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Monday, 10th August 2020
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The improvement in information technology is being matched in its speed of development by agreements between Revenues to exchange information. These moves may enable Revenue Authorities to deal with the globalisation of finance and business.
EU case
A recent European Court of Justice case highlights the extent to which a taxpayer’s affairs, as known to the Revenue Authorities in one country, are no longer absolutely confidential to them.

A Netherlands resident man made maintenance payments to his estranged wife who lived in Spain. The Netherlands tax authorities decided to alert the Spanish tax authorities to the transaction. The husband sought to block their doing this.

The European Court of Justice held that an EU directive dating from 1977 (Mutual assistance between member states in the field of direct taxation) imposed not only the right, but also the obligation, to pass on the information.

This was so notwithstanding that the Netherlands authorities had no reason to believe that the wife was not making a proper tax return in Spain. It was sufficient that they feared that she might not.

Within a few years the EU may stretch from the Arctic Circle to the Euphrathres, and from Russia to Galway. Confidential bolt-holes will disappear at a rapid rate!

EU action
The attempt by the EU to impose a community-wide minimum tax on interest income, as a weapon against tax evaders, has been stalled for a long time due to UK opposition.

There now seems to be a good prospect that the proposal will be transformed from a primarily withholding tax proposal to one where the recipients of interest are identified and the information is exchanged between Revenues. This is the preferred UK proposal. It is resisted by Luxembourg and by Austria on bank secrecy grounds, but they may not prevail.

OECD
The EU is not the only international body promoting exchange of information. The OECD recently adopted unanimously a report urging greater co-operation between Revenue authorities in the provision of banking information. This would restrict national bank secrecy rules, a matter of particular sensitivity in Luxembourg and Switzerland.

While the report does not have mandatory effect on member states, its unanimous adoption will give it powerful moral authority in determining what is the ‘norm’. Countries who plead banking secrecy as a reason for non co-operation with Revenue authorities in other countries are likely to find that position untenable in the long run.

The OECD will publish shortly a report which they have already prepared analysing identified tax havens between those which are ‘co-operative’ and those which are not. Those on the ‘non co-operative’ list may be subject to trade and other sanctions by the major economies. The Cayman Islands are thought to be a particular target of the report but that is speculation at present.

Treaty network
Ireland’s network of double tax agreements has increased dramatically in recent years. One side effect of this increase is that the network of Revenue Authorities who are authorised under the treaties to exchange information for the purpose of the treaty is likewise escalating.

Investigations into potentially criminal matters can also result in sensitive tax information being revealed, as our domestic experience with tribunals shows. In an international context, the clampdown on money laundering is resulting in an assault on bank secrecy etc and on increasing flows of information internationally regarding financial transactions. Inevitably this flow of information will often end up with Revenue authorities also.

It is as well to remember that Al Capone was ultimately jailed for a tax offence, and not for running a sheebeen.

Irish dividends
From 6 April all Irish companies are obliged to report to the Revenue the names of recipients of dividends paid by them. This is just one of many sources of information available to the Irish Revenue.

The Revenue have geared up a new computer system to enable them to bring together all their many sources of information in relation to specific taxpayers. This computer system is likely to make Revenue audits in the future very powerful weapons in the hands of the Revenue.

The moral of all of the story is that if you think your transactions are private, you are probably mistaken.

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