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Republic of Ireland: Tax Avoidance – Schemes Consultation begins on new mandatory disclosure requirements
Monday, June 21st, 2010
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On 17 June, the Revenue Commissioners published a consultation document and draft regulations relating to the Mandatory Disclosure of Certain Transactions legislation introduced in section 149 of the Finance Act 2010. The legislation requires the promoters of tax schemes with certain characteristics to disclose them to the Revenue Commissioners shortly after they are first marketed or made available for use. The consultation period runs until 15 September 2010.
The new regime will replace the voluntary Protective Notification regime that was originally introduced by the Finance Act 2006 to act as the early warning system. However, four years on, it has became clear that the voluntary approach has not achieved its objective.
The primary purpose of the mandatory disclosure regime is to create an early warning system for the Revenue Commissioners of tax schemes that may be potentially damaging to tax revenues. This approach follows the common purpose in the responses to tax avoidance adopted in other jurisdictions, such as the UK and Australia. By obtaining information on tax avoidance schemes at an early stage before a loss of tax revenue has become apparent, the Government can decide, if appropriate, to close them down before significant damage is done.
The new disclosure rules are not intended to impact on day-to-day tax advice or on ordinary tax planning that uses standard statutory exemptions and reliefs as intended by the legislature.
The consultation process gives tax practitioners, advisers and other interested parties an opportunity to comment on the new disclosure rules with a view to ensuring that the new approach is effective in terms of the problems it seeks to address. The aim is to have final Regulations in place in Autumn 2010.
The following notes summarise the main features of the new regime:
- Certain persons, normally the promoters of schemes, will be required to provide Revenue with information about schemes and proposed schemes where a tax advantage is one of the main benefits and where it falls within certain specified descriptions.
- Disclosure will be on a non-prejudicial basis, in that schemes disclosed may or may not turn out to be tax avoidance schemes that the Minister for Finance, the Government and the Oireachtas may want to close down. There will be no presumption or inference that a transaction/scheme disclosed under the mandatory disclosure regime is a tax avoidance transaction. Equally, the fact that a transaction may not come within the disclosure requirements cannot be regarded as an indicator that the scheme is not a tax avoidance transaction.
- In making a disclosure, the promoter will be required to explain how the scheme is intended to work and do so within a very short period of first marketing the scheme or making it available to clients/users.
- For the most part, promoters are likely to be accountants, solicitors, banks and financial institutions, along with small firms of specialist promoters.
- Where the promoter is offshore, the scheme must be disclosed by the client/user.
- Where the scheme is an “in-house” scheme i.e. designed by, say, a company for its own use such that there is no “promoter”, the company must disclose the scheme.
- Where legal professionals are involved, they are not required to breach legal professional privilege (LPP), but where a claim to LPP can be maintained, the onus for disclosure in such cases falls on the user of the scheme and the legal professional must inform the user of this obligation and must tell Revenue of his non-compliance with the disclosure requirement. Where legal professionals do not disclose on the basis of an incorrect or invalid assertion of LPP, they may be liable to civil penalties for non-disclosure.
- Certain “information seeking” provisions are included to allow Revenue to make, for example, a “pre-disclosure enquiry” where they have reasonable grounds for believing that a person is a promoter of a scheme that may be a disclosable scheme; and to follow up on cases of partial disclosure.
- Revenue may also seek information from a “marketer” (i.e. an intermediary) involved in a scheme as to the identity of the actual promoter of the scheme.
- Promoters are required to inform Revenue, on a regular basis, of whom they have made schemes available to for implementation.
- Penalties are provided for failure to meet the disclosure requirements which are to be imposed by the courts in all case. Because of the damage that non-disclosure of a scheme could do in terms of loss of tax revenue to the Exchequer, flexibility is given to the courts in terms of the absolute amount of penalty that may be imposed.
- Revenue may make regulations with the consent of the Minister for Finance in relation to various aspects of the Mandatory Disclosure regime including the information to be disclosed, the time by which it must be disclosed, the classes of transaction that are to be considered transactions of a “specified description that come within the disclosure requirements and the circumstances in which a person is not to be considered a promoter.
- Revenue will also be able to seek a determination from the Appeal Commissioners in respect of certain aspects of the disclosure requirements.
Further information:
Possible Tax Avoidance Schemes: Revenue Consultation on Mandatory Disclosure of Certain Transactions
Consultation Document – Mandatory Disclosure Of Certain Transactions
Commentary on Section 149 Finance Act 2010
Draft Guidance Notes On Mandatory Disclosure Regime
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