US company shares have landed us in hot water
Q&A: Dominic Coyle
If you have already paid tax elsewhere – the US in this case – it can be offset against any Irish tax bill, but you still have to notify the Revenue by filling out a tax return
We hold shares in an American company. We get dividends on these, and pay tax on them in the US, as we were advised when we first got them. We have filed the necessary forms there.
Recently we were made aware of new rules for Irish tax around foreign assets. When we spoke to Revenue they asked us to fill out a return for the past couple of years, which we have done. Now it seems that we have to fill out more forms for previous years even further than four years back.
We have always been upfront with our tax, and as we were paying tax on these dividends in the US we never thought we needed to file here. We came across pieces you wrote about a clampdown on foreign assets. We vaguely remember hearing about this, but just thought it was about people deliberately avoiding tax. Now we are worried. Could we be in trouble with the Revenue?
Ms T.M., email
The clampdown you refer to was a deadline for voluntary disclosure of foreign income or assets on which an Irish tax resident might have a liability. The bottom line, if you are tax resident here, is that you are liable to Irish tax on your worldwide income in Ireland.
There is a slightly different rule if you are not domiciled in Ireland but that doesn’t apply in your case, so let’s not complicate matters.
If you have already paid tax elsewhere – the US in this case – it can be offset against any Irish tax bill, but you still have to notify the Revenue by filling out a tax return.
The W-8BEN form you would have filed with the US authorities would have seen the rate of tax levied in the US cut in half to 15 per cent on your dividends. But as an Irish taxpayer you would have been due to pay 20 or 40 per cent income tax here, depending on your income.
Thus, even allowing for the US tax paid, Irish Revenue would have been due either 5 per cent or 25 per cent of the dividend in additional tax.
And historically it would have been worse. Depending how long you own these shares, the upper income tax rate was 41 per cent up to 2015 and 42 per cent up to 2007, increasing the potential tax bill.
The importance of the foreign assets deadline is that Revenue made clear its view that anyone not availing of it and subsequently found to have liabilities would face penalties and interest – even if they approached Revenue before Revenue got to them.
You are correct that the prime targets of this clampdown were people deliberately evading tax, but the Revenue view was that, given the publicity surrounding its campaign, no reasonable taxpayer could not be aware of the position. Failure to comply was, therefore, seen as deliberate or, at best, negligent.
So where does that leave you? It’s tricky, but the bottom line is that Revenue is looking to get tax it is owed, and in cases where there is genuine confusion my experience is that they are understanding.
You owe the tax so I would fill out the forms for the necessary years and ensure, for the avoidance of confusion, that any dealings you have with Revenue are in writing – or that a written confirmation of phone conversations is recorded.
You will likely face interest charges as the money is owning for some time: the issue is whether Revenue will feel obliged to penalise you in addition to that interest. That will depend very much on your individual circumstances.
You tell me that you followed the advice given to you by an employer regarding these shares and taxation. That is unfortunate, but might help avoid or mitigate any penalty.
You refer to the four-year window for tax claims. Unfortunately this is a one-way system. You can only claim tax back from Revenue if they have charged you too much, but they are not similarly encumbered if they feel tax has been avoided – or evaded.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email email@example.com. This column is a reader service and is not intended to replace professional advice