Animo Associates has prepared this briefing sheet for informational purposes only, and it is not intended to provide, and should not be relied on for, tax, legal, accounting or compliance advice. Professional advice should be obtained before engaging in any transaction and we will be pleased to provide such advice where appropriate.
What is the Foreign Income and Assets Disclosure?
A new Revenue campaign was announced in the 2017 Budget which targets offshore income and assets which have been undeclared or under declared to Revenue.
Taxpayers are being given a final opportunity to come forward before 30 April and make disclosures voluntarily, before new exchange of information rules vastly increase the data available to Revenue about taxpayers’ offshore interests.
After 30 April, severe penalties will apply to taxpayers who have not declared or have under- declared their offshore income and assets to Revenue. There is no minimum threshold on the level of income or assets held overseas that must be declared.
Who does this apply to?
The disclosure regime applies to all taxpayers including individuals, corporates and trusts.
Information to be obtained by Revenue
Later this year, Revenue will start to receive bank and other financial account information from over 100 countries globally covering:
- The identity of taxpayers,
- Account balances,
- Gross income,
- Gross sales proceeds, and
- Account closures.
This is a very broad information exchange initiative. Revenue will be obtaining details of all financial accounts Irish taxpayers hold, irrespective of the amounts held in the accounts. This will give Revenue extensive visibility over assets and income held offshore by Irish taxpayers.
In addition, Revenue also receives data from EU Member States on:
- Ownership of and income from land and property,
- Income from employment,
- Directors’ fees,
- Life insurance products, and
What types of offshore matters need to be disclosed?
There are a number of situations where taxpayers may have an offshore issue and need to consider whether the underlying funds and associated income/gains have been declared.
For example, a taxpayer may have deposited funds in a bank account in Northern Ireland or elsewhere in the UK and be in receipt of UK deposit interest, which has not been included on their Irish tax return.
A person who worked in the UK could be in receipt of a UK pension, or hold shares in a UK company and details of the pension, dividends, or share sales may not have been included in their tax return.
Some additional items are outlined below.
- Owning an overseas property which is either rented or has been sold.
- Having earnings from an employment in another country.
- Holding a directorship of a non-Irish company and receiving directors’ fees.
- Earning profits from running a business in another country.
- Receiving income from a family trust established outside Ireland.
- Inheriting a property abroad.
- Investing in financial products, possibly through a stockbroker or financial adviser e.g. investing in foreign life policies, offshore funds.
- Investing in a foreign property fund.
- In what situations do taxpayers need to make a disclosure?
If the answer to any of these questions is yes, then the taxpayer may need to make a disclosure to Revenue as part of this foreign income and assets disclosure campaign. Consider the following:
- Have you transferred undeclared money or assets offshore?
- Have you obtained money or assets offshore (e.g. by inheritance) that has remained undeclared?
- Have you earned undeclared income or gains offshore (even though the underlying funds have been declared)?
- Is it possible that you have incorrectly declared an offshore matter that is included in your tax return?
Some complex areas that merit particular attention are:
If you have invested in financial products or have an investment portfolio then you may have invested in offshore funds. The tax treatment of offshore funds is a very complex area. The treatment of income and gains arising from these investments depends on a number of factors including the type of investment vehicle (regulated or unregulated fund) or the location of the fund.
Taxpayers can sometimes assume that a rental loss on an Irish property can be offset against foreign rental income in calculating their tax bill. This is not possible under Irish law. Irish rental income and foreign rental income are treated as separate sources of income, so a loss arising on one cannot be offset against income arising from the other.
How to make a disclosure
To be valid, the disclosure must cover not only the offshore matter, but any onshore issues that require disclosure.
The Code of Practice for Revenue Audit and other Compliance Interventions sets out the detailed requirements for making a qualifying disclosure
However, in summary, the disclosure must include:
- Any previously undeclared income, plus
- Tax, plus
- Interest (8% per annum), plus
- Penalties (if the disclosure relates to an “innocent error” or “technical adjustment” no penalty should apply. See the Code above).
What are the consequences of not making a disclosure by 30 April?
After 30 April 2017, the penalties applying to any undeclared or under-declared tax in relation to offshore income and gains will be much more severe. Penalties of up to 100% of the tax due may be sought by Revenue.
In addition, taxpayers who have not come forward by this date may be published in the Tax Defaulters List if their settlement with Revenue exceeds a certain threshold (currently €35,000). They may also be prosecuted.
Furthermore, an offshore matter that has not been dealt with and paid by 30 April could have serious implications for disclosures on any future onshore matters by the taxpayer. For example, this could impact completely unrelated issues such as the taxpayer’s Irish VAT or PAYE liabilities.
Taxpayers must be aware that if the undeclared offshore matter amounts to more than 15% of the total tax due in a return and the taxpayer does not cooperate with Revenue, then the taxpayer may be precluded in future from making a disclosure on any of their domestic/onshore matters. In situations where tax is underpaid in error and the underpayment is less than €6,000, no penalty will be sought by Revenue if the taxpayer subsequently makes a disclosure to correct the error.