The pursuit of tax evaders

THE ELIMINATION of exchange controls and the free movement of capital has made it easier for Irish investors to buy foreign properties, whether commercial buildings in London or New York, or second homes in Spain or Bulgaria.

But this mobility of capital has also made it harder for the Revenue Commissioners to establish whether these property purchases have been made with undeclared income that is liable for tax. The Revenue, which is investigating 2,000 overseas property transactions by Irish residents, claims that it lacks the legal powers to pursue its tax inquiries thoroughly. And new Revenue Commissioners chairwoman Josephine Feehily has said she will ask the Government to change the law to compel Irish estate agents to release details of foreign property purchases by Irish residents.

Earlier this month the Revenue abandoned its attempt to require a Dublin estate agent, Savills HOK, to reveal details of all foreign property purchases made by clients since 2002. The company had refused its request and started a High Court challenge to the Revenue demand for disclosure. A decade ago, in similar circumstances, the banks also refused a Revenue Commissioners request for access to details of bogus non-resident account holders. The Revenue later secured a change in the law that gave it the necessary powers. And that seems set to happen again.

It is hardly surprising that the Revenue should target overseas properties as a potential area of serious tax evasion. Perhaps the only surprise is that a Revenue probe was not made sooner, given the huge sums invested in foreign property and the meagre tax revenue this investment has generated. In 2005, some 4,450 individuals returned €56 million in rental income from overseas properties in their tax returns. This does suggest some overseas property purchasers may have greatly under-reported their tax liabilities. Of course one reason why overseas property has escaped closer tax scrutiny has been Revenue's preoccupation with other special tax investigations which have yielded €2.4 billion so far.

As yet, not even the Revenue Commissioners can estimate how many taxpayers may have used overseas property investment as a means of sheltering "hot money" or untaxed income. But such tax defaulters seem no more likely to succeed in this form of tax evasion than in other past methods, such as bogus non-resident accounts or undeclared offshore assets. The Revenue's special investigations record speaks for itself.

For the tax defaulter, the risk of detection is increasing. Under the EU Savings Directive, 2005, national tax authorities exchange information about foreign nationals who hold interest-bearing bank accounts. And the German tax authorities have offered to share information, secured from a whistleblower, about any Irish residents with offshore investments in Liechtenstein, a tax haven. By vigorously pursuing the tax evader, the Revenue is reducing the financial burden borne by the compliant, law-abiding taxpayer. It is fully justified in asking the Government for the necessary legal powers to do that job.

© 2008 The Irish Times

This article appears in the print edition of the Irish Times