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By Ben Stupples
What’s the difference between a six-bedroom seaside property in southern France and a moldy, one-bedroom apartment next to the rackety tracks of a central London train station?
If you’re an Irish taxpayer, and you have undeclared income from offshore assets, there will be no difference between these overseas properties from the perspective of Ireland’s tax authority as it seeks to crack down on anyone hiding wealth beyond the Irish Sea’s borders from May 2017.
After April 30, if Ireland’s tax authority finds undisclosed offshore income, tax evaders face penalties of up to 100 percent of the tax due and criminal prosecution, the Irish revenue said Jan. 20.
Until then, though, Irish taxpayers have a final chance to disclose unpaid tax from offshore assets to the Office of the Revenue Commissioners. While they face a penalty with the disclosure, most of them will be reduced to 10 percent of the unpaid tax—plus the individual making the disclosure will not be outed in national newspapers through the revenue’s quarterly publication of the names of the latest tax defaulters.
“There’s a fine balance here with the carrot and stick” approach, says Peter Vale, a Dublin-based tax partner and head of international tax at global professional services firm Grant Thornton. “You’re going to get a better treatment” from the Irish revenue “if you’ve got all of your cards on the table.”
“We probably have a tougher tax regime than others as we publish defaulters,” says Frank Greene, a Dublin-based tax partner at global accountancy firm Mazars. “We’re into naming and shaming.”
Introduced through the 2016 Finance Act, the Irish revenue’s disclosure deadline comes amid global moves, led by the OECD and Group of 20 nations, to improve tax transparency and compliance.
As an early adopter of CRS, Ireland will become one of the first countries to receive taxpayer details from its financial entities—such as Allied Irish Banks Plc—and Irish branches of foreign entities on an automatic basis under the OECD-designed common reporting standard.
CRS calls on the tax authorities of jurisdictions signed up for the measure to obtain information from their financial institutions across the globe and exchange it electronically with tax authorities of other jurisdictions on both an annual and automatic basis.
CRS and the Foreign Account Tax Compliance Act—a U.S.-designed reporting measure for American citizens on which CRS is based—gives tax authorities “greater visibility” of overseas assets, an Irish revenue spokeswoman told Bloomberg BNA in a Jan. 26 e-mail.
“To find out if someone’s not paying their taxes, it’s now literally a case of data mining” with the electronic exchange of information between tax authorities and financial institutions, says Aidan Byrne, a Dublin-based tax partner at global professional RSM, who previously worked for the Irish revenue for two decades. “When I was there, we would have just had reams and reams of paper coming in.”
The progress of Ireland’s revenue on undeclared offshore income is clear from its annual reports.
In 2015, it collected 48.4 million euros ($52.2 million) in unpaid tax from undeclared offshore assets and trusts—more than double the previous year’s yield of 15 million euros from the same assets.
In total, Ireland’s tax authority claims it has collected more than 2.5 billion euros through special investigations and the collection of hidden overseas income, according to its 2015 annual report.
“There’s been a lot of pressure internationally for the more traditional type of tax havens that have just financial services, like Jersey, the Isle of Man and the Cayman Islands,” says Mazars’ Greene about how the Irish tax revenue has increased tax compliance and its collection of hidden income.
“We’ve had a couple of ‘What if?’ enquiries so far,” he adds on the ongoing disclosure program.
As of September 2016, a total of 47 jurisdictions—including Guernsey, Jersey and Guernsey, the U.K.’s secretive crown dependencies—had introduced voluntary disclosure regimes for undeclared offshore assets, according to the Organization for Economic Cooperation and Development.
In the U.K., on the opposite shores of the Irish Sea, Her Majesty’s Revenue and Customs has implemented a Worldwide Disclosure Facility as the “final chance” for anyone wishing to disclose unpaid taxes from overseas assets or activities, according to a Sept. 5 guidance document.
The Worldwide Disclosure Facility, or WDF, which closes Sept. 30, 2018, is the latest of several measures announced by HMRC to combat offshore tax evasion and increase tax compliance.
The U.K. will punish tax evaders with fines as much as three times the money owed if they haven’t disclosed any unpaid U.K. taxes on overseas income by October 2018, and they may be forced to reveal third parties involved in their tax planning, HMRC said in an Aug. 24 consultation document.
“With the WDF, the revenue thinks there’s more money there than there actually is,” says Dean Mullaly, managing director of London-based Mark Dean Wealth Management, in reference to HMRC.
“I’m not sure that there’s a pot of gold at the end of it,” Mazars’ Green echoes about Ireland’s disclosure program. But “we’ll see what comes out of the woodwork over the next few months.”
Between 2014 and 2016, Ireland had 43 criminal convictions for serious tax offenses, and failure to disclose in the current program may result in “custodial sentences,” a revenue spokeswoman said.
“In 2016, for example, prison sentences ranging from 12 months, to 2 year and 6 months, were imposed,” the spokeswoman said.
From May 2017, “there are very serious consequences for taxpayers who have not come forward to disclose tax defaults involving offshore matters.”
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