Minister for Finance announces the making by the Revenue Commissioners of Mandatory Disclosure Regulations
The Minister for Finance, Mr Brian Lenihan, TD, today announced that he has consented to the making by the Revenue Commissioners of the Mandatory Disclosure of Certain Transactions Regulations 2011 (S.I. No. 7 of 2011) as required under the mandatory disclosure legislation which the Minister introduced in section 149 of Finance Act 2010. The Regulations follow on a consultation period during 2010, which the Minister committed to when the legislation was being introduced.
Welcoming the publication of the Regulations, the Minister said:
“The mandatory disclosure legislation and these regulations are another important step in tackling aggressive tax avoidance schemes which can lead to a significant loss of taxation, which our economy can ill afford at this time.
The main purpose of the new disclosure regime is to constitute an ‘early-warning’ system for Revenue whereby information on tax avoidance schemes that may be unacceptable can be obtained at an early stage and closed down before they can do significant damage to tax revenues. This new regime complements the existing range of anti-avoidance measures at the disposal of Revenue and, in my view, is a proportionate response in the light of some particularly aggressive avoidance schemes that have been brought to my attention by Revenue in recent years. It reflects similar moves internationally to crack down on aggressive tax avoidance.It is important to emphasise again that it is not the intention of the disclosure rules to stop tax advisors 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.”
In light of some legitimate concerns and issues raised during the consultation, the Minister has agreed to a number of refinements to the regulations and will also be bringing forward a number of changes to the primary legislation in this year’s Finance Bill. These changes are primarily designed to improve operational aspects of the new regime. In addition, the Revenue Commissioners have expanded the Guidance Notes accompanying the legislation and regulations to give greater clarity to certain aspects of the disclosure rules, which were causing concern.
The proposed Finance Bill changes will:
Ø Amend the original commencement provision for the legislation to provide for the disclosure rules to apply prospectively from 17 January 2011 - the date the Regulations were made.
Ø Refine the requirement for promoters to provide Revenue with a client list identifying those to whom schemes have been made available for implementation, so as to exclude clients in respect of whom the promoter has satisfied himself that the scheme had not in fact been implemented during the relevant reporting period.
In addition, concerns were also expressed during the consultation period about the potential impact of the new rules on competition between tax lawyers and other tax professionals given the recognition in the primary legislation to the principle of legal professional privilege relating to certain communications between a solicitor and a client. Having regard to these concerns, there may be a competitiveness issue that needs to be considered.
In addition, there appears to be a weakness in the operational effectiveness of the disclosure regime, where tax lawyers are concerned, that needs to be addressed. Accordingly, the Minister has sought the advice of the Attorney General on what operational changes might be made to the disclosure rules that would address the operational weakness while upholding the common law principle of legal privilege. In the light of the Attorney General’s advice, the Minister may bring forward further proposals for amendments to the primary legislation at a later Stage of the Bill.
Finally, the Minister is proposing to have an overall review of the mandatory reporting regime undertaken within 2 years of its commencement, with a view to determining if it is meeting the stated policy objectives and what, if any legislative or practical refinements are required in the light of operational experience.”
19 January 2011
Section 149 of the Finance Act 2010 inserted a new Chapter into Part 33 of the Taxes Consolidation Act 1997 (which deals with certain anti-avoidance provisions) relating to a new Mandatory Disclosure regime.
The legislation places obligations on promoters of certain tax related transactions to give details of those transactions to the Revenue Commissioners explaining how the transaction/scheme is intended to work. The transactions affected are those that have as a main benefit the obtaining of a tax advantage and that match certain features set out in the Regulations.
The information has to be provided within tight timescales (generally within 5 working days of a scheme being first marketed or made available for use by a person) and severe penalties will apply where a person fails to meet their obligations in that regard.
For the most part, promoters are likely to be accountants, solicitors, banks and financial institutions, along with small firms of specialist promoters known as “tax boutiques”. The majority of tax advisers giving ordinary everyday tax advice to clients will, however, be unaffected by the disclosure rules.Provision of the required information on transactions by promoters or users will be on a non-prejudicial basis. There will be no presumption or inference that a transaction disclosed under the rules is a tax avoidance transaction.
The main objective of the disclosure regime is to alert Revenue of tax avoidance schemes that may be unacceptable so that such schemes can be closed down by legislative action.
The Regulations, made with the consent of the Minister for Finance, set out various operational aspects of the disclosure regime, including the information to be disclosed and the manner in which it is to be provided, the time by which it must be disclosed, the classes of transaction that come within the disclosure requirements and the circumstances in which a person is not to be considered a promoter.
The making of the Regulations follows on a Consultation Process, initiated by the Minister for Finance, that commenced on 15 June 2010 and ran for 3 months to 15 September 2010. The opportunity was given to interested parties to comment generally on the disclosure regime as set out in the primary legislation as well as on a draft of the Regulations and accompanying Guidance Notes and Forms which were published on the Revenue website. In all 7 written submissions were received and meetings were held with all of the main professional representative bodies and ICTU. The amendments to the draft Regulations and the Guidance Notes and the proposals for amendments to the primary legislation announced by the Minister today reflect the outcome of the consultation.
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