February 16, 2011
By Staff Reporter
By Andrew Bushe
DUBLIN — Some of the world’s biggest financial institutions that have set up operations in the flagship Financial Services Center in Dublin’s docklands are objecting to what they regard as minor technical elements of a new get-tough policy on non-resident account tax evasion.
The Financial Services Industry Association has sent letters to the taoiseach and minister for finance warning that the problem could lead to banks pulling out and others deciding not to set up operations.
About 7,000 people are employed by 400 companies in the center, which has been one of the major success stories of the Celtic Tiger.
A massive trawl of accounts in the domestic banks and building societies as well as the IFSC companies is under way after last year’s Oireachtas Public Accounts Committee’s investigation into evasion of Deposit Interest Retention Tax.
A so-called "look-back" audit by the Revenue Commissioners office involves a trawl back to 1986 on non-resident accounts to check for DIRT liability in the tens of thousands that are bogus.
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Both representatives of the 37 domestic financial institutions and the IFSC companies have had separate meetings with Revenue about their audit.
The Revenue Commissioners came in for sharp criticism at the PAC hearings for not doing their job adequately in the past and they are expected to need some persuading to ease their probe.
FSIA chairman Ron Bolger said there is a fundamental difference between domestic operators and IFSC banks, which are operating internationally with big institutions.
"Many of these companies have Dec. 31 year-ends and they are closing off their accounts.," Bolger said. "Their external auditors are reviewing their accounts and documentation and are discovering in some cases that documentation is not as complete as it should have been, or wasn’t completed at the time or is a bit inaccurate.
"Some of these inaccuracies could be as minor as leaving the world England out of an address for London. That is a technical breach of the Taxes Act and the Revenue Commissioners have the right under these breaches to apply penalties."
Bolger said there was no tax due in these situations. The errors are "entirely innocent," the accounts are legitimate and he called for a "sense of proportion."
The problem means that some auditors will insist on a note in the company accounts about possible liability. This in turn will feature in parent company accounts and cause problems with regulatory authorities like the U.S. Securities and Exchange Commission.
"This will be exploited by our competitors," Bolger said in his letter, "and will be taken into account by international financial institutions when deciding whether to locate activities or business in Ireland; some IFSC institutions may be closed down by parents."