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Last chance to make a Qualifying Disclosure of Offshore Income and Assets – Act Now!

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In the wake of the “Panama Papers”, Finance Bill 2016 introduces a proposed new measure in relation to foreign income, gains and assets, which aims to counteract offshore tax evasion. If the proposed measure is enacted as published, it will mean that from 1 May 2017, individuals holding offshore accounts or trusts will no longer be able to avail of the benefits of a qualifying disclosure.

The proposed changes are part of the recent developments in the area of mandatory automatic financial information exchange between countries, known as the Common Reporting Standard (“CRS”). Over 100 jurisdictions have committed to exchange information held by financial institutions regarding their non-resident customers under the CRS, with the first data exchanges due to take place in September 2017.

Other recent initiatives as part of the OECD common reporting standard include the establishment of compulsory registration of beneficial ownership of corporates and trusts, referred to separately in this newsletter.

 

Disclosures affected by proposed changes

 

The new provisions will apply where a disclosure relates directly or indirectly to any of the following:

  • an account held or situated in a country or territory outside Ireland;
  • income or gains arising from a source, or accruing, in a country or territory outside Ireland;
  • property situated in a country or territory outside Ireland.

“Offshore” therefore includes all countries outside of Ireland and is not limited to tax havens such as the Isle of Man or the Cayman Islands.

Furthermore, where tax liabilities arise within Ireland as well as liabilities relating to offshore matters, a qualifying disclosure will be unavailable in respect of all of those liabilities (except in limited circumstances).

 

Implications

 

The new provisions will mean that with effect from 1 May 2017, persons with liabilities involving offshore matters would be liable to higher penalty rates, the settlement would be liable for publication in the quarterly Defaulters’ List, and the person concerned could also be the subject of a criminal prosecution.

In this regard, the Minister announced the introduction of a new strict liability criminal offence for failure to return details of offshore accounts in the Budget earlier this year, similar to that introduced in the UK. This strict liability criminal offence has not been included in the Finance Bill. However, Revenue have the power to refer certain tax offences to the DPP for criminal prosecution with Judges having the power to impose custodial sentences of up to 5 years and fines of up to €127,000 where a taxpayer is convicted on indictment for serious tax evasion.

In 2015, Revenue secured 28 criminal convictions for tax and duty evasion and were pursuing criminal prosecutions in 48 other cases at year end, with a further 122 under investigation with a view to prosecution.

 

Action required before 1 May 2017

 

Taxpayers are being afforded an opportunity to make a qualifying disclosure in relation to offshore matters before 1 May 2017, subject to the general rules and requirements for making such a disclosure as set out in the Code of Practice for Revenue Audit and other Compliance Interventions. In making such a qualifying disclosure before the deadline of 1 May 2017, taxpayers can avail of reduced penalties, non-publication and reassurance that the matter will not be referred to the DPP for criminal prosecution.

At Cahill Taxation Services, we have experience and expertise in assisting individuals with offshore taxation issues. Therefore, anybody affected by these new provisions should contact us in confidence on 065 684 0630 or email us.

 

Opportunities

 

While every case will differ, the benefits and certainty of making a qualifying disclosure should not be underestimated and therefore the 1 May 2017 deadline should be seen as an opportunity for taxpayers to review their offshore tax filing affairs and address any issues as required.

 

Case Study

 

To illustrate the benefit of making a disclosure, Revenue has provided the following example in their relevant FAQ document:

“John is a consultant and operates as a sole trader. In 2009, after a better than expected year, he put €200,000 into a bank account in Northern Ireland. The €200,000 had not been included in his accounts and consequently had not been declared for tax purposes. A marginal rate of tax, PRSI and levies of 51% was chargeable at the time. John withdrew the full amount and closed the account in 2015 when the balance was €221,500. If John takes the opportunity to make a qualifying disclosure now, his tax liability and statutory interest would be as follows:

 

Treatment under Current Disclosure Regime

 

Tax, PRSI, Levies & USC:€ 114,800
Interest [from 2009 to 1 November 2016]:€ 61,549
Penalty 10%€ 11,480
Total due€ 187,829

 

John’s settlement will not be published on the list of tax defaulters and Revenue will not take steps to initiate a prosecution.

 

Should John not avail of a qualifying disclosure on or before 30 April 2017 and is subsequently identified by Revenue as being a non-compliant taxpayer the liabilities due to Revenue would be as follows:

 

Treatment post Budget Initiative

 

Tax, PRSI, Levies & USC:€ 114,800
Interest [from 2009 to 1 November 2016]:€ 61,549
Penalty 100%:€ 114,800
Total due€ 291,149

 

 

John’s settlement will be published in the list of tax defaulters and Revenue may take steps to initiate a prosecution.

 

Therefore, in cases similar to the above example, a significant advantage in voluntarily disclosing the tax default to Revenue is indisputable.

 

If you would like to discuss the proposed changes please feel free to contact us.

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