If you are getting interest payments from hot money, you have only a week left to declare it to Revenue . . . and escape a far harsher penalty, writes Paddy Donnelly
REVENUE'S advice to anybody who has not declared past tax liabilities is: contact Revenue before Revenue contacts you. That is good advice at any time because voluntarily owning up to past tax evasion means not just being able to sleep easier, you also get very substantial benefits: there's a guarantee that Revenue won't investigate you for criminal prosecution; you won't see details of your tax settlement published in the media; and you get a big reduction in penalties (down to a maximum of 10 per cent).
Owning up to Revenue makes even more sense when the chances of past tax misdeeds being uncovered increase greatly and when you're in a category of persons that will be denied the benefits of owning up after a publicly announced deadline. These two sets of circumstances come together for certain people on September 15th next.
By then, Revenue will, for the first time, have received from Irish banks and building societies automatic returns of interest paid on significant deposits going back to January 2005. By that date also, persons who at any time between January 2005 and December 2007 had very large aggregate deposits (over €100,000) in Irish banks and building societies and who have tax "issues" relating to that money - i.e. where those deposits, or part of them, are linked to tax evasion - must give Revenue a notice of intention to make a disclosure. (Working out the actual amount due and paying it over to Revenue does not have to be done immediately. It can wait until January 15th, 2009.) After September 15th, any disclosure of tax evasion relating to those large, €100,000-plus, deposits will not be a qualifying disclosure and the benefits of "owning up" will not apply.
Revenue acknowledge, of course, that the vast majority of people with €100,000-plus on deposit in Irish banks and building societies during the years in question (2005, 2006 and 2007) have absolutely no tax issues: the lodgements will have come from fully taxed income or gains or from transactions that have no tax implications. People in this category have nothing to worry about and have no need to contact Revenue. But the reality is that some people with large deposits will have used Irish banks and building societies to "hide" money on which tax was due and was not declared and paid, relying on the fact that, prior to the Finance Act 2006 and regulations passed earlier this year, there was no automatic disclosure to Revenue of interest paid on significant deposits in those financial institutions.
The wider context here is the sheer scale of tax non-compliance in Ireland that has come to light in recent years, and that was facilitated by the ability to "hide" untaxed income and funds in financial institutions, and which can perhaps best be summed up by a single figure: €2.45 billion. This is the amount that Revenue has, since 2000, recovered in evaded taxes (including interest and penalties) from special "legacy" investigations - Dirt, bogus non-resident accounts, offshore accounts, single premium insurance policies, as well as the Ansbacher and National Irish Bank evasion disclosures.
This latest September 15th disclosure initiative, in tandem with Revenue's receiving the first automatic disclosures of Irish bank and building deposit interest, is aimed at encouraging those likely to have the most significant unpaid tax liabilities linked to these accounts to come forward voluntarily. The "disclosure by deadline" formula has worked well in dealing with previous financial institution-related tax evasion (bogus non-resident accounts, offshore accounts and single-premium insurance policies).
Keeping the head down and hoping that Revenue won't find out has been proven to be a bad strategy in these previous initiatives. During the follow-up phases of the recent "legacy" investigations, around 10,000 individuals, who did not avail of the opportunity to come forward voluntarily, have to date been identified. There is also a growing awareness that the consequences of not meeting disclosure deadlines for financial-institution-related tax evasion can be very severe: apart from the threat of prosecution, a look at the quarterly published lists of tax evaders - showing the costs in terms of both unwanted publicity and large penalties - will bear this out.
So while the vast majority of people with €100,000-plus deposits in Irish banks and building societies in the reporting period 2005-2007 are totally tax compliant and need not concern themselves about the upcoming September 15th disclosure deadline, a small minority in that category will have tax issues on such deposits that they need to sort out.
There are three main reasons why they should contact Revenue by September 15th and make a voluntary disclosure. Firstly, if they don't they will lose significant benefits. Secondly, the likelihood of Revenue discovering undeclared tax liabilities relating to those large deposits is high. And thirdly - and perhaps most importantly - it's the right thing to do.
• Paddy Donnelly is head of Revenue's Investigation & Prosecutions Division