We might have guessed it was coming down the road, in his budget speech of 9 December last, Minister for Finance Lenihan said that “I will also be introducing a package of measures to improve the effectiveness of the Revenue Commissioners in dealing with tax avoidance schemes.” Improvement in this case, being in the area of knowledge about them. Revenue, to their credit, is refreshingly upfront about the purpose of Chapter 3 of Part 33 of the Taxes Consolidation Act 1997. By obtaining information on tax avoidance schemes at an early stage, Government can decide to close them down.

I don't propose to dwell on the legislation itself as introduced by Finance Act 2010 to create and enforce an obligation on taxpayers and their agents to disclose details of tax avoidance schemes. Its operation and partisan distinction between practices which can avail of legal professional privilege and those which cannot are already well known. The legislation is however predicated on Regulations for three very important concepts – what types of schemes must be reported upon, the nature of the report itself, and the due date of reporting. At the time of writing, draft Regulations have been made available for public consultation and comment.

The Irish rules are heavily based on a similar regime in the UK – see Andrew Walker's article in this issue of tax.point. Integral to both regimes are hallmarks, or categories, for the general types of schemes which must be reported. These sit side by side with specific types of schemes which are clearly identified in the draft Regulations. Schemes based on the use of losses, both for individuals and corporates, employment arrangements involving a reduction or deferral of the employer's or employee's liability and devices which convert income into capital or income into gifts are all identified. Certain arrangements, also listed, are excluded. These involve ESOTs, Share Options, Salary Sacrifice (Bus and Bike etc), Pension Contributions, Film Relief, Windfarms, Woodlands, BES, High Tech Venture Capital and Remittance Basis.

So far, so good. What complicates the situation are the hallmarks, those general facets of an item of tax planning which drag it into the net of reportability. The UK ‘Disclosure of Tax Avoidance Schemes’ (DOTAS) regime uses the term “hallmark”, the Irish regime “category”.

The first of these is confidentiality. Where a promoter might wish to keep a scheme confidential from other promoters or from Revenue, the scheme becomes disclosable. One issue with this category is that the Regulations do not distinguish between tax information and commercial information. We have already seen that specific legislation had to be brought in to permit Revenue to refer to outside specialists when evaluating R&D schemes, so that an assurance of confidentiality could be maintained. Presumably businesses will wish for similar, non-tax information to be kept confidential. And therefore, ironically, it becomes disclosable.

The second category is “premium fee”. If the answer to the hypothetical question “would any promoter be able to charge a premium fee for the scheme” is yes, the scheme is disclosable. Revenue argues that the test is to identify tax advice which is innovative and valuable, and for which premium fees could be charged. But most commercially offered tax advice is both innovative and valuable, and the only real test of whether or not a fee could be a “premium fee” is the view of the client, not the agent nor the Revenue. The real problem with this category is that it might become a catch all – that a scheme should be disclosed simply because it is of commercial value to the client.

The third general category has to do with standardisation – in other words that a standard set of documents could be used, with reasonably little tailoring, to implement the scheme many times either for the same or for different clients. This category is possibly the fairest, in that it can be tested objectively with little prospect of dispute as to the outcome. The standardisation test is not to be applied in the case of the excluded schemes mentioned earlier. It is acknowledged by Revenue that Film Schemes, for example, generate mounds of standardised paper. It would of course be inappropriate to force a Government policy sponsored tax relief into a mandatory disclosure regime.

The big difference between the approach of the Irish authorities and their UK counterparts is the initial scope of the schemes which must be disclosed. Originally, the UK Disclosure Regime was limited to schemes that concerned employment and certain financial products. The regime was extended to the whole of Income Tax, Corporation Tax and Capital Gains Tax with effect from 1 August 2006. At that stage too the descriptions of schemes to be disclosed were revised into the series of hallmarks. Later still, in 2007, the scheme was extended to include arrangements relating to National Insurance Contributions. The Irish Revenue however have taken a big bang approach, and excluded schemes aside, it would seem that every avoidance scheme is potentially disclosable.

Not only is there a difference in approach, there is a difference in environment. Low headline tax rates discourage the widespread use of planning techniques on two sides. Firstly there's the consumption side. If the deduction to be secured is valued at only one eighth of the expenditure to create it (as is the case with Corporation Tax), very large amounts of money have to be involved to make the planning worthwhile. Secondly there's the legislative side. The introduction of the 12.5% rate of Corporation Tax, and the halving of the Capital Gains Tax rate to 20% (as was) were paralleled by the removal of a range of allowances and reliefs. The accelerated Capital Allowances, Indexation and Rollover reliefs on which so much planning was based, are things of the past.

Revenue seem to have overlooked that Corporation Tax planning, insofar as it still exists, is based entirely on policy sponsored reliefs – capital allowances for Intellectual Property, the participation exemption, R&D credits and the like. Surely these schemes aren't disclosable? But they are, because they are not excluded and because the general categories are sufficiently broad as to ensure they could be included.

As already mentioned, the Regulations are out there to be consulted upon. Arguably, and for the reasons I've already outlined, they may not be workable because of the wide variety of schemes which could fall into the net. We have until September to make our case. And after that we'll be left dealing with the two aspects of the Regulations I haven't dealt with – the filling in of the scheme disclosure forms within the five days permitted.

Brian Keegan is Taxation Director with Chartered Accountants Ireland.