Early Warning

  • Author : Niamh Keogh
  • Date : June/July 2011
ABOUT THE AUTHOR: Niamh Keogh TEP is Tax Manager at William Fry Tax Advisors

Those involved in advising on or implementing Irish tax-related transactions will need to consider whether they have reporting obligations to the Irish Revenue Commissioners (Revenue) under the mandatory disclosure regime that came into effect in Ireland in January 2011. The new rules will impact on ‘promoters’ (such as legal and accountancy firms and financial institutions) and in some cases ‘users’ of planning that involves an Irish tax advantage, whether those persons are based in Ireland or elsewhere. Although similar to the systems in place in other countries such as the UK, the Irish rules have their own unique features and will exist alongside the Irish general anti-avoidance rule (GAAR). The regime is intended as an early warning mechanism for the Revenue in respect of what it perceives as ‘aggressive’ tax planning. This article sets out the new mandatory reporting rules and considers the practical effect for those giving or availing of tax planning in Ireland.

The governing law

In 2010, the primary legislation providing for the mandatory disclosure regime was introduced into the Taxes Consolidation Act 1997. Nonetheless, the regime only came into effect in January 2011 following a consultation process that considered draft Regulations and Guidance Notes that had been issued by the Revenue in June 2010. On 17 January 2011, revised Guidance Notes and the Mandatory Disclosure of Certain Transactions Regulations 2011 were published and the scheme was brought into effect. The Guidance Notes state that ‘the mandatory disclosure rules do not impact on the ordinary day-to-day tax advice between a tax advisor and a client or on the use of schemes that rely on ordinary tax planning using standard statutory exemptions and reliefs in a routine fashion for bona fide purposes, as intended by the legislature’. This and similar statements in the Guidance Notes seem to dilute the stricter wording of the legislation.

‘Although similar to the systems in place in other countries, the Irish rules have unique features and will exist alongside the Irish general anti-avoidance rule’
The disclosable transactions

A transaction will be disclosable only where the following criteria are satisfied:

The transaction (widely defined) gives rise to a tax advantage. The meaning of ‘tax advantage’ is to mirror the term as it applies to the GAAR regime

The tax advantage is the main, or one of the main, benefits of the transaction, and

The transaction falls within one of the ‘specified descriptions’ (the UK Disclosure of Tax Avoidance Schemes (DOTAS) regime refers to these as ‘hallmarks’, and this term is used below).

The hallmarks

1. Confidentiality (from other promoters or the Revenue)

The confidentiality hallmark requires a consideration firstly of the hypothetical question as to whether a promoter might wish to keep the way in which schemes give rise to a tax advantage confidential from other promoters. The Guidance Notes indicate that a transaction might fall outside this hallmark if the planning is already well-known within the tax community, e.g. through tax articles, textbooks, etc. Therefore, promoters will be expected to be up-to-date on what is, or is not, ‘well-known’ planning in the marketplace.

The second aspect of the confidentiality hallmark involves the factual question as to whether a promoter (or in certain cases a user) wishes to keep the transaction confidential from the Revenue. The Guidance Notes provide that schemes that are known to the Revenue are not intended to be caught under this hallmark and that technical guidance notes and case law may be evidence that the Revenue knows of a particular scheme.

2. Premium fee transaction

This hallmark is satisfied where a premium fee could potentially be charged for the transaction. A ‘premium fee’ is one that is a) to a significant extent attributable to the tax advantage, or b) is contingent upon a tax advantage being obtained. The Guidance Notes confirm that a fee based on time spent or that takes account of factors such as the advisor’s location, the urgency of the transaction or the skill of the advisor is not a ‘premium fee’ on that basis alone.

3. Standardised tax products

This hallmark is intended to capture ‘mass marketed’ schemes that are easily replicated without significant additional professional advice. It is to apply to any tax-based scheme that a promoter intends to make available to more than one person. Specific exclusions exist in relation to certain listed tax products, such as pension schemes. The rules make it clear that a scheme that is excluded from the disclosure obligation on the basis that it is listed under this hallmark may still be disclosable under one of the other hallmarks (e.g. confidentiality or premium fee).

4. Particular types of tax advantage

Even if a transaction does not fall to be disclosed under the above rules, it is still reportable if it concerns a particular type of tax advantage, being one of the following:

  • loss schemes for individuals or companies
  • employment schemes
  • income into capital schemes
  • income into gift schemes.

Particular care must be taken when dealing with a transaction involving one of the above specific types of tax advantage as there are only limited exclusions, even in the Guidance Notes. The employment schemes category may be particularly problematic. It encompasses planning that seeks to obtain a tax advantage in the form of a reduction or deferral of a tax liability for the employer or employee. The Regulations provide a list of exclusions, but these are not comprehensive and involve schemes where there is Revenue oversight or certification and provided that they are being used in a ‘routine fashion for bona fide purposes’.

Who must disclose?

For most transactions, the reporting obligation lies with the promoter (or promoters). A promoter will be a person who is involved in the design, marketing or implementation of a tax transaction. The Regulations do provide an exclusion for a person who, while responsible for the design of a tax scheme, was not providing tax-related advice as part of their work. The Regulations also exclude a person who only provided ‘benign’ tax advice, or who did not have sufficient information to know whether the transaction was disclosable or to enable the person to comply with the rules. The Guidance Notes emphasise that the regime is not limited to promoters in Ireland, although the transactions are only reportable where an Irish tax advantage is to be attained.

In some circumstances, the person receiving or availing of the tax-planning advice will be responsible for reporting the transaction. This will arise where there is no promoter (e.g. the scheme is devised in-house) or where the advice is protected by Legal Professional Privilege (LPP) and this is not waived by the taxpayer. The issue of LPP and the distinction this gives rise to between legal firms and other advisors remains controversial and it has been indicated that this may be further considered. The obligation for the client/user to report also applies where the promoter is based outside Ireland and there is no Irish promoter. This will not relieve a promoter outside Ireland from the reporting obligation, but will ensure that the client is also obligated to make the report.

What is the timeframe for making a disclosure?

A disclosure is required within five days of the relevant trigger date. The trigger date depends on whether the transaction involves bespoke advice or ‘mass marketed’ schemes. For bespoke advice, the trigger date is the date when the promoter becomes aware that the transaction has been implemented. However, for ‘mass marketed’ schemes, the trigger will be the date on which a marketing contact is made and the designer is confident in the structure. The disclosure obligation may also be triggered where a promoter makes any such scheme available for implementation. This would capture a scheme where a marketing contact was first made before the mandatory disclosure regime came into effect but continues to be available after the regime came into effect. In cases where the disclosure obligation is imposed on the client/user, the trigger date is the date the transaction was entered into.

What is required in a disclosure?

The first report must outline the nature of the transaction and does not make any reference to clients. The second ‘client list’ report advises the Revenue of the persons to whom the disclosable transaction was made available for implementation and who have implemented the transaction.

What to do?

Promoters will need to be confident that if a potential disclosable transaction is encountered, they will be able to analyse this and make a report to the Revenue within the tight timeframe if necessary

The users of tax advice where there is no promoter in Ireland will need to be aware of their obligations to report

Where a disclosable transaction has been implemented, the need for a protective notification under the GAAR should be considered. Such a notification provides protection from interest and penalties in the event that the Revenue challenge the transaction under the GAAR. Unfortunately, the reporting of a transaction under the mandatory disclosure regime will not be sufficient to constitute a protective notification under the GAAR

Any existing planning involving an Irish tax advantage may need to be revisited and any new tax-planning ideas must be considered in the context of this new regime.


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