Tax Alert In association with Grant Thornton

Revenue investigation into funds invested in life products may see many businesses hit the panic button.

Jim Kelly, Tax Director Grant Thornton

Over the coming weeks several Financial Institutions are writing to holders of certain life assurance products. These letters relate to an investigation by the Revenue Commissioners into possible tax default using single premium policies taken out between 1990 and 2003. The Revenue Commissioners have adopted an approach similar to the approach used in previous investigations, to identify taxpayers who invested untaxed funds in life assurance products.

This is the follow up phase to the investigation launched by the Revenue in April last year.

High Court Orders

There were two stages announced, the first of which was a voluntary disclosure process similar to that used in the bogus non resident accounts and offshore assets investigations. The initial phase of Revenue's investigation was concluded earlier this year having yielded €400 million in settlements from holders of such products. The second phase, now under way is designed to identify people who used such investment products for tax evasion but who did not make voluntary disclosures. The Revenue Commissioners obtained High Court orders forcing various Irish Financial Institutions to divulge by October information on policyholders who invested sums over €50,000 in single premium life policies in the period 1st of January 1990 to the 31st of December 2003.

Outstanding Tax Liabilities

It is important to emphasise that these investments were perfectly legitimate and an individual who held such a policy has nothing to worry about provided the products were not used to evade taxes. Because of the length of time which has elapsed since the investment it can sometimes be difficult to demonstrate the source of the funds used for the investment; however, the Revenue have agreed that such persons can complete a declaration that they do not have an outstanding tax liability. These declarations are being sent to policy holders by the Financial Institutions with the aforementioned letters. Revenue advise that compliant taxpayers should complete these declarations as soon as possible so that they will be eliminated from Revenue's investigation. Policyholders who have outstanding tax liabilities should come forward immediately and make a full and complete disclosure.

The Following Treatment Will Apply:

1. Monetary settlements will include interest and penalties but a mitigation of penalties for co-operation will be allowed
2. Their names may be published in accordance with Revenue policy

Revenue say that those who have outstanding tax liabilities and do not come forward now, will be vigorously pursued and may, in addition to facing interest, penalties, and publication, also face the prospect of criminal proceedings being taken against them by Revenue. It is vital therefore that any taxation issues relating to the use of single premium life products be addressed immediately. Early disclosure and settlement will provide some mitigation of penalties (likely to be reduced from 100% to 75%), ensure interest is stopped at this point and avoid the prospect of Revenue initiating criminal proceedings.

N.B. This article is intended only as a guide in highlighting general issues, which may be of interest. It is not a substitute for full professional advice and specialist assistance should be sought in relation to any particular circumstance. Accordingly no responsibility for loss occasioned to any person acting or refraining from acting as a result of any material in this publication can be accepted by Grant Thornton. Should you wish to discuss any issue related to this investigation please contact Grant Thornton.