Tax avoidance schemes see the rules get tighter

The Finance Bill represents a significant upping of the pressure from the Revenue Commissioners in closing off what it sees as the improper use of tax avoidance schemes.

In most Bills there are measures to close off some particular schemes which the Revenue has discovered, but in recent years general anti-avoidance rules have made it more difficult to come up with and avail of such schemes in the first place. This year’s Bill continues that trend.

The specific targets this year are the use of approved retirement funds and personal retirement savings accounts to cut down on tax bills. Retirement planning has long been a battle ground between the Revenue Commissioners and tax accountants and this is the latest shot.

Perhaps the more significant measures are the tightening of general rules on the use of tax avoidance schemes. Here the current rules have been rewritten into new sections, but also tightened.

Tax relief

In particular in cases where the Revenue believes a tax relief is being improperly claimed, it will be easier and quicker for it to claim the money back from the taxpayer. At the moment a nominated Revenue officer must form an opinion that an allowance is being improperly claimed and issue this to the taxpayer. In future the Revenue will be able to act straight away and look for the tax due.

“What we have in this year’s Bill is a rewrite of the existing 25-year-old rule making it far easier for Revenue to refuse tax relief to any taxpayer at any time, while making it more difficult for the taxpayer to defend their actions,” says Brian Keegan, head of taxation at Chartered Accountants Ireland.

The surcharge payable when someone claims tax relief due to participation in a tax avoidance scheme which breaches the rules has been upped from 20 per cent of the tax relief claimed to 30 per cent.

The new Bill also consolidates the rules under which taxpayers and their advisers must disclose participation to the Revenue in certain schemes in advance – so-called mandatory disclosure – and extends this to the use of discretionary trusts.

All these rules will not end tax planning but gradually the more exotic schemes are being closed down and the Revenue is introducing new ways to police every taxpayer.

Amendments

Elsewhere, as is often the case in recent years, the Bill includes a lot of smaller, specific measures and much of the action may come in amendments as it passes through the Oireachtas. The budget measures are legislated for. Apart from these, drinkers of herbal teas will be glad that VAT of 23 per cent is being removed so it should be cheaper. However, you will still pay 9 per cent on your herbal tea in a restaurant and 23 per cent on iced tea – considered a soft drink. Go figure!

The Bill includes the promised measures to close off the “double Irish” tax relief and introduce new reliefs aimed at foreign investors. It also extends the valuable special assignee relief programme aimed at giving a significant tax break to foreign executives who come to work here for their multinational employer.

The benefits of this are substantial – it will cut taxes and charges on someone earning €200,000 per annum by €12,500.