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TAX NEWS - June 2010

New tax avoidance disclosure rules surprise tax advisers

Tax advisers have expressed surprise at new, wide-ranging rules proposed by the Revenue Commissioners to govern the compulsory disclosure of tax avoidance schemes.

The new regime, introduced by finance minister Brian Lenihan under the Finance Act, will force tax advisers and other intermediaries to automatically provide the Revenue with comprehensive details of structures used to reduce clients' tax bills.

The regime, modelled on a similar initiative in Britain, aims to make it easier for the Revenue to close off unintended loopholes in tax law.

The Revenue will force tax advisers to highlight weaknesses in the tax code that they plan to target for their clients' benefit.

The changes will be introduced to put an end to situations where tax advisers successfully exploit loopholes for lengthy periods before the Revenue becomes aware of them.

In the past, the Revenue has identified loopholes that have been costly to the exchequer, but the tax forgone could not be recouped as the schemes were deemed to be within the law.

Under the new regime, the Revenue hopes to curtail drastically the lifetime of tax avoidance schemes and prevent widespread use of individual loopholes before they can be identified and closed off to further use.

Draft rules published by the Revenue last week are expected to be opposed by accountants and tax advisory groups before they are formally introduced later in the year, tax sources told The Sunday Business Post.

The proposed new rules include unexpectedly broad criteria that will make it difficult for tax advisers to keep details of any scheme from the Revenue.

They include making disclosure compulsory in cases where "it might be reasonably expected" that the promoter of a scheme would want to keep the details secret from rival tax advisory firms.

Sources said this definition could be broad enough to capture any legal tax advantage identified by an individual tax practitioner or firm, as it would be difficult for a firm to argue that it would be content for a rival adviser to be aware of the tax advantage.

The draft rules also make it clear that schemes which advisers would like to withhold from the Revenue ''to facilitate repeated or continued use'' of the same transaction format, will automatically qualify for mandatory disclosure.

This provision could be applied to all legitimate tax avoidance schemes, the sources said.
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