New Irish Software to Combat Offshore Tax Evasion | Tax Lawyer News

The Irish Revenue is expanding its tax enforcement capabilities through new Irish software. This new Irish software will provide the Irish Revenue with a unique type of a multilateral analysis of a taxpayer in order to combat offshore tax evasion. This is definitely a new development in international tax enforcement and it is the one likely to be followed by other nations, including the United States.

New Irish Software Allows a Brand-New Versatile Analysis of a Taxpayer’s Life

The unique feature of the new Irish software is its multilateral analysis of a taxpayer. First of all, the software will match the data provided by taxpayer (or by other national institutions) with the data collected from other jurisdictions under the automatic information exchange agreements. So far, this is similar to the IRS FATCA software.

However, the new Irish software goes further: it will analyze the taxpayer’s social media accounts, statements, pictures and so on to see if the taxpayer’s posts about his lifestyle match the information provided by the taxpayer to the Irish Revenue. It appears that there are other features of the software which are not even disclosed to the public that also go beyond the traditional analysis of tax and financial documents.

In other words, the new software will do the data analysis that will allow the Irish Revenue to build a complete profile of Irish taxpayers and their activities. This is a very bold and creative approach to tax enforcement, but, as discussed below, it is completely within the logic of the recent trends in international tax enforcement.

The New Irish Software Comes After the Closure of the Irish Voluntary Disclosure Program

The new Irish software is being introduced by the Irish Revenue just about six months after the closure of the Irish voluntary disclosure program. The Irish Revenue received 2,734 disclosures with a declared value of almost 84 million before the program’s deadline for offshore disclosures on May 4, 2017.

Since the voluntary disclosure program is closed, the noncompliant taxpayers who will be identified by the new Irish software are likely to face substantially higher penalties.

Lessons to be Drawn from the New Irish Software With Respect to Future US Tax Enforcement

This latest development in Irish tax enforcement is indicative of the trend of using comprehensive data analytics through smarter, more aggressive software with elements of Artificial Intelligence to identify noncompliant taxpayers. This is the trend that will undoubtedly influence US tax enforcement. In fact, the IRS already has an advanced tax software to analyze FATCA data (which, right now, is filled with errors and not very effective). Moreover, the IRS has also stated that it will develop its own AI software to identify US international tax noncompliance.

Furthermore, it seems that there is a worldwide trend toward harsher international tax enforcement in lieu of continuation of the existing voluntary disclosure programs. The fact that the Irish Revenue unveiled new software after the closure of the voluntary disclosure program is also not an accident, but a planned course of events.

We can already observe the same trend here in the United States. The IRS is stepping up FBAR audits while the DOJ (US Department of Justice) is dramatically increasing its FBAR-related litigation. Additionally, the IRS has recently announced its intentions to seriously modify and even close its own voluntary disclosure programs.

The combination of all of these trends means that noncompliant US taxpayers are at an extremely high risk of detection at the time when most of their voluntary disclosure options are being closed or significantly modified. This is why this is the critically-important time for these taxpayers to explore their voluntary disclosure options while they are still available. Failure to do so now may lead to extremely unfavorable tax consequences, including the imposition of substantially higher IRS penalties.

Contact Sherayzen Law Office for Professional Help with Your Offshore Voluntary Disclosure

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FATCA at Home: Crackdown on Foreigners’ Accounts in U.S. banks

As the IRS engages in negotiations with foreign governments to implement FATCA (Foreign Account Tax Compliance Act) overseas, there is a rising pressure from some countries for reciprocity – the implementation of FATCA-like disclosure of foreign clients’ U.S. accounts to those clients’ home governments.

FATCA Background

FATCA was enacted in 2010 and set to begin taking effect at the end of 2013. FATCA is the mother of many new international tax requirements. One of the most unique features of FATCA (and most relevant for the purposes of this article) is requiring foreign banks to disclose information about the accounts of U.S. persons to the IRS. The goal of this provision is, of course, to expose U.S. persons who are trying to avoid the payment of U.S. taxes through undisclosed offshore accounts.

IRS Engages In Negotiations With Foreign Governments to Implement FATCA

In order to effectively implement FATCA requirements, the Department of the Treasury has to secure the cooperation of foreign governments (especially since disclosure of information required by FATCA may constitute a violation of some countries’ privacy laws). This is why the IRS is engaged in negotiations with a broad range of foreign governments (actually, over 50 foreign jurisdictions) to implement the information reporting and withholding tax provisions of FATCA.

The Department of the Treasury pursues the policy of concluding a series of bilateral tax agreements based on the model treaty developed by the Treasury.

The Treasury Department has already concluded a bilateral agreement with the United Kingdom, Ireland, Denmark and Mexico. Additional jurisdictions with which Treasury is in the process of finalizing an intergovernmental agreement and with which Treasury hopes to conclude negotiations by year end include: France, Germany, Italy, Spain, Japan, Switzerland, Canada, Denmark, Finland, Guernsey, Ireland, Isle of Man, Jersey, Mexico, the Netherlands, and Norway.

Jurisdictions with which Treasury is actively engaged in a dialogue towards concluding an intergovernmental agreement include: Argentina, Australia, Belgium, the Cayman Islands, Cyprus, Estonia, Hungary, Israel, Korea, Liechtenstein, Malaysia, Malta, New Zealand, the Slovak Republic, Singapore, and Sweden. Treasury expects to be able to conclude negotiations with several of these jurisdictions by year end.

The jurisdictions with which Treasury is working to explore options for intergovernmental engagement include: Bermuda, Brazil, the British Virgin Islands, Chile, the Czech Republic, Gibraltar, India, Lebanon, Luxembourg, Romania, Russia, Seychelles, Sint Maarten, Slovenia, and South Africa.

Push for Reciprocity from Foreign Governments

As the implementation of FATCA begins, however, the ancient Roman principle of “quid pro quo” seems to have become the theme of the IRS negotiations with foreign governments. It appears that some countries, possibly including France, Germany and China, are demanding reciprocity in the disclosure – i.e. if their banks have to disclose to the IRS the foreign accounts of U.S. persons, then U.S. banks should also disclose U.S. accounts of foreign nationals.

U.S. Positively Responds to Reciprocity Requests

It appears that the general trend in the Obama administration is to agree with the foreign governments and engage in partial or even full reciprocity. The Department of the Treasure spokesman stated that: “the United States is committed to a policy of transparency and equivalence, where appropriate, in furtherance of international cooperation to combat offshore tax evasion.”

Actually, according to an October 2012 letter to members of Congress from the Assistant Secretary for Tax Policy, Mark Mazur, the completed FATCA pacts already include commitments “to pursue equivalent levels of reciprocal automatic exchange in the future.” Moreover, the United States appears to have already shared some taxpayer information with foreign countries with which it has a tax treaty or a formal information-sharing agreement. The IRS this year started disclosing to some foreign governments information about bank interest payments earned by their citizens with U.S. bank accounts.

Mexican Nationals Maybe Impacted First, but Europeans May Follow Soon

Despite the impression that reciprocity is mainly a demand of the European government, it appears that Mexican nationals may be the first to feel the impact of disclosure, especially since, as mentioned above, the IRS already started disclosing bank interest payments to some foreign governments, including possibly Mexico.

However, while Mexicans may be the first affected by the reciprocity disclosures, it appears that it will be only a matter of time before the European nationals will be affected. This particularly concerns the French and German nationals.