CCAB-I Comments

Name of Respondent

Consultative Committee of Accountancy Bodies –Ireland.

The Consultative Committee of Accountancy Bodies – Ireland (“CCAB-I”) is the representative committee for the main accountancy bodies in Ireland. It comprises the Institute of Chartered Accountants in Ireland, the Association of Chartered Certified Accountants, the Institute of Certified Public Accountants in Ireland, and the Chartered Institute of Management Accountants. It represents almost 30,000 qualified accountants working in all areas of business and practice. The Institute of Chartered Accountants in Ireland is also a member of the Global Accounting Alliance, which also may provide a response under separate cover.

Contact details

Brian Keegan, Director of Taxation,
Institute of Chartered Accountants in Ireland, Burlington
House Burlington Road Dublin 4, IRELAND
brian.keegan@icai.ie

Country of Respondent

Ireland

Question 1: What are the important features of tax administration that may facilitate the co-operative compliance approach? Please build on positive and negative experiences in dealing with your tax administration.

We subscribe to the five capabilities for Revenue Authorities recommended in the OECD Tax Intermediaries report in terms of facilitating a cooperative compliance approach, if that is indeed desirable, namely:

• understanding based on commercial awareness
• impartiality
• proportionality
• openness (disclosure and transparency)
• responsiveness

We go further in advocating that these capabilities should be displayed by Revenue Authorities to ALL taxpayers.

We mention here that members of the Institute of Cha rtered Accountants in Ireland routinely deal with the Revenue Authorities both of Ireland and of the United Kingdom and Northern Ireland.

Question 2: Do you think that having a dedicated unit (or units) as part of your tax administration (either at national or at regional level) with particular responsibilities for HNWIs is a good idea? If you are generally supportive of such an idea, what roles and responsibilities do you think such a unit should assume?

Under this heading, we would observe that there are particular technical aspects in dealing with High Net Worth individuals. For example, in the Irish context, it is likely to involve knowledge of and the application of limits to the so-called Specified Reliefs, a skill which would not be necessary in the context of dealing with the majority of the taxpaying population. Whether it is appropriate or not to limit such skill-sets to particular dedicated Revenue Authority units is a management matter for the Revenue Authority concerned. Services to taxpayers provided by Revenue Authorities is becoming more systematized, with procedures increasingly underpinned with technology. Increasingly there is a trend towards technology driven “self service” – the HMRC OnLine services and the Irish Revenue OnLine Service (ROS) are examples. Also of importance is the increasing publication of technical information and resources on-line, aimed both at the taxpayer and the professionals who advise them. There may be a temptation not to develop these services to the fullest extent required by HNWIs as they represent a smaller taxpaying constituency, thus the per capita cost benefit of these services is lower. Any cost benefit assessment should therefore be derived from tax yield comparisons, rather than taxpayer number comparisons.

1. How should a tax administration best gain insights into the behavioral drivers and the general context within which HNWI and their advisors operate? For instance, by employing staff with relevant private sector experience perhaps on secondment, on short term contracts, at the end of successful careers, or on permanent contracts. Should there be some form of “advisory board” involving advisors and other relevant market participants (e.g. private banks) or some other structured form of providing relevant background and context to the tax administration.Again, staffing and training are management matters for the Revenue Authority concerned. Where “advisory boards” are engaged, there should be clear efforts to ensure:
• Appropriate remuneration for the board members concerned – it might be counterproductive to constitute such boards on a voluntary basis
• Strict confidentiality in the dealings between such boards and the Revenue Authority
2. What role and responsibility should the unit assume with respect to the affairs of the taxpayer (e.g. research and risk assessment or full responsibility for the file including potential audit)?There is merit in separating the taxpayer service aspects and policing aspects of every taxpayer case.
3. What taxes relating to the HNWI and their affairs should such a unit deal with and why? For instance, should it be limited to income taxes or also cover inheritance and estate taxes, VAT/GST etc.?From a taxpayer's perspective, he or she deals with a Revenue Authority. Subdivisions by heads of charge are largely Revenue arrangements. Neither the taxpayer nor the agent will be too concerned, provided that a competent service is being provided.
4. Should the unit be responsible also for the affairs of all/certain entities controlled by a HNWI (e.g. only the personal affairs of the taxpayer, all operating entities and non-trading entities or only non-trading entities)?Please see our response to c. above. It is however of critical importance to recognise that companies and other operating entities have legal standing in their own right, and may, depending on local legislation, be separate taxpayers in their own right. If for example, a privately held company is to be investigated, it should not be assumed for any tax purposes that the company and its controlling shareholder are one and the same entity unless the legislation suggests otherwise.
5. Should HNWIs and their advisors be assigned a designated contact point within the unit?Designated contact points in the context of any service delivery, tax or otherwise, are often very helpful and represent best practice.
6. Should the unit be tasked with preparing an annual or periodic report about the overall environment and key developments, including the most pressing issues identified by HNWI and their advisors for use by the heads of tax administrations and finance ministries?An over-emphasis on separate formalized reporting by a particular Revenue Authority unit could dilute the perceived overall authority and responsibility of the Revenue Authority concerned in the administration and collection of taxes. This is particularly so given the emphasis in the media on reporting on HNWI's and their activities.
7. Should additional safeguards and security procedures apply to the information held by the unit?There should be adequate safeguards and security procedures in place for all taxpayer information, HNWIs or otherwise. Where that is so, special additional safeguards should not be necessary for HNWI units.

Question 3: If you are from a country that currently has a dedicated unit dealing with HNWIs what advantages or disadvantages have you seen in having such a unit and do you have any comments on the way it was set-up and is operated? What are the features that you find the most useful?

Ireland has had a dedicated unit dealing with HNWIs for some five years. The disruption involved in the establishment of a dedicated unit could be considerable and may lead to an overall deterioration in taxpayer service. It may be that, in the future, the service experienced by a HNWI will be better than that experienced prior to a reorganization.

Question 4: If the tax administration offered this or a similar approach, what would encourage HNWIs and their advisors to opt into it? In your answer please consider the points discussed below and indicate which points may be more important and which may be less important. Please also describe any other elements or concerns that you think would be relevant for HNWIs and their advisors (e.g. privacy concerns), and how these may be addressed.

It would be unusual if a Revenue Authority, having put such a dedicated unit in place, to permit taxpayers to opt in or out of having their affairs conducted there. We are unclear if this is the intended focus of this particular question.

Question 5: The Focus Group seeks input from HNWIs and their advisors about the framework for voluntary disclosures and what particular elements would encourage taxpayers to come forward, e.g. solutions to issues such as lack of back-year records, inability to calculate final tax liability, concerns regarding privacy.

The disclosure framework in operation in Ireland, and recently introduced in the United Kingdom, have many useful features. The main element which will encourage taxpayers to engage in such disclosures is concern over detection involving harsher settlement terms. A feature of the Irish disclosure regime, though not of the UK regime, is the threat of publication where a disclosure is not made.

Our experience would be that HNWI's generally have better record systems in place than the taxpaying populace as a whole, and the resources and expertise to calculate final liabilities. As already mentioned, no taxpayer should have concerns over their privacy in dealing with Revenue Authorities. Any legislation which facilitates bringing a tax dispute too readily to the public domain should not be countenanced.

Question 6: Please express your views on the merits of a product ruling regime in connection with HNWIs. In addressing this question please take a broad view of the term “product ruling” to include any form of advance certainty (whether formal ruling or not) and also consider which segment of HNWIs you think would be the users of the types of products for which product rulings could be made available (i.e., certain HNWIs might be more likely to enter into tailor made arrangements that do not lend themselves to product rulings).

Our view here reflects the tenor of our earlier responses, namely that while HNWIs can and do have service needs which require particular expertise on the part of Revenue Authorities, we have a difficulty with forms of special arrangement applying to them over and above arrangements available to taxpayers generally.

Advance rulings have a place in a developed tax environment, as they can offer certainties on certain types of transaction with the effect of reducing administration costs both for the Revenue Authority and the taxpayer alike. An Advance Rulings regime should be defined in relation to the type of transaction covered, rather than the likely profile of taxpayer who might avail of the ruling. The technical issues surrounding, for example, VAT on a commercial real property transaction do not materially differ by virtue of the value of the building involved, but are contingent on the taxable status of the taxpayers involved and the nature and use of the building. Whether or not the taxpayer is a HNWI will be immaterial to the technical position, acknowledging that it is more likely that HNWIs will be more likely to seek such rulings than other individual taxpayers.

There can frequently be tensions between the perceived urgency of an advance ruling on the part of the taxpayer and on the part of the Revenue Authority. Any advance ruling structures should therefore have undertakings in the spirit of a Service Level Agreement, otherwise expectations could not be managed.

Taxpayers recognise that Revenue Authorities have a strong influencing role in the scope, design and application of legislation in addition to their interpretative and ruling abilities. Their influencing role may be informed by the nature of the matters submitted for advance rulings.

Many of these practical issues could best be resolved where taxpayers are permitted to express doubt on the tax treatment of transactions reflected in their annual returns. An expression of doubt should offer protection against interest and penalties in the event that the Revenue Authority authoritatively rejects the tax treatment applied by the taxpayer.

The apparent focus on “product” rulings as distinct from rulings particular to an individual taxpayer's transactions may be somewhat out of date. It does not reflect either the current tax incentive regime in developed economies, nor the approach adopted by HNWI's and their advisors in availing of such regimes.

Question 7: Do you have any other comments which you wish to make?

Not at this time, but we may wish to offer further observations without prejudice to the current comments at a future stage.

GAA Comments

OECD'S PROJECT ON HIGH NET WORTH INDIVIDUALS

The following letter was submitted to OECD in December 2008 by the Chief Executive Officer of the Global Accounting Alliance.

Forum on Tax Administration (FTA) – High Net Worth Individuals’ Project

Introduction

1. The Global Accounting Alliance (GAA) welcomes the opportunity to comment on the FTA project on High Net Worth Individuals (HNWI).

2. The GAA was formed in November 2005 and is an alliance of leading professional accountancy bodies in significant capital markets. It was created to promote quality services, share information and collaborate on important international issues. The Alliance works with national regulators, governments and stakeholders, through member body collaboration, articulation of consensus views, and working in collaboration where possible with other international bodies, especially IFAC (the Interational Federation of Accountants).

3. The Alliance facilitates a cooperation between ten of the world's leading professional accounting organisations:

The American Institute of Certified Public Accountants (AICPA)

Canadian Institute of Chartered Accountants (CICA) Hong Kong Institute of Certified Public Accountants (HKICPA)

Institute of Chartered Accountants in Australia (ICAA)

Institute of Chartered Accountants in England and Wales (ICAEW)

Institute of Chartered Accountants in Ireland (ICAI)

Institute of Chartered Accountants in Scotland (ICAS)

The Japanese Institute of Certified Public Accountants(JICPA)¹

New Zealand Institute of Chartered Accountants (NZICA)

South African Institute of Chartered Accountants (SAICA)

These organisations represent over 700,000 professional accountants from 140 countries.

GAA input into the current consultation

4. We have set out below some general observations on the current OECD discussion paper.

5. Representatives from some of our member organisations will be attending the Public Consultation meeting in Paris on 9 February 2009 and we intend to make more detailed comments at that meeting. We then propose to follow up with a further written response which will deal with the specific questions raised in the discussion paper.

6. The present letter also sets out the background to the earlier OECD report into Tax Intermediaries from which the present discussion paper is derived. The original Tax Intermediaries consultation began with an aggressive stance towards tax intermediaries but ended recommending a much more conciliatory and collaborative approach to developing good working relationships with the major stakeholders within tax systems.

GAA initial comments

7. The present discussion paper seeks to continue this more collaborative approach in the context of HNWIs and build on the the experiences of various fiscal authorities, including Ireland, of cooperative compliance.

8. From discussions at the meeting in London on 4 December 2008 organised by the UK and Irish revenue authorities it is clear that there are a number of issues that revenue authorities will have to deal with for a co-operative compliance regime to be put in place successfully.

Skills	It will be a challenge to ensure that the revenue officials involved have suitable skills.
Complexity	Authorities will need to recognise that the tax affairs of individual HNWI's are often extremely complex.
Information	There is a considerable amount of information about individuals which is freely available and revenue authorities will have to be able to handle all this information and make sense of it.
Holistic approach	Authorities need to look at individuals’ affairs in the round.

9. In general terms in addition to co-operative compliance there are a number of other C's which are important to HNWIs. These are:

Complexity	Both of compliance and of the tax system itself
Certainty	HNWIs want to be certain of taxation outcomes
Confidentiality	HNWIs are concerned not only about maintaining their business affairs as confidential but also more personal details which they may not want infant children to be aware or they may be concerned, in certain parts of the world, about the risk of kidnapping.
Consultation	HNWI and advisers acting for them need to feel confident that the tax system will only change after appropriate consultation with those who will be affected by the change
Customer service	HNWI expect good service in all aspects of their affairs, not least their interaction with the tax system

10. We believe that the advisers of HNWIs are only going to recommend to their clients participation in such co-operative compliance if both can see clear benefits from doing so.

11. There will also need to have a sufficient degree of trust in the ability of the particular revenue authority to honour its commitments. Trust takes a considerable amount of time to build up and can be destroyed very quickly as a result of inappropriate actions.

12. We also believe, as we have said in paragraph 9 above, that HNWIs are very concerned about the confidential nature of their personal and financial affairs and would want to be sure that data is secure within the hands of the revenue authority. In this respect we note a number of worrying instances of data loss in the UK over the past 12 months or so which undermines trust in the system.

Context for the current discussion paper

13. The current study of HNWIs has resulted from the work of OECD looking at Tax Intermediaries and the recognition in the report adopted in January 2008 in Cape Town that there had not been time to deal appropriately with the role HNWIs play in tax systems around the world.

14. However there was in the Executive Summary of the January 2008 report a recognition that HNWIs could have a negative impact on tax systems and the public finances:

• ‘HNWIs are the second principal market for aggressive tax planning [and that] further work should be undertaken to consider whether the enhanced relationship or other strategies are needed for addressing the risks posed by aggressive tax planning by these taxpayers.’

The background to the earlier OECD study on Tax Intermediaries

15. The original study was set up following the third meeting of the FTA in September 2006 in Seoul. The original brief was considered to be rather aggressive. The Seoul Declaration set up the study:

• ‘to examine the role of tax intermediaries (i.e. law and accounting firms, other tax advisers and financial institutions) in relation to non-compliance and the promotion of unacceptable tax minimization arrangements’

16. By contrast the Cape Town Communiqué, which accompanied the publication of the tax intermediaries report, indicates that in practice the study evolved by broadening its focus into a wider review of the tripartite relationship between revenue bodies, The change in the perception of taxpayers and tax intermediaries.17. the role of tax intermediaries is clearly indicated by the first of the main conclusions of the report:

• ‘tax intermediaries play a vital role in all our tax systems by helping taxpayers understand and comply with their tax obligations in an increasingly complex world.’

18. However, the report also comments as follows on how taxpayers and tax intermediaries interact as regards aggressive tax planning.

• ‘Tax intermediaries may supply aggressive tax planning options to their clients but taxpayers set their own strategies for tax risk management and determine their own appetites for tax risk. Taxpayers are the ones who decide whether to adopt particular planning opportunities and there is significant scope to influence the demand by taxpayers for aggressive tax planning – at least in relation to large corporate taxpayers, which is the main focus of this report.’

19. The report recommends that revenue bodies should apply risk management techniques to ensure that limited resources are applied to the highest priority areas. This requires current, relevant and reliable information for which the best source is the taxpayer. So the report explores how a relationship between revenue bodies and taxpayers could be developed which can be based on early disclosure of potential tax issues and transparency.

20. The report also recognises that for an improved relationship to develop the revenue bodies will need to make certain behavioural changes based on the following attributes:

• understanding based on commercial awareness;
• impartiality;
• proportionality;
• openness; and
• responsiveness.

21. If revenue bodies do adopt these five attributes and have effective risk management processes in place then taxpayers will be more likely to engage in a relationship with revenue bodies based on cooperation and trust: what is described in the report as an ‘enhanced relationship’.

Conclusion

22. At this stage we have restricted ourselves to comments of a general nature but we hope that these observations will be of assistance at this stage of your study.

23. We intend to make more detailed observations at the Public Consultation meeting in Paris on 9 February 2009 and we then propose to present a written report summarising our views and answering the detailed questions set out in the October 2008 discussion paper.

Yours sincerely,

Stephen Harrison AO FCA FAICD

Chief Executive Officer

Global Accounting Alliance

1JICPA joins GAA with effect from 1 January 2009