Obligations of third parties to notify the Revenue Commissioners of the making of offshore settlements
 

Sinead McCormack
Senior Manager, Private Wealth Services

As and from 1 January 2009, where any person in the course of a trade or profession carried on by that person,

“has been concerned with the making of a settlement and knows or has reason to believe that, at the time of the making of the settlement, the settlor was resident or ordinarily resident in the State, and the trustees of the settlement are not so resident”

then that person must deliver to the Revenue Commissioners a statement outlining:

• the name and address of the settlor
• the names and addresses of the trustees, and
• the date the settlement was made or created

(or whatever information is available to them or should be available to them in the normal course of providing the service i.e. “know your client” checks).

This means lawyers, accountants, bankers, financial advisors, financial intermediaries, tax advisors, trust administrators and companies could all potentially be required to file a statement with the Revenue Commissioners, if concerned with the making of an offshore settlement.

The responsibility for making the return lies with the sole practitioner/trader, the precedent acting partner in the case of a partnership and the secretary in the case of financial institutions, companies etc..

Penalties apply for the failure to make a return or the making of a false return.

The legislation is retrospective and requires statements to be filed in relation to settlements made since December 2003. This means advisors who have been “concerned” with offshore trusts, must revisit all of their files since December 2003, to ascertain if they must file a statement under this new legislation. It seems unfair to ask advisors to review all transactions since 2003 in order to ensure compliance with this provision.

Settlement
“Settlement” is widely defined for the purpose of this legislation and includes:

“any disposition, trust, covenant, agreement or arrangement, and any transfer of money or other property or any right to money or other property”

As outlined this definition is extremely wide and does not necessarily refer to the creation of a trust, but could cover any further contribution of assets to an offshore trust, as this could be regarded as a further “settlement”.

For example it could cover;
 

• Where the settlor makes a contribution of money into an existing offshore trust
• A disposition to an existing trust.
• A contribution by a separate donor (not the original settlor/donor) into an existing trust.

The Revenue Commissioners have issued an e-brief dealing with frequently asked questions in relation to this legislation in which they have outlined a number of scenarios which in their opinion could be considered to be caught under this new legislation.

Scenarios which they have stated require a return to be lodged include:

• Where a professional arranges on behalf of a client a transfer of assets to a non resident bare trust

• Where a person arranges the transfer of money or assets to a non resident trust e.g. a bank transferring money of an Irish resident to the bank account of an offshore trust
• Where a company transfers assets to a non resident nominee company which holds the assets in a nominee or fiduciary capacity
• Where a financial intermediary operates a portfolio account which is held in the name of a non resident entity acting in a nominee or custodial capacity but the funding of the account is provided indirectly by an Irish resident person
• Where a person provides financial advice to a client in relation to the settlement of funds on an offshore trust and arranges the transfer of the monies to the trustees.
• Where a bank operates an account which is held in the name of non-resident trustees and which is subject to the terms of a trust (covers a transfer to an existing trust, transfer by trustees of funds from one bank account to another and the changing of bank accounts)
• Where an employer establishes an offshore trust structure for the benefit of its employees

Settlor

The term settlor means any person by whom the settlement was made. A settlor will be deemed to have made a settlement if that person has provided or undertaken to provide funds directly or indirectly for the purpose of the settlement, or has made with any other person a reciprocal arrangement for that other person to make or enter into the settlement.

Trustees not resident

For the purposes of this legislation trustees of a settlement are not resident, unless the general administration of the Trust is ordinarily carried on in Ireland, and the trustees or a majority of each class of trustee are for the time being resident in Ireland.

Within the period specified

The onus is on the Third Party to deliver the information within the following time limits.

A return of information (Form 8-S) must be delivered:

• In the case of a settlement made in the five year period between 24 December 2003 and 23 December 2008 by 1 September 2009.
• In the case of a settlement made in the period between 24 December 2008 and 30 April 2009 by 1 September 2009.
• In the case of a settlement made on or after 1 May 2009 the return is due within four months of the making of the settlement.

Territoriality & Scope

The legislation does not have a territorial limit and the reporting obligation applies to persons who carry on a trade or profession both in the State and outside the State.

The reporting obligation covers any inter vivos trust set up at the time a Will is drawn. The reporting obligation in relation to offshore trusts created in a Will arises when the Will comes into existence on the death of the testator.

The legislation also allows a Revenue Authorised Officer to issue a notice in writing to any person, where there is reason to believe that person has information in relation to a settlement, requiring the furnishing of such information. The notice can apply to settlements made pre and post 24 December 2003 and is not confined by reference to residency of the trustee i.e. it applies to settlements involving both resident and non resident trustees.

Summary
This legislation potentially creates onerous obligations for advisors and financial institutions concerned with offshore trusts. It requires systems to be put in place in order to ensure compliance with the legislation but also requires a review of all files and transactions since December 2003, to ascertain if a return is required. Particularly in the case of financial institutions this seems unreasonable. The legislation continues the trend of the Revenue Commissioners to impose reporting requirements on advisors of tax payers in addition to the tax payers themselves.