Offshore assets. It's a phrase that conjures up images of sharp practice, tax avoidance and exotic sun-drenched tax havens. On that stereotype, most people assume it is of no relevance to them. But offshore assets can, in fact, be far more mundane – something as simple as a bank account north of the Border or a holiday property on the continent.
And a new Revenue clampdown means people could find themselves in a quagmire if they don’t ensure their tax affairs are in order. The clock is ticking. The new regime comes into force on Monday, May 1st.
To be fair, people cannot say they haven't been warned. Minister for Finance Michael Noonan flagged it in his budget last October and Revenue sent out letters to everyone filing a tax return back in February. Unfortunately, too many people either assume it does not affect them or ignore the issue altogether.
So who is going to be affected and what do they need to do?
The who is simple. Anyone who has an asset outside Ireland or who receives income in another country needs to consider their position.
Foreign pension
This could be something as simple as a pension built up in earlier years when working abroad – or even a State pension entitlement in another country that is now being paid – an investment made in a fund outside the jurisdiction; property acquired elsewhere, including holiday properties; or even a foreign bank account.
Tens of thousands of Irish people who spent time working in the UK or farther afield have built up state pension benefits. As these are generally tax-free in the jurisdiction where they are paid, people assume they have no liability.
But, in Ireland, you need to add these sums to any other income declared and assess tax on the full amount. And for anything other than income earned through the PAYE system, that will mean filing a personal tax return – a Form 11 or a Form 12.
The same goes for bank accounts. Thousands of Irish people opened accounts in the North and in Britain during the financial crisis as the euro wobbled. Any interest paid is liable for tax here as long as you are tax resident in Ireland.
Others will have opened accounts in other countries to facilitate local payment when they were working on projects there. If you were tax resident in Ireland at the time, all the money in the account should be declared. If you were tax resident there, you need only declare interest since your return to Irish tax residency.
The same goes for any rental income earned on holiday homes or other property owned abroad.
It could even be something as simple as an asset you inherited, never thinking about the issue of tax.
Voluntary disclosure
Essentially, after May 1st, Revenue will no longer give people credit for “voluntary disclosure”, or “qualifying disclosure”. That’s where a taxpayer approaches Revenue before the tax authorities come after them for unpaid tax that may be due. The advantage is threefold: you pay lower penalties; your name is not published in the quarterly list of tax defaulters; you avoid the prospect of criminal prosecution.
But if you do not act on offshore assets before May 1st – and bearing in mind that that is a bank holiday, so you need to act in the next few days – Revenue will no longer entertain voluntary disclosure, leaving you open to prosecution, naming and shaming and higher penalties.
The Revenue view is that holding offshore assets is not simply a matter of careless behaviour but is a deliberate effort to evade tax and that means those caught after the new regime comes in face penalties at the highest of three levels the tax authorities can impose.
Holiday home
The first thing to address is whether you have undeclared offshore assets, because not every offshore asset is a problem. The holiday home bought with money on which you already paid tax is a entirely valid investment. If you are not renting it out, you have no problem.
The same goes for that bank account you opened while in the United States on a J1 visa, or similar accounts elsewhere in which all the money deposited comes from after-tax income.
And then there are those many people who either chose to move abroad to work or were forced to by recession and who have since returned home and are now Irish tax resident. Assets or savings you acquired while tax resident elsewhere are not going to raise a red flag with the Revenue and you have no need to worry about the clampdown. The same goes for citizens of other countries who have moved here and are now Irish tax resident.
International agreements
Holding undeclared offshore assets has always been illegal, so why the clampdown now – and what makes Revenue confident such a clampdown will be more effective that previous campaign against offshore tax evasion?
Clearly, one driving force – and not just in Ireland – is reduced tolerance from governments struggling to fund exchequer programmes after the austerity years about certain practices to which a blind eye might have been turned previously.
Two factors have conspired to dramatically strengthen the hand of Revenue in pursuing tax cheats – and yes, that is how it sees them.
First, the advance of technology means it is much more practical to “mine” the data held by tax authorities worldwide and link them with individuals. Citizenship is an obvious identifier of a matter of potential concern to the tax authorities of that country but even the use of a particular contact number across different filings in different countries can be enough to raise a flag.
Second, a raft of new agreements providing for the automatic exchange of information between tax authorities have been put in place to clamp down on international tax evasion. These include the Foreign Account Tax Compliance Act (Fatca) under which bank and other financial account information is automatically shared with the IRS in the United States.
Separately, a Common Reporting Standard developed by the OECD does precisely the same for the 101 countries that have signed up to it – including Ireland. Under this standard, financial services firms – including life companies, pension firms and investment houses – are obliged to report account information on non-residents to their own local tax authorities, which then pass it on to the investor/saver’s home tax authority.
And within the European Union, the Directive on Administrative Co-operation in the Field of Taxation obliges all EU states to exchange information on the ownership of property, employment income, director’s fees, pensions and life products for non-residents.
Finally, for those very few countries that might fall outside that “triple lock”, Ireland has an extensive network of double taxation agreements with other countries and also 25 specific tax information exchange agreements with individual jurisdictions.
One way or another, the net is closing fast.
Making a disclosure
So, if you do have assets offshore that you need to disclose and regularise, how do you go about it?
Here’s the tricky bit. It is up to the taxpayer to work out exactly what is owing year by year. That means identifying the undeclared offshore income, determining what tax would be due given your circumstances in any given year, and calculating any interest and penalties due.
Having done that, you need to complete and submit a disclosure form to Revenue with payment for the amount outstanding. If you can’t pay the full amount, you can seek a phased payment option.
And don’t think that death will cheat the taxman. Executors of an estate that includes offshore assets, are obliged to make a disclosure under the clampdown - though penalties and publication of names is not a factor when settling the affairs of someone who has died, according to Revenue.
If the estate has already been settled and someone has inherited offshore assets, they will be liable for disclosure.
The disclosure form is available through the Revenue site online at http://iti.ms/2ou7EV7. Scroll down the page and click on the Excel link called “Liabilities Estimator”. You will see several tabs along the bottom, including a disclosure form, a disclosure summary and calculators that will help you work out how much you owe in income tax, interest and penalties depending on whether you pay tax under the PAYE system or by self-assessment. There are also tabs for people assessing capital gains tax and, where applicable, VAT liabilities.
By putting in the amount of income on which tax is due for each year and then, in the yellow box under “rate of stat interest to”, entering the current date, you will be given a ready-reckoner on what you owe.
There is no obligation to use the Revenue calculators and, if you are liable for tax at the standard rate, they are not much use. You may also be entitled to credit for tax deducted locally for things like property tax on foreign homes which will have to be deducted manually from any calculation. However, if you use the estimators, Revenue says it will accept the outcome – presuming you have accurately filled in the income received. In any event, it is up to the taxpayer to get the figures right.
File online
To file online, taxpayers will need either to be a ROS customer or to have an electronic MyAccount registered with Revenue. If you don’t have either, you can create a MyAccount at the Revenue site online with your tax reference or PPS number, a mobile or landline number, email address, home address and two of the following: an Irish driving licence number; information from your P60; or information from your income tax notice of assessment or acknowledgment of self-assessment.
A step-by-step guide on how to use the online filing system is included in sections 88 and 9 of the Frequently Asked Questions about Qualifying Disclosures related to Offshore Matters which is also available at the Revenue site http://iti.ms/2ou7EV7.
If you cannot file online, you can post your disclosure and payment to Office of the Revenue Commissioners, Offshore Assets Group, Ashtown Gate, Navan Road, Dublin 15 D15 XKP4 but time is very tight for that.
It is worth noting that, if your only undeclared offshore asset is a foreign pension worth less than €5,000 a year and you are otherwise taxed in Ireland under the PAYE system, Revenue says you need only pay income tax, USC and PRSI due over the past four years. You will not be charged interest, or, where the total tax due is under €6,000, any penalties. But this is a very particular exception to the general rules.
And to end on a positive note. For most people, inadvertent failure to declare income which relates to small amounts of interest or possibly a small foreign state pension. Where the total amount of tax due (before interest) is less than €6,000, Revenue will not impose any penalties – as long as you make full qualifying disclosure.
