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Ireland: Report Advocates Tax Crackdown On Rogue Directors

Friday, February 19, 2010

Irish tax law on companies needs to be changed so that directors who wilfully try to avoid the payment of Fiduciary taxes, such as pay related social insurance (PRSI) and 'pay as you earn' employment tax (PAYE), can be made personably liable, a new report by the Dáil Public Accounts Committee, published on February 17, has recommended.

The report examines the current checks and balances in place to tackle tax evasion caused by the abuse of limited liability status and makes a series of recommendations aimed at reducing the current level of tax write-off and ultimate loss to the exchequer.

Fiduciary taxes are those that are collected by companies and employers from staff and suppliers and are held in trust before being paid over to the State. The principal fiduciary taxes are PAYE and PRSI (which are deducted from employees), and VAT (which is collected on the sales of the companies). In the past 10 years, the Revenue Commissioners have had to write off EUR1bn in such taxes. In 2009 alone, a total of EUR202.9m was written off. This figure is expected to increase in 2010 owing to the rise in the number companies going out of business.

Committee chairman Bernard Allen said: “At a time when, regrettably, more and more companies are going into liquidation we must ensure that we have tight controls in place to ensure that unscrupulous company directors do not abuse limited liability to avoid paying tax resulting in a loss to the exchequer.”

”While the Committee accepts that many companies become insolvent because of genuine trading difficulties and only go into liquation after valiant efforts to save the company, there is evidence that some directors are manipulating limited liability status to circumvent their tax responsibilities.”

”Often, such directors will reopen a business, normally in the same type of trade, under a different name. It is these rogue traders, known as 'Phoenix Operators,' who the Committee is targeting.”

As part of its deliberations, the Committee examined best international practice in this area and consulted with the Department of Enterprise, Trade and Employment, the Revenue Commissioners, and the Office of the Director of Corporate Enforcement (ODCE).

The ODCE informed the Committee that there were concerns about the behavior of directors of insolvent companies in about 15% of liquidations examined.

Evidence to the Committee showed that at present, 1,235 company directors are under scrutiny by the Revenue Commissioners. In 2008, 77 directors were restricted by the High Court.

The Committee recommends the following:

  • Legal provision similar to that in the UK should be introduced, which can make company directors with a track record of noncompliance personally liable for PRSI contributions collected by the company.
  • Company law should provide that directors are required to have their tax affairs in order when incorporating a new company or when being appointed to an existing company.
  • A review of the phoenix operator monitoring program should be widened to examine the interactions between Revenue and those businesses where there was a significant tax write-off to establish whether further measures are necessary in order to minimize the level of write-off
  • The Company Law Review Group should examine whether the current levels of capitalization required when incorporating a limited liability company should be increased.

Concluding, Bernard Allen added: “The Committee accepts that any proposal to restrict the applications of limited liability has to be measured as we do not wish to inhibit entrepreneurial spirit, especially at a time when new businesses generating employment are needed now more than ever.”

”Nevertheless, what is equally important during this period of falling exchequer returns is that we keep revenue lost to the state to the absolute minimum. We feel these recommendations strike the correct balance in this regard. The measures we are proposing will mean greater disincentives for fraudulent directors and will ensure they are aware of the negative consequences which could arise if they deliberately evade paying due tax.”

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The Report

Offshore Trusts Guide: Introduction

The History of Offshore Trusts
Development of Professional Competence in the Jurisdictions
What Future for the Trust?
The New Age of Transparency
The Swiss Association of Trust Companies
The Society of Trusts and Estates Practitioners

Offshore Trusts Guide: Jurisdictions

Bahamas

Bahamas: Legal Framework and Formation Rules and Fees
Bahamas: 2006 Private Trust Companies Legislation

Barbados

Barbados: Legal Framework and Formation Rules and Fees
Barbados: Supervisory and Licensing Regime and Fees

Bermuda

Bermuda: Legal Framework and Formation Rules and Fees
Bermuda: Supervisory and Licensing Regime and Fees

British Virgin Islands

British Virgin Islands: Legal Framework and Formation Rules and Fees
British Virgin Islands: Special Trusts Act 2003
British Virgin Islands: The Trustee Act 2003
British Virgin Islands: :Supervisory and Licensing Regime and Fees
British Virgin Islands: New Laws on Private Trust Companies
British Virgin Islands: New Private Trust Company Regulations

Cayman Islands

Cayman Islands: Legal Framework and Formation Rules and Fees
Cayman Islands: Supervisory and Licensing Regime and Fees

Cook Islands

Cook Islands: Legal Framework and Formation Rules and Fees
Cook Islands: Supervisory and Licensing Regime and Fees

Cyprus

Cyprus: Legal Framework and Formation Rules and Fees
Cyprus: Supervision, Licensing and Tax

Gibraltar

Gibraltar: Legal Framework and Formation Rules and Fees
Gibraltar: Legislation, Regulation and Supervision

Guernsey

Guernsey: Legal Framework and Formation Rules and Fees
Guernsey: Trusts Law 2007

Isle of Man

Isle of Man: Legal Framework and Formation Rules and Fees
Isle of Man: Supervisory and Licensing Regime
Isle of Man: Uses Clients and Tax Treatment

Jersey

Jersey: Legal Framework and Formation Rules and Fees
Jersey: Supervisory and Licensing Regime
Jersey: Trusts Amendment Act 2006
Jersey: Foundations

Liechtenstein

Liechtenstein: Legal Framework and Formation Rules and Fees
Liechtenstein: Regulation Supervision and Transparency
Liechtenstein: Characteristics of Liechtenstein Trusts
Liechtenstein: Foundations

Madeira

Madeira: Legal Framework and Formation Rules and Fees

Malta

Malta: Legal Framework and Formation Rules and Fees
Malta: The Trust and Trustees Act 2004

Mauritius

Mauritius: Legal Framework and Formation Rules and Fees
Mauritius: Characteristics of the 2001 Trusts Act
Mauritius: Additional Provisions of the 2001 Trusts Act
Mauritius: Tax Treatment

Monaco

Monaco: Legal Framework and Formation Rules and Fees

Nevis

Nevis: Legal Framework and Formation Rules and Fees

Panama

Panama: Legal Framework and Formation Rules and Fees
Panama: Requirements for Acting as Trust Company in Panama

Seychelles

Seychelles: Legal Framework and Formation Rules and Fees

Turks & Caicos

Turks & Caicos: Legal Framework and Formation Rules and Fees
Turks & Caicos: The Voidable Dispositions Ordinance

Vanuatu

Vanuatu Legal Framework and Formation Rules and Fees




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