Given all the recent talk about a Revenue clampdown on offshore assets could you please clarify what should be declared and how to do so?
I am a PAYE taxpayer. I have two modest offshore accounts, one in euro and one in a foreign currency. They are deposit accounts which earn no interest. There also hasn't been any trading in the foreign currency which might give rise to capital gains.
Until these deposits (or indeed any other offshore assets) generate income, can I assume there is no need to declare them? I note that Form 12 caters for foreign income but otherwise does not invite a declaration of non-earning deposits.
Mr JF, email
As you are a PAYE employee, you probably will not have received any letter recently from the Revenue Commissioners about this. The tax authorities did send out nearly 500,000 letters warning people about impending changes to the regime on failure to disclose offshore income but they only went to people who filed returns last year – and that means largely self-assessed taxpayers.
You’re right to be concerned but, as it happens, I think you will be fine and will not be facing any liability.
Right to be concerned? Well, the thing with offshore tax evasion is that everyone assumes, when they hear about it, that the tax authorities are talking about the big players looking to hide ill-gotten millions. And it’s certainly true that Revenue’s investigations and large-case unit does actively pursue such players.
However, the bulk of those people likely to be caught under the new rules are small scale taxpayers who will never to this point have had cause to deal personally with Revenue beyond a Med 1 health claim or the comfortable anonymity of a Form 12 annual return.
These are the people who may have spent some time abroad and set up accounts there, or bought shares or even a small house or apartment. Maybe, if they are older, they will be in receipt of a pension either from a foreign state or a private employer in another country.
For Irish taxpayers, all of this counts as income and/or assets and so it is of relevance to the Irish tax authorities as Irish tax residents pay tax here on their worldwide income.
Another thing people also tend to forget is that Northern Ireland is just as “offshore” as Australia, the United States or anywhere else in the world.
For all these reasons, people should be concerned and should do an audit of their assets to see if they might have any tax liability which they may have forgotten to mention to the Revenue up to now.
Why do it now?
Well, from May 1st, anyone approaching Revenue with details of tax liability on offshore assets – or anyone approached by Revenue on the same issue – will not be able to avail of what is called “voluntary disclosure”. Voluntary disclosure is a regime where Revenue cuts the taxpayer a bit of slack as an incentive to “fess up” rather than waiting for Revenue to invest the time, energy and money pursuing them.
While taxpayers using voluntary disclosure still have to pay the tax owing, and interest due on it dating back to when it should have been paid, they pay just a fraction of the penalties that would apply if Revenue has to come chasing after them. Penalties are about 10 per cent of the tax due rather than up to 100 per cent for those caught.
Anyway, in relation to foreign tax liabilities, Revenue has persuaded Government that these things cannot simply be hidden from Revenue accidentally and that “forgetting” to let Revenue know of such liabilities is actually a deliberate act and so such people should not be able to avail of the relief of voluntary disclosure.
And tax authorities in different countries are now working much more closely with each other. So the Irish Revenue either has already (depending on the jurisdiction), or will later this year, received any details about you, and all other Irish taxpayers, that is held by tax authorities in most other countries. That will certainly include details of foreign bank accounts among other things.
That is why Revenue is so sure of its ground and its ability to track down people with offshore tax liabilities, no matter how large or small.
Minister for Finance Michael Noonan announced in his budget last October that there would be a clampdown and the necessary amendments have been made to the Taxes Consolidation Act 1997. This new regime kicks in on May 1st, so the message Revenue is giving people out there is that the clock is ticking and they need to act fast to minimise any tax bill.
Apart from lower penalties, errant taxpayers getting their affairs in order before May 1st will avoid the possibility of having their names published in the quarterly list of tax defaulters that appears in Iris Oifigiúil and most national newspapers, and will also avoid the, albeit for most remote, possibility of criminal prosecution.
You could be liable
So where does that leave you? You tell me that you have these two offshore accounts. There are two ways in which you could be liable. First, where did the money come from that is sitting in the accounts? Does it date back to a time when you were not a tax resident here? If so, you should be fine. But if the money was put into the accounts since you became liable to Irish tax, it might be liable to Irish tax.
If it was an inheritance, it depends on whether the bequest would bring you over tax-free inheritance tax thresholds; if it was a capital gain on the sale of some asset held abroad, it would be liable to tax here if it exceeded €1,270. And, of course, if it came from income – maybe from a pension or from some foreign project you undertook – it should certainly have been declared to Revenue at that time.
If not, you could be in trouble and may need to approach Revenue ahead of the May 1st deadline.
The second issue is any income that these accounts may be giving you. You state that neither is delivering any interest but was that always the case? If there is no interest income now or in the past, there is no liability on that front. If there was, the rules above apply.
And, if you do have something to approach the Revenue about, how do you go about it?
Revenue is hoping people will file any details of the tax and penalties owing through the online MyEnquiries facility available to those filing by ROS (Revenue Online Service) or, for individuals, more likely MyAccount.
You will need to file a Disclosure Form, including a computation of tax, interest and penalties owed. To help on this, Revenue is providing an estimator – essentially a special calculator allowing you to work out your liability. You don’t have to use its estimator but it may well be easier than you trying to work out any liability – especially interest due, which is worked out at a daily rate.
The disclosure forms and estimator are at revenue.ie/ en/business/disclosure.html. That same page also includes a fairly comprehensive file of frequently asked questions (FAQs).
To sum up, if the money in these accounts came from after-tax income and you have earned no interest on them, you’re fine and do not need to do anything.
One last thing. For those who do have liabilities but only of a minor nature, they should note that, where the full historical liability on offshore assets and income is less than €6,000, no penalty will be applied – either before or after the May 1st deadline – but you will still have to pay the tax due.
Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.
