ANALYSIS:The purposes of offshore trusts are about to come under intense scrutiny, writes COLM KEENA
SPECIAL REVENUE inquiries over the past number of years have brought in excess of €2.5 billion into the Exchequer.
These inquiries focused on tax evasion using bogus non-resident accounts, single premium insurance policies, so-called Ansbacher accounts, and other structures.
The voluntary disclosure terms that have been offered as part of the Revenue inquiries have stipulated that disclosures qualify only if everything is disclosed.
In other words, if you are throwing your hands up in relation to a bogus non-resident account, you had to disclose your offshore trust as well.
In fact, some people who didn’t disclose everything when making a voluntary disclosure in one of the earlier schemes have since then been exposed by subsequent inquiries as having had further undeclared income in other, undisclosed structures.
For these reasons the Revenue’s various inquiries, as they have followed one after the other, have been targeting a declining pool of hard-core tax cheats. For that reason, the amount of unpaid tax that might be identified by this latest inquiry into trusts may be relatively small.
On the other hand, the changes in the law introduced in the Finance Act last December are the end result of information gathered by the Revenue in the course of the various disclosures made to it, and discoveries made by it, over the recent past.
The obligations that now exist in Irish law on such people as accountants, tax advisers and bankers, are unique.
The law is not a copy of one that exists in any other jurisdiction. So the Revenue must be of the belief that there is a strong possibility that there are substantial amounts of unpaid tax involved.
Trusts, by the way, have a history that goes back to the Crusades, when men setting out for the Middle East would put in place arrangements for their assets.
There can be legitimate reasons for establishing trusts, of course. The Irish Times is owned by a trust. Some wealthy people put funds into a trust so that, if their affairs go pear-shaped in the future, assets put aside for their children will be safe from creditors. One wonders if many once wealthy property developers have such trusts.
However, at a briefing for journalists yesterday, Revenue official Denis Holligan had a sceptical view of some classes of trust.
Why would a trust be set up offshore if it was not set up with a view to hiding assets from the Revenue, he asked. He said literature on the subject indicated that many people who put substantial wealth into offshore trusts, don’t in fact, for obvious reasons, relinquish control of that wealth to persons living in some location on the other side of the globe.
If assets placed in a trust are not under the control of the trustees, and discreetly remain under the control of the settlor or person who put assets into that trust, then it is not a proper trust.
Another issue emerged during the briefing yesterday. The Revenue has powers to order the dismantling of a structure it learns of which it can show exists solely for the purpose of avoiding tax.
Because of the third party disclosure laws that are now in existence, the Revenue is about to get a clearer picture of the offshore trusts set up by Irish-resident individuals.
In its examination of this information it may be in a position in some cases at least, to seek to have trusts dismantled that it can show exist solely for the purpose of tax avoidance. In such cases, it would seem to follow, accumulated wealth in those trusts will create associated tax liabilities.
There are other developments, such as new European Commission regulations on declaring interest income, and increased co-operation in tax affairs by such locations as Jersey and Guernsey, that are on the Revenue’s side in its efforts to locate tax liabilities associated with offshore trusts.
