AITI Chartered Tax Adviser
Loading

Disclosure of offshore income and assets

Published on

Undeclared foreign income – 10% or 100% penalty?

This may affect you if you or your spouse have:

  • A foreign bank account and have not paid tax on the funds lodged to the account or the interest earned by the account.
  • A foreign investment portfolio (shares or interest in a managed fund) and have not paid Irish tax on the funds used to buy the portfolio or the dividends earned by the portfolio.
  • A foreign property and have not paid Irish tax on the funds used to buy the property or the rent earned by the property.

After 1 May 2017:

  • It will no longer be possible to obtain the benefits of a qualifying disclosure if any matters included in the disclosure relate directly or indirectly to such “offshore matters”.
  • persons with liabilities involving “offshore matters” will be liable to higher penalty rates, the settlement could be liable for publication in the Quarterly List of Tax Defaulters and the person concerned could be the subject of a criminal prosecution.

There is now an opportunity to make a disclosure under the current disclosure regime and avail of a 10% penalty and non-publication.

Example (Revenue)

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 was not included in his accounts and consequently was not 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:

Before 30.04.2017 After 30.04.2017
Tax, PRSI, Levies & USC 116,360 116,360
Interest [from 2009 to 30 April 2017] 66,261 66,261
Penalty 11,636 116,360
Total due 194,257 298,981
Publication on list of defaulters NO YES
Criminal prosecution NO LIKELY

Example

Mary has a villa in Spain which she has rented for seven months of the year since 1999. Mary has paid Spanish tax on the rental income. The villa was bought with after-tax savings and an inheritance of cash from Mary’s mother.

Mary is a higher rate taxpayer in Ireland. Mary should calculate the Irish tax due on the foreign rental income after taking credit for the Spanish tax on the same income.

Example

John works for a multinational company. Since 1995 he has received free shares. The shares, and the subsequent dividend income were not declared on his Irish tax return.

John is a higher rate taxpayer in Ireland. Mary should calculate the Irish tax due on the initial share award and on the subsequent yearly dividend income.


We can prepare and submit a voluntary declaration that meets the Revenue requirements and regularises your status with Revenue so that you can avail of the 10% penalty and non-publication. Contact us: http://www.alanmoore.ie/contact/


Tax implications of offshore matters

Is it illegal to have offshore accounts, assets or investments?

It is not illegal to have an offshore account or to have assets or investments offshore, but you must pay tax on any interest, income or gains earned.

Also, any money placed in an offshore account or used to acquire assets or investments offshore must be declared for tax purposes, unless exempt from tax or Irish tax has already been paid on it.

I have money offshore – does that mean I have a tax problem?

You have no further liability and you do not need to make a disclosure if:

  • all the money you put offshore has already been declared for Irish tax purposes, and
  • you have declared all income or gains arising from that money on your tax returns.

If you have opened an offshore account or acquired a financial product with monies that are exempt from tax or on which the correct Irish tax has already been paid and have not earned any income on the account or financial product itself, you have no tax liability.

However taxation is complex and it is possible that there might have been changes in the law or in the treatment of foreign investments of which you are not aware. Now is a good opportunity to review your foreign investments, accounts and assets, including shareholdings in foreign companies to check whether you have a liability that you may not have been aware.

If the money which was put offshore was not previously declared or you have received income or gains from offshore sources which you have not declared, it is very likely that you have a liability. In these circumstances, you are strongly advised to make a disclosure to bring your tax affairs up to date. If you make a qualifying disclosure you will be subject to reduced penalties, your name and details of your settlement will not be published in the list of tax defaulters and you will not be prosecuted.

I opened an account when I was on a JI visa or Erasmus year, or when I worked abroad: should I make a disclosure?

You only need to make a disclosure if you have a tax liability. If you opened a foreign bank account while on a J1 visa, or on Erasmus, or at any stage while you were living abroad and where the money going into the account was after-tax wages or salary, and no interest or only a small amount of interest was earned on the account, it is highly unlikely you have a liability, in which case you do not need to make a disclosure.

What if I inherited an offshore asset?

You should take the opportunity now to review the details of your inheritance. At the time of the inheritance, you may have had a liability to Capital Acquisitions Tax depending on the circumstances, i.e.. your relationship to the person you inherited the asset from and the value of the inheritance. Any income you have earned from the asset is taxable from the date you inherited the asset. If you have issues for example in relation to Capital Acquisition Tax or Income Tax, you should take the opportunity now to make a disclosure and bring your tax affairs up to date.

I recently moved to Ireland and I have an account in my home country. Do I need to make a disclosure?

If you have just moved to Ireland, it is unlikely that you have outstanding Irish tax liabilities. Your tax obligations in Ireland depend on a number of factors, including in particular your country of tax residence.

Note: If you are non-Irish domiciled (e.g., a French individual living in Ireland) and you have not remitted the foreign income into Ireland, you have no tax exposure.


We can prepare and submit a voluntary declaration that meets the Revenue requirements and regularises your status with Revenue so that you can avail of the 10% penalty and non-publication. Contact us: http://www.alanmoore.ie/contact/


Qualifying disclosure

What is a “qualifying disclosure”, and how do I make one?

You make a qualifying disclosure by freely disclosing a tax default to Revenue, rather than Revenue discovering it through an audit or investigation. If you meet the eligibility conditions, your disclosure will be treated as an “unprompted qualifying disclosure” as set out in the Code of Practice for Revenue Audit and other Compliance Interventions (the Code), which is available on the Revenue website at http://www.revenue.ie/en/practitioner/code-of-practice-revenue-audit.pdf.

To make a disclosure you must complete a Disclosure Form, containing a computation of the tax, interest and penalty due, and a declaration that the disclosure is complete. Your Disclosure Form must be accompanied by your payment. The Disclosure Form, along with an estimator to assist you in quantifying your liability, is available on http://www.revenue.ie/en/business/disclosure.html.

Am I required to submit a notice of intention?

No, it is optional. However filing a notice of intention will not allow you to extend the filing of your disclosure beyond 1 May 2017.

What benefits do I get from making a qualifying disclosure?

If you have undeclared tax liabilities, and you meet the eligibility criteria, you will receive the benefits of a qualifying disclosure:

  • The penalty for underpaid tax may be substantially reduced: in most cases the penalty will be reduced to 10% of the tax due.
  • Your name and settlement details will not be published by Revenue in the quarterly list of tax defaulters. This list or parts of it are often included in the national press.
  • If the disclosure is valid, Revenue will not seek to initiate an investigation with a view to criminal prosecution. You must pay the tax, interest and reduced penalty due.

What if Revenue has already started an investigation or audit?

If there is an ongoing enquiry or investigation into matters the subject of your disclosure and you have been contacted by Revenue on those matters then you are not eligible to make a qualifying disclosure. If there is an ongoing audit then you can make a qualifying disclosure as long as the audit does not relate to the offshore income/assets that would be the subject of your disclosure.

Can companies which held undeclared offshore accounts, assets or investments make a qualifying disclosure?

Yes, corporate holders of undeclared offshore accounts can make a qualifying disclosure.

Note: A corporation resident in a tax treaty country would not have any exposure to Irish tax and would not be required to make a disclosure.

What if a director of a closely held company holds an offshore account, asset or investment?

In such cases it may be difficult to determine whether the undeclared money was originally the company’s money or the director’s money. The most practical way to calculate the undeclared liabilities, including VAT, is to assume that the money and undeclared income belonged to the director, rather than the company, from the start. Any reasonable assumptions on this will not be challenged.

The person who held the offshore account is deceased. Can the executor or administrator make a qualifying disclosure?

Yes. If the account holder is deceased, the executor or administrator should make a qualifying disclosure and pay any liabilities in respect of which the executor or administrator is assessable in respect of the estate of the deceased.

Note: Once three years have passed since the administration of an estate is complete, it is very difficult (if not impossible) for Revenue to collect tax debts owed by the deceased.

Penalties do not arise where the account holder is deceased and consequently details of the settlement are not publishable. In situations where an offshore account or other asset is not included in the estate of a deceased individual and the account/asset is inherited, you should contact Revenue to establish whether there are any outstanding tax liabilities.


We can prepare and submit a voluntary declaration that meets the Revenue requirements and regularises your status with Revenue so that you can avail of the 10% penalty and non-publication. Contact us: http://www.alanmoore.ie/contact/


Disclosure form

What’s the next step if I think I have a liability to disclose?

Having established that you have an outstanding tax liability, you must quantify the amount of tax, statutory interest and penalties due and submit a Disclosure Form to Revenue. This can be submitted online through MyEnquiries. Further information on how to submit your disclosure using MyEnquiries is contained in Section 7. Depending on the nature of the liability, you may wish to consider obtaining independent advice.

Where will I find the Disclosure Form?

See: http://www.revenue.ie/en/business/disclosure.html.

What should the disclosure contain?

It should contain a completed Disclosure Form, including a declaration that the disclosure is complete, a tax, interest and penalty computation and payment.

What is involved in computing my liability?

There are four elements to the computation:

  • The undeclared money.
  • The tax and PRSI/levies/USC due on this money.
  • The statutory interest due for late payment of the tax.
  • A “tax-geared” penalty.

Will I have to file tax returns?

Unless there are exceptional circumstances, you will not have to file tax returns when making a qualifying disclosure, regardless of whether or not you previously filed returns for a year when you failed to declare offshore assets. A tax computation, as described below, will be acceptable.


We can prepare and submit a voluntary declaration that meets the Revenue requirements and regularises your status with Revenue so that you can avail of the 10% penalty and non-publication. Contact us: http://www.alanmoore.ie/contact/


Tax computation

What is “undeclared money”?

The first thing to be determined is how much you have not previously declared for tax purposes. You must declare everything previously undeclared, not just the offshore element. Remember to include any previously undeclared monies placed offshore, not just the interest or gains accumulated. If you are a shareholder in a non-Irish resident company or have settled money in a Trust which is administered by non-Irish resident Trustees, you may have a liability in relation to income or gains arising in such non-resident companies or Trusts.

No tax is due on the money I put offshore. How do I prove this?

You should retain all documentation that supports your claim that the funds placed offshore were either previously declared for tax purposes or are exempt from tax. You may be asked at some future stage to forward that information to Revenue.

What if I can’t get full information about how much money I did not declare?

Where records are not available for earlier periods, estimates which can be shown to be best estimates based on reasonable assumptions should be used to calculate your liabilities. Provided reasonable assumptions are used in the calculations, problems should not arise in the course of any future enquiries by a Revenue official. Calculation errors which are not significant will not invalidate the qualifying disclosure.

Am I entitled to any deductions in calculating this undeclared money?

In calculating the undeclared income, gains, gifts or inheritances, you can claim deductions permitted under the Taxes Consolidation Act 1997, the Value Added Tax Consolidation Act 2010, the Stamp Duty Consolidation Act 1999, or the Capital Acquisitions Tax Consolidation Act 2003, as appropriate, but you will have to show you are entitled to make these deductions and that you have not claimed them previously.

 

Do I get a credit for withholding tax deducted from interest earned offshore?

You are entitled to a credit for European Union Saving Directive (EUSD) withholding tax if it was applied to your account. However, only a small number of countries opted to deduct EUSD withholding tax. Credit may be allowed for other withholding tax deducted at source depending on the jurisdiction involved – http://www.revenue.ie/en/practitioner/law/tax-treaties.html.

Do I only pay tax at the standard rate on foreign deposit interest?

No. You may be liable to tax (plus PRSI, levies and USC, if appropriate) at your marginal rate on the income. In other words, if you paid tax at the higher rate in a year when you had foreign deposit interest, you pay tax on that income at the higher rate. If you paid tax at the standard rate in a particular year, you will pay tax at that rate on the foreign deposit interest until your income exceeds the threshold for that rate band.

I have always been a PAYE taxpayer, but I opened a foreign account and did not declare the interest earned on that account to Revenue. How do I work out what I owe?

You will have to establish your income in all years when you earned interest on the foreign account – that should be available on your P60. If you do not have your P60 for the year or years in question, you should ask your employer or your local Revenue District to assist you. You can also see recent P60’s on PAYE Anytime. The rate of tax that applies to the interest earned on the foreign account will depend on your income and allowances and/or credits in those years.

 

Will Revenue calculate my liabilities for me?

No. To be a qualifying disclosure, the person making the disclosure must provide a full computation of tax, interest and penalty. A liabilities estimator is available at http://www.revenue.ie/en/business/disclosure.html to assist you in your calculations. You may wish to obtain independent advice before calculating these liabilities. Revenue staff will provide assistance and information where possible but cannot calculate your liability for you.

How to calculate your Income Tax liabilities

After quantifying the undeclared income, you then calculate the tax, PRSI, levies and USC due. Undeclared income will be subject to Income Tax, PRSI, levies and possibly USC. If you paid tax at the higher rate in years where you had undeclared income, you will be liable to pay tax at the high rate. If you paid tax at the standard rate in a particular year, you will pay tax at that rate on the foreign undeclared income until your income exceeds the relevant threshold and will be liable to pay the higher rate on the balance of the undeclared income. PAYE taxpayers must pay PRSI on ‘reckonable earnings’.

Foreign income was not within the definition of ‘reckonable earnings’ in the Social Welfare (Consolidation) Act 2005 up to and including the tax year ended 31 December 2013, and was therefore not subject to PRSI for PAYE employees. With effect from 1 January 2014, this income is now subject to PRSI as long as the individual is a ‘chargeable person’ for Income tax purposes.

A ‘chargeable person’ does not include a PAYE taxpayer:

  • who does not have other income, or
  • who has an element of other insignificant income that is fully taxed through the Revenue Commissioners PAYE system.Self employed taxpayers are liable to pay PRSI on all income. The Income Levy was introduced in 2009 and the Universal Social Charge in 2011.

To simplify the calculation process, Revenue has selected an Income Levy rate which applies to income exceeding €75,036 and a USC rate for total income less than €100,000 in our liabilities estimator. If your total income exceeds these thresholds you can still use the estimator. If however your income is below these thresholds you can choose to calculate your liabilities based on the Income Levy and USC rates which actually applied to you.

Do I have to use the liabilities estimator / forms supplied by Revenue?

No, you do not have to use the Revenue supplied form. However you do have to provide the same details i.e.:


We can prepare and submit a voluntary declaration that meets the Revenue requirements and regularises your status with Revenue so that you can avail of the 10% penalty and non-publication. Contact us: http://www.alanmoore.ie/contact/


Interest and penalties computation

What is “statutory interest”?

Statutory interest is charged for late payment of tax, PRSI, levies and USC. Statutory interest runs from the original due date for payment to the date the tax is paid. For Income Tax, payment is due by the preliminary tax date; different dates apply to the other taxes. The statutory interest is a percentage of the tax, PRSI, levies and USC underpaid. It is currently charged at a rate of 0.0219% per day.

What is the penalty payable?

Generally the penalty payable is a percentage of the additional tax, PRSI, levies and USC due. The Code (www.revenue.ie/en/practitioner/code-of-practice-revenue-audit.pdf) sets out the three categories of tax default which will attract a penalty: “careless behaviour without significant consequences”, “careless behaviour with significant consequences” and “deliberate behaviour”. (These categories relate only to the position subsequent to Finance (No.2) Act 2008.

Please refer to the Code for the categories prior to that Act).

Revenue considers that the concealment of foreign income and assets is “deliberate behaviour” – it is difficult to see how a taxpayer might lodge undeclared money in a foreign account purely through carelessness, rather than with the intent to evade tax.

If you meet the eligibility criteria to make a qualifying disclosure and you do so within the relevant deadlines and co-operate with Revenue, for periods ending after 5 April 1991 the penalty can be reduced to 10% of the tax due. However, if you or your advisor considers that another penalty category may apply in particular circumstances, you may make a case to that effect, referring specifically to the terms of the Code. If the tax default arose in a period ending on or before 5 April 1991 – that is, up to the tax year 1990/91 – by law, the penalty for underpaid tax cannot be reduced. In those periods, therefore, the penalty is 100% of the tax due.

If I use Revenue’s estimator will the computations be accepted?

Yes. The estimator charges the top rate of income tax applicable to each year and also includes PRSI, levies and USC where appropriate. In relation to the Income Levy and USC these have been fixed at certain rates and you can use these rates and if the rate is lower than the actual rate applicable to you, you can still use the estimator.

 

How do I work out the total amount due?

If you use one of the estimators provided by Revenue the total amount due will automatically be calculated for you. Otherwise the total amount due is calculated by adding all taxes, PRSI, levies, USC to the statutory interest and penalties due.

 

 

 

 



Comments are closed