04 December 2014

Mandatory Disclosure Regime – Finance Bill 2014 amendments

Mandatory Disclosure rules impact on certain tax transactions relating to Income Tax, Corporation Tax, Capital Gains Tax, the Universal Social Charge, Value Added Tax, Capital Acquisitions Tax, Stamp Duties and Excise Duties.

Section 80, Finance Bill 2014 (as initiated), introduces a number of amendments to the Mandatory Disclosure regime, which, when the Bill is enacted, will be effective for any transaction which is commenced after 23 October 2014. The main changes are set out below.

Regulations and Guidance Open for Comment

Draft Consultation Mandatory Disclosure Regime Documents. To reflect the Section 80 provisions, Revenue has published draft amended regulations and guidance notes. The drafts are open for comment until 17 December 2014. Any comments should be provided to Paul Walsh, Principal Officer, Income & Capital Taxes Division, Office of the Revenue Commissioners, Stamping Building, Dublin Castle, Dublin 2 or paulwals@revenue.ie.

It is anticipated that final versions of these regulations and guidance notes will be published by the end of the year.

Commencement

Practitioners have raised concern about their ability, from a practical perspective, to comply with the new requirements of the Mandatory Disclosure regime for transactions which were commenced after 23 October 2014 in the absence of updated guidance notes or regulations.

Therefore, in relation to transactions which were commenced after 23 October 2014, Revenue will treat any disclosure or information received by 31 January 2015 as having been received in a timely manner with the result that no penalties for late disclosure will apply.

The main changes:

Incorporation of regulations into primary legislation
The principal change is that much of the material currently contained in regulations will be incorporated into the Taxes Consolidation Act 1997. There are a number of consequential amendments that arise from this process and the necessary changes in language from that used in regulations to that used in the primary taxing statutes. Other than as detailed below, the rules of the mandatory disclosure regime have not been changed by section 80.

Hallmarks
A transaction is a disclosable transaction if, in addition to one of the main benefits of the transaction being tax avoidance, the transaction falls into one of more of the ‘hallmarks’ or specified descriptions. The Bill proposes two changes to the hallmarks:

• The confidentiality hallmark for users of a scheme, under the regulations, involved a subjective test. The test for promoters involved an objective test in relation to confidentiality as against other promoters but a subjective test in relation to confidentiality as against the Revenue Commissioners. Under the amended wording in the primary legislation, the test is now, in all cases an objective test. That is, all tests now look at whether or not it ‘might reasonably be expected’ that the user / promoter would wish to keep the scheme confidential.
• A new hallmark has now been added in relation to discretionary trusts. A transaction which has a trustee of a discretionary trust as party to the transaction is now brought within the scope of the legislation. The schedule to the draft regulations provides that transactions with certain trusts, e.g. a trust for permanently incapacitated individuals, under section 189A, need not be disclosed.

Transaction numbers
The most significant change to the Mandatory Disclosure regime is the introduction of transaction numbers for any transaction that is commenced after 23 October 2014. Revenue will assign a transaction number to transactions disclosed under the legislation.

A promoter is now required to give the transaction number to any person to whom a scheme is sold and also to any person who markets the scheme on the promoter’s behalf. Any person who enters into the scheme or who seeks to obtain a tax advantage from the scheme is deemed to be a chargeable person and must include the transaction number on the relevant return of income (Form 11 or Form CT1, as appropriate).

Marketers
Marketers have an obligation to disclose any scheme that they have reason to believe is a disclosable transaction.

Revenue Guidance Notes
The Revenue Guidance Notes are being amended to make it clear that promoters and users can only rely on the exclusion for schemes known to Revenue where the scheme is referenced in Revenue published material or in case law.