The financial world has gone through a lot of turmoil in the last two 2 decades. We have seen a Dot.com bubble burst, followed by one of the worst financial crashes in history, followed by a one-in-a-century pandemic, and now we have to contend with a severe inflation crisis to boot.
In 2008, the tax takes of many governments plummeted, and there were sky-high unemployment rates. Governments also were finding it very difficult to fund budget deficits as interest rates on government bonds were far above the norm. Things had gotten so bad in Ireland we needed the IMF to come in and support the recovery.
Under the CRS (Common Reporting Standards), institutions such as banks, pension funds and investment houses are required to send a report to the local tax authority on their clients on an annual basis.
These reports include information such as gross interest paid on Deposit accounts, gross dividends paid, and the gross amount made from the sale of assets.
If this client is a tax resident in another country, then the information outlined above must be shared between the local country’s tax authority and that person’s home tax authority.
What has led us to this point
The crash led to austerity measures such as tax increases on the working people of Ireland to pay for the bank bailouts. These tax increases were not generating the revenue required, so at that point, it was decided to go after the tax dodgers.
Up until this point, governments worldwide didn’t have the tools to operate a more big brother-styled monitoring system for their citizens. In 2008 things had changed, there was an acceleration in the use of big data, and the information technology age was well underway. This has made their mission a lot more achievable.
Governments around the world started coming together and signing agreements to share data with each other about their tax residents. The two biggest standards set around this time were the following:
- United States – FATCA (Foreign Account Tax Compliance Act)
- Over 100 countries including Ireland – CRS (Common Reporting Standard)
These standards cover banks, pension funds and investment houses.
Under the CRS (Common Reporting Standards), each of these institutions is required to annually send a report to the local tax authority on their clients. If this client is a tax resident in another country then this information must be shared between the local countries tax authority and that persons home tax authority.
When & How Is This Information Exchanged?
Here is an excerpt from Revenue.ie on the process explaining then these are reported on:
Irish financial institutions must report the details of these accounts to Revenue by 30 June each year. Revenue will exchange this information with this jurisdiction of tax residence of the account holder by 30 September each year. Revenue will only exchange information, where there is a legal basis to do so, through secure electronic channels.Revenue Commissioner
What Information is Reported to Revenue under CRS and FATCA?
Here is a list of the types of information that is reporting to Revenue under these standards:
- Personal information such as Name, Tax Identifier or PPS, Tax Residence and Date of Birth
- Gross Interest paid on Deposit accounts
- Gross Dividends paid or credited to account
- The gross amount made from the sale of assets
- The account balance at 30 June of that year
- If the account has been closed.
As you can see from this list, the level of detail provided to Revenue is enough to get a picture of if someone has been selling assets or receiving substantial income via dividends or interest. This can be then corroborated with that individual’s tax return for completeness.
What Happens If I Forgot To Declare Income?
Although not reporting your income is considered tax evasion, the Revenue Commissioner in Ireland are generally very fair to deal with in such situations when an honest mistake has been made. There are facilities there for the public to come forward and make voluntary disclosures to settle any unreported income.
You will likely have to pay your outstanding balance + interest. This interest rate amounts to 0.0219% per day which is equivalent to 8% per annum.
Depending on the type of tax there will also be likely some penalties to pay. In certain circumstances revenue has been known to waive these so it is worth talking to them directly on your outstanding amounts.
We have clarified that the Revenue Commissioner do have an insight into what is going on with your investments through the Common Reporting Standard.
Although there is little reported on how they try and chase down tax dodgers, they unlikely have the resources to go after everybody. The safest thing you can do yourself is to keep up to date with your records and stay on the good side of the Revenue Commissioner by submitting your returns.
Disclaimer: This blog post is for informational and educational purposes only and should not be construed as financial advice.