or wrongly, businesses can often regard fiduciary taxes as simply another cost on the business and a cash flow challenge which these days can be a significant problem for many of them. We also recognise, as observed by Mr. Mitchell, the legal expert retained by the committee, that proposals in this area could have the effect of increasing the incidence of liquidation.
We appreciate that the Department of Enterprise Trade and Employment has a different perspective to us on this matter. This is understandable because we both have different jobs to do. However, in one sense I hope we share an understanding that anything that could diminish economic activity is bad for the economy and bad, therefore, for maximising tax collection and in this context, we must recognise the dramatic changes for the worse in the economy since we first made our proposals.
In the meantime, we have optimised the tools available to us. Our phoenix and commonality programmes have grown. Briefly, the phoenix programme, as its name suggests, is concerned with early identification of entities that reappear under a new name, and subsequent close monitoring of those entities. The commonality programme identifies entities which are related through a common director or directors and, where there are significant debts, the entities are drawn together and monitored together to ensure the highest possible compliance levels. In other words, we do not merely monitor one business but ensure that if they are non-compliant in one area, the entire group is looked at together. Businesses which are compliant are moved out of these programmes after approximately two years.
Also, it is important to note that since 2001 the Office of the Director of Corporate Enforcement has been fully established. In 2004, Revenue signed a memorandum of understanding with the director and we regularly exchange information with his office. Perhaps of greater significance, however, is the fact that liquidators are obliged to report any suspected criminal offence by a company or a director to the ODCE. In the case of an insolvent company, liquidators are obliged to apply to the High Court to restrict each of the directors from being involved in other companies unless the ODCE tells them not to. Revenue was the petitioner in a significant proportion of cases where such proceedings have been brought by the liquidators. We have funded liquidations in a small number of cases, not in the expectation of recovering tax but to enable us to support the liquidator in taking restriction or disqualification proceedings.
We have also secured, with the support of the Department of Finance, legislative changes to strengthen the operation of VAT, particularly the introduction of a reverse charge mechanism in the supply of construction services.
In summary, Revenue acted on the recommendation from the Comptroller and Auditor General and this committee on abuse of limited liability, and then we accepted the policy decision. In parallel with the legislative proposals, we continued to strengthen our administrative response to the underlying issue of tax evasion.
In this regard, I note the committee, in its report on the 2006 accounts just published in May of this year recommended that: "A comprehensive review of the effectiveness of oversight checks on the emergence and operation of phoenix type companies should be undertaken by Revenue." Revenue agrees with this recommendation and such a review will be carried out. The review will be informed by the contributions to date and today of the Comptroller and Auditor General and of the committee on this subject.