Office of the Comptroller and Auditor General - Dirt Investigation - Chapter 3

Chapter 3 : DIRT and Non-Resident Exemptions

DIRT - Statutory Requirements

DIRT is a self-assessment tax - and has been so since its introduction in 1986. This means that financial institutions have a statutory obligation to deduct DIRT from any "relevant interest" paid to a depositor, to pay it over to Revenue and to make a return on a prescribed form.

Under Section 258 of the Taxes Consolidation Act, 1997

a relevant deposit taker must make to the Collector-General, within 15 days of the end of a tax year (by 20 April) each year, a return of the relevant interest paid by it in that year and of the amount of DIRT in relation to that payment. The return must be in a form prescribed by the Revenue and contain a statement to the effect that it is correct and complete. A return is required whether or not any relevant interest was actually paid in the year.

DIRT is payable to the Collector-General without the making of an assessment but an assessment may be raised by an inspector (whether or not the tax has been paid at that time) if DIRT, or any part of it, for a year is not paid by the due date.

DIRT deducted by a relevant deposit taker in a tax year is to be paid to the Collector-General at the same time as the return for that year is due but this is modified by a further requirement on the deposit taker to make a payment "on account of appropriate tax" due for a tax year by the 20 October in that year. There are two alternative ways of computing the amount of the payment on account

(i) the DIRT due in respect of the interest accrued on a daily basis in the period 6 April to 5 October, or

(ii) the amount of DIRT due in respect of the interest paid/accruing in the 12 months to 5 October, less the amount of DIRT paid in the previous April. This method of calculating the payment on account is mandatory where the amount of DIRT which a relevant deposit taker is due to pay in respect of interest paid/credited in a tax year is less than the amount of tax appropriate to the interest which accrued on deposits held by it in a specified period of twelve months (ending on its latest general crediting date or, if there is no general crediting date, on 5 April in the year). Once this alternative method applies for a particular year in a case it applies for all succeeding years.

Payments on account are also payable without the making of assessments and the return for a tax year must contain details of such payment including the amount of interest involved.

DIRT overpaid in any one year is carried forward and set off against DIRT payable for subsequent years.

Where an inspector is not satisfied that any amount of DIRT which ought to have been, but was not, included in a return or the inspector is dissatisfied with any return made to the Collector-General he/she may make an assessment on the relevant deposit taker to the best of his/her judgment. Any DIRT due under the assessment will be due from the same date it would have been due if a correct return had been made.

The normal provisions of the Income Tax Acts relating to the assessment, collection and recovery (including appeal procedures) of income tax, apply to the assessment, collection and recovery of DIRT.

Penalties

Failure by a relevant deposit taker to deduct DIRT when it should have been deducted, or to pay over DIRT deducted to the Collector-General, are Revenue Offences under section 1078 of the Taxes Consolidation Act, 1997. Penalties under the section are, on summary conviction, fines of up to ?1,000 and/or imprisonment of up to 12 months, while, on indictment, there is provision for fines of up to ?10,000 and/or imprisonment of up to 5 years. In the case of a company, any person who is a director, manager, secretary or other officer or member of the committee of management or other controlling authority of the company and who can be shown to have consented or connived at the offence can also be held personally guilty of the offence and subject to proceedings under the section.

Non-Resident Exemptions

Interest Reporting Exemption

Prior to the introduction of DIRT non-residents were entitled, on serving notices known as Form Fs, on the deposit taker, to have details of interest paid to them excluded from returns to Revenue. Persons completing Form Fs were required to

declare that the person who was beneficially entitled to the interest when it was paid or credited was not then ordinarily resident in the State

request that the interest should not be included in returns made to Revenue.

This exemption continued after the introduction of DIRT and applied to all financial institutions.

The Form F notice was required to be completed periodically but did not name the beneficial owner. Prior to 1986 Building Societies had been outside the ambit of the Form F provisions by virtue of their special arrangement with Revenue under Section 31 of the Corporation Tax Act, 1976 under which they paid tax at a composite rate.

Exemption from Net Payment of Interest

The effect of Sections 31 and 32 of the Finance Act, 1986 was to excuse a financial institution from deducting tax from interest where the deposit holder served a declaration on it declaring that the beneficial owner of the interest is non-resident and the deposit holder had satisfied itself that no person resident in the State was beneficially entitled to any interest in respect of the deposit.

A non-resident declaration under Section 37 of that Act had to

be made by the person to whom the interest on the deposit was payable

be in a form prescribed or authorised by the Revenue Commissioners

declare that, at the time of the declaration, the person or persons beneficially entitled to the interest on the deposit was or were not ordinarily resident in the State

contain the name, address and country of residence of any such person declared to be beneficially entitled to the interest

contain an undertaking by the declarer that, if the person or any of the persons beneficially entitled became resident in the State, he/she would notify the relevant deposit taker accordingly.

There was also provision that any other information that the Revenue Commissioners might reasonably require in the matter could be included in the declaration.

In order to allow time to put declarations in place the older Form F was accepted in lieu up to April 1987 in accordance with Section 37(1) of the Finance Act, 1986.

The entitlement for exemption from DIRT on the basis of non-residence depends in law on both the fact of non-residence and the serving of a declaration. The legislation provides that a relevant deposit taker shall treat every deposit as a relevant deposit (i.e. a deposit from which DIRT must be deducted) unless satisfied that it is not so.

For a deposit to be exempt from DIRT it must be a deposit in respect of which

no person resident in the State is beneficially entitled to any interest, and

a declaration has been made to that effect.

The financial institution must, therefore, deduct DIRT unless these two conditions are met.

The key features of the two inspectable documents are set out in Table 3.1.

Table 3.1Claiming Exemptions on the basis of Non-Resident Status - Statutory Provisions

Features of Inspectable Documents

For DIRT Exemption

For Non-return of Interest

by financial institution

Onus on person to whom interest is paid A declarationa should be given

in writing and signed

by the person to whom the

interest is payable

in a form prescribed or authorisedb by Revenue

declaring that the person beneficially entitled to the interest is non-resident

giving the name, address and country of beneficial owner

gives an undertaking to notify any change of residence status to the deposit taker

A notice served on the deposit taker declaring

the beneficial owner is non-resident

requesting non return of interest to Revenue

Frequency Once-off Periodic
Onus on deposit taker To treat every deposit as liable to DIRT unless it has satisfied itself that it is not such a deposit

Where it has so satisfied itself to continue to treat it as DIRT-exempt until it is in possession of information which can reasonably be taken to indicate that the deposit is liable to DIRT.

Where not satisfied that the person who has served the notice is non-resident to request

an affidavitc stating the name, address and country of residence of the depositor at the date of interest payment or credit and

if the depositor is not the beneficial owner giving like particulars in respect of the beneficial owner.

Retention of Documents Declarations must be retained for the greater of six years or three years after closure or reclassification of the deposit account. Both notices and related affidavits must be retained for six years from the date of service of the notice on a deposit taker
Revenue Rights To give notice requesting supply of the declaration and take copies and extracts thereof. To request confirmation that a specific person has served a notice on the bank and be furnished with it together with any related affidavit

Qualification for Exemptions - Summary of Provisions

After 1986 the statutory provisions in regard to the evidencing of non-residence required financial institutions to

hold a non-resident declaration (Form 37) to exempt a person from deduction of DIRT

hold a notice (Form F) requesting non-return of interest to exempt a person from having interest reported to Revenue

seek an affidavit if they were not satisfied the holder of the account was non-resident.

Revenue Concession - Form F

The banks made representations to the Department of Finance that there was duplication between these requirements. While the legislation was never amended, a concession was made by the Revenue under the Care and Management Provisions which was communicated to the Irish Bankers Federation on 12 November 1993 in the following terms

"On the point you and your colleagues made concerning the perceived duplication involved in requiring both a completed Form F as well as a non-resident declaration, the Revenue Commissioners are prepared to agree that in those circumstances Form F can be dispensed with. Completion of the non-resident declaration alone will be regarded as sufficient to absolve the bank concerned from the obligation to include details of interest, to which the declaration relates, from the return required under Section 175 of the Income Tax Act 1967 as amended".

The general understanding reached was

the concession was effective from 12 November 1993 and applied to new and existing accounts

despite dispensing with the notice the procedure of calling for an affidavit where the deposit taker was not satisfied with the residency status claimed still stood

there was no intention to combine the two documents. The declaration would be accepted in lieu of the notice.

The contents of this page were last updated on 26/09/03