Overseas earnings targeted in clampdown on tax evasion

People earning money abroad from selling property, dividends, and investments will automatically be made known to the Irish tax authorities under proposals from the European Commission, similar to the US Foreign Accounts Tax Act (FATCA) rules.

And the Government was urged to move ahead with a common EU corporation tax base, as it would tackle the issue of transfer pricing by companies — one of the issues that makes Ireland so attractive to multinationals.

The proposals are part of the major drive for governments to collect as much as possible of the estimated €1 trillion they are missing out on through tax evasion and fraud, which is due to be a major topic at next week’s G8 meeting in Northern Ireland.

Together with other agreements and proposals on the automatic exchange of information between EU countries on various other forms of income to be covered, this move would see the EU having the most comprehensive anti-evasion tax system in place in the world.

Taxation Commissioner Algirdas Šemeta said: “Member states will be better equipped to assess and collect the taxes they are due, while the EU will be well positioned to push for higher standards of tax good governance globally. It will be another powerful weapon in our arsenal to lead a strong attack against tax evasion.”

There is already a limited amount of information exchanged between member states on income earned by citizens of the other member states though a secure IT network. Currently this is limited to the interest received on savings accounts — rarely used by people with large sums of money. It is proposed to extend this to cover investment funds, pensions and innovative financial instruments, and payments made through trusts and foundations under a revised savings tax directive.

The latest proposal would extend the Administrative Co-operation Directive which came into force in January and covers income from employment, directors’ fees, life insurance products, pensions and immovable property. Information is shared provided it is available. The extension would ensure that dividends, capital gains, other financial income and account balances are also automatically exchanged from Jan 2015, and its provision would be mandatory, to bring it into line with the information the US is demanding under FATCA.

Under current rules EU member states must provide the same information to each other as they provide to third countries. The Commission says that introducing an EU bill will make this more efficient and be less fragmenting than proceeding with the pilot project that Britain has signed up a number of countries to participate in.

A similar clampdown on sharing information about the taxes paid by companies is also under way with the latest proposals due out shortly from the European Commission.

However, the rules require unanimity and many countries are reluctant on at least some of the new proposals, including Ireland. Mr Šemeta is visiting Switzerland next week to promote the Savings Tax directive.

Ireland agreed to co-operate actively with negotiations on the common consolidated corporate tax base and is currently chairing these meetings. Mr Šemeta said the work on the tax base could be used as an instrument to fight against tax avoidance.