Revenue turns gaze on owners of holiday hideaways

Identifying who owns property abroad could be huge task for taxman. Colm Keena reports.

The Revenue Commissioners have managed a fantastic public relations job in recent years, scaring tax dodgers into coming forward before they are caught.

That's the view of a senior tax partner with a top Dublin financial services firm who did not wish to be named.

"They have managed to frighten the 'bejaysus' out of people and people are taking them a lot more seriously than they used to."

The result is that a vast amount of tax is being received without the Revenue having to allocate the resources that might otherwise be required.

Having frightened people into coming forward about their bogus non-resident accounts and their offshore bank accounts, the Revenue now hopes to scare people into coming forward about their foreign properties.

The advantage of this approach for the Revenue is clear.

It currently conducts approximately 16,000 audits per annum. The offshore assets initiative alone saw 15,000 people coming forward to disclose their offshore accounts.

That is the equivalent of a year's work by the Revenue's audit teams, achieved simply by threatening to use new powers available to the Revenue if people didn't come forward.

Now the Revenue has said it is going to turn its attention to property in France and Spain owned by Irish residents. A Revenue spokesman declined to give details when asked about the methods the Revenue would use to identify who owns property abroad.

There are no reliable data on the number of Irish people who have purchased property abroad since the mid-1990s but estate agents involved in the area estimate the number at around 60,000. Mr Ronan O'Driscoll, director of HOK's international residential property division, believes approximately 40,000 Irish people have bought properties in Spain in recent years.

If 60,000 people own properties abroad and the average cost of each property was in the region of €100,000, then the amount spent on these properties was €6 billion. The key issue from the Revenue's perspective is how much of this money was "hot".

The money spent on these foreign properties is the most likely source of any significant return for the Revenue. "This could especially apply to people involved in cash businesses," said the tax partner, who did not wish to be named. "Someone might make €200,000 from a job and think, I will buy an apartment in Spain with this and no-one will ever know." The Revenue obviously believes this has happened to a significant extent.

A second source for the Revenue could be rental income from abroad that is not being declared. For those who took out mortgages to buy their properties, the amount of taxable income after interest and other charges are taken into account, is probably minimal. So this issue really only applies to people who bought their properties without taking out a loan.

A third source of potential taxable income would be capital gains tax (CGT) on profits made when properties abroad were sold on by Irish residents. However, Mr Tom McGrath, a Dublin solicitor who specialises in Spanish property deals, said the Spanish government holds on to 5 per cent of any funds paid for a Spanish property, until the vendor has paid his or her CGT. In Spain the CGT rate is 35 per cent for non-residents. A double-taxation agreement means no tax would be paid in Ireland.

The Revenue has already taken an initial step in trying to identify Irish residents who have property abroad. "They made an unannounced swoop on us about six months ago," said Mr O'Driscoll. "They said they would like to inspect our files but we did not hand them over."

The agency was concerned about its legal position should it hand confidential information about clients to the Revenue. Other agencies also visited by the Revenue had similar concerns and the Irish Auctioneers and Valuers Institute took legal advice on their members' behalf. "I believe they told the Revenue they didn't have the power to demand the information. We never heard any more about it."

The Revenue spokesman confirmed that that was how matters stood. He said the Revenue did have the power to require the production of documents by estate agents, under section 905 of the Taxes Consolidation Act. The section covers the powers of authorised officers to enter premises and gain access to information.

Mr O'Driscoll said he believed about 10 per cent of properties abroad were bought using Irish estate agents, so even if the Revenue did get access to Irish agents' files it would still not identify the bulk of people who bought their properties using local agencies. "There are 900 estate agents in Marbella alone."

An option for the Revenue would be to travel to land registry offices in Spain and France and seek to identify Irish owners of local property. However, that would be a monumental task, said one estate agent who sells foreign properties. "Maybe, they are just trying to frighten people."

The unnamed tax partner quoted above holds a similar view. "There is a reasonable level of public information available in Spain and Portugal and France, but it would be extremely labour-intensive to collect it."

It is possible that the Revenue might be able to get significant amounts of information from sister organisations in Europe. Co-operation between Revenue services in different jurisdictions is all the rage these days, driven by the OECD and the European Union in an effort to chase trans-national tax evasion.

Non-residents who own property in Spain are required to get a non-resident identity number from the local police, according to Mr McGrath. Without this number it is not possible to get certain basic services for your property. Certain local taxes must also be paid, so the Spanish authorities could have data banks that would be of great use to their Irish counterparts.

The extent to which the Revenue would be able to get lists of Irish property owners from foreign tax services is not clear. A spokesman said the idea was "not unreasonable" but could not expand on the issue.

"The Costa Del Sol used to be a good place for hiding hot money, but not any more," said a spokesman for Palmera Properties in Málaga, Spain.