In January 2011, the Irish Revenue Commissioners published the Mandatory Disclosure of Certain Transactions Regulations 2011 (the “Regulations”), together with guidelines on the mandatory disclosure regime (the “Guidelines”).
Transactions giving rise to a tax advantage, which were entered into after 17 January 2011, will need to be disclosed by 15 April 2011.
Thereafter, the disclosure obligation will be triggered in a variety of ways, but could be as soon as five days after the promoter first markets the transaction.
The Irish disclosure requirement is modelled on equivalent UK legislation. Similar reporting obligations exist in Canada and the USA. However, the Irish requirements appear to be more far-reaching than the requirements in other jurisdictions.
What do taxpayers and their advisers have to do?
The Regulations require promoters and, in certain cases, the users of transactions giving rise to a tax advantage to disclose the details of these schemes to the Revenue Commissioners within a relatively tight time frame. This disclosure will also entail an explanation to the Revenue Commissioners of how the transaction will work.
Taxpayers speaking to professional advisers about actual or proposed transactions will need to bear in mind that the disclosure requirement could be triggered where one of the main benefits of the transaction is the obtaining of a tax advantage.
There are additional statutory criteria indicating disclosure: confidentiality, premium fees, standardised documentation and transactions giving rise to specified classes of tax advantage. Certain of these concepts are fleshed out in the Regulations, and elaborated upon in the Guidelines.
Why was the mandatory disclosure regime introduced?
The Irish Parliament was concerned that the widespread marketing of tax avoidance schemes could erode the Irish tax base, although no estimate of tax foregone through “aggressive avoidance schemes” has been produced.
The Minister for Finance expressed the aim of the Regulations as follows:
“It is important to emphasise again that it is not the intention of the disclosure rules to stop tax advisers advising clients in the normal way on their tax affairs and on the use of the various legitimate tax incentives that are provided for in the tax code. That is entirely acceptable tax planning and will remain so. The vast majority of tax advisers giving routine day-to-day tax advice to clients have nothing to be concerned about and won’t be affected by the disclosure rules. It is the small minority of advisers with the propensity to devise and market aggressive avoidance schemes that are in the frame and will be affected.”
Of course, it should be pointed out that the courts will interpret the Regulations and, indeed, primary legislation, without recourse to the then Minister for Finance’s views. Taxpayers and their advisers, therefore, will have to pay attention to the legislation rather than to his views.
Exclusions from the mandatory reporting requirement
The Regulations provide for limited exclusions from mandatory disclosure. The Guidelines also list benign transactions which do not require to be disclosed where implemented for bona fide purposes. Some of these “safe-harbours” relate to the restructuring of a corporate group or the acquisition of intangible assets by a company to qualify for capital allowances.
Legal professional privilege
Recognition in the Regulations that mandatory disclosure is subject to the overriding importance of legal professional privilege (“LPP”) is of interest to clients of lawyers. The question of whether LPP applies in any particular situation will need to be decided on a case by case basis.
The mandatory disclosure regime is a very detailed piece of legislation and the above is only a brief summary of some points.