Super-rich pose ‘significant’ tax risks

The tax affairs of many multi-millionaires are not being put under special scrutiny by Revenue even though they are more likely to engage in “bespoke” tax avoidance schemes.

And one in four of the super-rich whose taxes are being monitored declared taxable income of less than the average industrial wage.

Revenue has a special Large Cases Division which deals with “high-wealth individuals” (HWIs). It carries out customer service and compliance functions in respect of the largest corporate businesses and HWIs.

However, according to the Comptroller and Auditor General (C&AG), the threshold at which those individuals achieve HWI status is when they have assets worth more than €50m.

The C&AG says that is high by international standards — in Britain the threshold for special scrutiny is £20m (€22.5m) worth of assets while in Australia the probe starts at AUD$30m (€18.7m) in net wealth. 

This would suggest there should be more than the current 480 HWIs under scrutiny.

“While HWIs may have many business interests, a key difference between large businesses and HWIs for tax purposes is the limitation in publicly available information,” said the C&AG report.

It said “significant” risks relating to HWIs include:

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  • Almost all HWIs use professional tax advisers and may be more likely to have opportunities to engage in the use of bespoke tax avoidance schemes.
  • HWIs typically have a higher international mobility than other taxpayers.
  • HWIs are more likely to have economic interests and assets in more than one jurisdiction, which may make compliance more difficult.
  • HWIs often pay a high ratio of capital gains tax (CGT) relative to the other taxes they pay. CGT relates to a wide range of asset transactions, which pose risks such as incorrect deductions.

It said that of the €13.8bn in total net tax due in 2015, only 3.4% (€473m) was due from HWIs: “The relatively low amounts of tax due by a large number of HWIs is a reflection of the amount of taxable income and the use of credits and reliefs.

“Total income tax due from HWIs in 2015 was highly concentrated in a small number of taxpayers with 85% of the income tax due from just ten taxpayers.

“Looking at taxable income, 140 HWIs (42%) had taxable income of less than €125,000. Of these, 83 (25%) had taxable income of less than the average industrial wage.”

The C&AG said as part of its examination, 29 “yielding interventions” that closed in 2015 were selected randomly for review. Of those, 14 had availed of a qualifying avoidance disclosure (QAD) programme. To qualify, full tax and interest payable must accompany the disclosure.

One QAD resulted in a yield of €10m but the taxpayer was able to claim that the transactions were complex and incurred professional fees. As a result, the taxpayer got a €270,000 reduction in the tax collected.

Revenue has agreed with the C&AG that the threshold under which individuals are considered HWIs should be reviewed and said that it will be expanding the number of HWIs managed in its HWI and anti-avoidance units.

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