This article series on the tax voluntary disclosure program
includes 5 parts: Part I introduces the OECD framework and
structures for voluntary disclosure programs around the world,
providing a high-level overview; Part II delves into the voluntary
disclosure program in Canada, examining the key elements of the
program as well as its importance for Canadian taxpayers who are
looking to correct their prior mistakes; and Parts III through V
compares the voluntary disclosure program in Canada with similar
programs in the United States of America, in the United Kingdom,
and in countries within the European Union.
This is Part V and final part of the series, which examines the
similarities and differences between the voluntary disclosure
program available in Canada and some countries in the EU. As there
are quite a number of countries in the EU that have voluntary
disclosure programs, the comparative analysis aims to provide a
conceptual overview of the available programs in selective
countries. Specifically, we will take a look at the
voluntary disclosure programs available in France, Germany, and
Ireland.
Introduction: The European Union
The European Union (EU) is an international economic and
political union of 27 countries as of 2024, whereby the countries
(“member states”) agreed to share their own sovereignty
in certain aspects of government. However, the EU does not have a
direct role in taxation. Each EU member state has its own tax
systems, while following some general principles set out by the EU.
These EU rules are usually for business and consumer policies,
which in turn impact the tax systems in each member state. For
instance, taxation should not discriminate against consumers,
workers or businesses from any member states in the EU and
businesses in one country should not have an unfair advantage over
competitors in another. Such principles can affect both consumption
tax and income tax, including Value Added Tax (VAT), excise duties,
personal income tax, and corporate income tax.
In this article, we will focus on France, Ireland, and Germany
in our discussion regarding the voluntary disclosure programs in
the EU and in Canada, for the reasons set out below.
- At 55.4%, France, as of 2024, has the highest top statutory
personal income tax rates in the European Union. In addition, the
close relationship between the province of Quebec and France
warrants some similarities between Quebec tax system and the French
tax system. - In terms of corporate income tax rates, while Germany is among
the member states with the highest rates at 29.9%, Ireland
maintains a remarkably low combined statutory corporate income tax
rates of 12.5%. Ireland’s low tax rates are achieved by a
complex set of
Base Erosion and Profit Shifting (“BEPS”) tools,
resulting in the very famous tax arrangement called “Double
Irish, Dutch Sandwich.” Ireland’s preferential tax system
for corporations has consequently attracted many international
corporations, especially tech companies, to set up offices in
Ireland, including Google, Apple, HP, and Microsoft. - Furthermore, France and Germany are among the biggest trading
partners of Canada, with many French and Germans living in Canada
and vice versa. In 2021 alone, over 12,000 French citizens
were granted Canadian permanent residence. In the 2021 Census of
Canada, Germany is among the top five countries of birth of
Canadian citizens by descent living in Canada.
Tax Systems in France, Germany, and Ireland
All three countries adopt a primarily “Pay As You Earn
(PAYE)” tax system, similar to the United Kingdom, which do
not require most taxpayers to self assess and file taxes every
year. Taxes are withheld from income payments made to employees and
remitted to the taxing authorities by the employers, subject to
government reviews. Taxpayers, nevertheless, have the options to
file an annual tax return if necessary or if they choose to do so
to ensure the correct amount of taxes. For instance, self-employed
taxpayers in Germany are obligated to file a
tax return every year.
In France, taxes are levied by the government and collected by
public administrations, including the central government, local
governments, and the social security association. Only the central
government levy personal income taxes via the Public Finances
Directorate General (French: Direction Generale des Finances
Publiques). A unique feature is the distinction of taxes
(“impôts”) and social contributions (cotisations
sociales), together referred to as compulsory deductions
(“prélèvements obligatoires”). Income tax
rates are progressive, from 0% to 45%, plus applicable surtax on
portion of income exceeding certain thresholds. As a result, France
has the highest top statutory personal income tax rates of 55.4% in
the European Union.
The equivalent of CRA in Germany, its tax authority, is the
Federal Central Tax Office (German: Bundeszentralamt für
Steuern). Taxes in Germany are levied by the federal government,
the states as well as the municipalities. However, only federal
government can collect income taxes. The German taxation system
also adopts a progressive income tax rate, which warrants that an
increase in taxable income should never result in a decrease in net
income after taxation. In terms of corporate income tax rates,
Germany is among the member states with the highest rates at just
under 30%, including the uniformed tax rate of 15%, solidarity
surcharge of 5.5% of the corporate tax, and trade tax.
The Irish Revenue Commissioners, commonly called Revenue, is the
Irish Government agency responsible for taxation and related
matters, similar to the Canada Revenue Agency in Canada. The
personal income tax rates in Ireland are much simpler than the
rates in Canada, France, or Germany: personal income is either
taxed at 20% or 40%, depending on the filing status. Exemptions
from income tax may also be available for certain individuals,
including those who aged 65 years or over. There is no local income
tax in Ireland. In addition, Ireland receives the vast majority of
its corporate tax from foreign multinational corporations, due to
its corporate tax system, which has drawn labels of Ireland as a
tax haven.
Voluntary Disclosure Programs In The EU
Most member states in the EU currently host some form of
voluntary disclosure programs that allow taxpayers to resolve their
non-compliance. Every member state has at least had one voluntary
disclosure program, whether or not the program is currently valid.
For example, Greece introduced a voluntary disclosure program for a
limited time in 2017, which offered an opportunity for all
taxpayers who have failed to disclose taxable income and assets to
the Greek taxing authorities. The program originally intended to
end on May 31, 2017, but remained in effect until September 30,
2017. Similar to the Voluntary Disclosure Program in Canada, the
programs available in France, Germany, and Ireland require
applicants to make complete disclosure and to include payments in
relation to the disclosure, in exchange for some forms of relief.
However, each program has its own unique features.
France has a habit of constantly updating its voluntary
disclosure program policies in recent years, often adjusting the
policy as required. However, there is a general limitation of 3
years for corporate and personal income to be disclosed via the
Voluntary Disclosure Program in France. If a tax audit has been
initiated against a taxpayer, the taxpayer can, during the tax
audit, voluntarily inform the tax auditor about prior
non-compliance and request the possibility to disclose. Although
France provides no relief for taxes otherwise payable and
penalties, the Voluntary Disclosure Program in France does offer
relief for applicable interest, up to 30% per month.
In Germany, a taxpayer who submits an application through the
Voluntary Self-Disclosure Program may not be offered immunity from
criminal prosecution, even if the application includes complete
disclosure. Specifically, the availability of immunity from
criminal prosecution depends on the amount of evaded taxes and
whether the taxpayer is able to make full payments towards the
taxes, penalties, and interests. No disclosure is accepted if a tax
audit related to the disclosure has been initiated or if the tax
authority has taken some actions against the taxpayers in
connection with the disclosed matters.
The Unprompted Qualifying Disclosure Program in Ireland allows
an Irish taxpayer to voluntarily disclose prior non-compliance,
including unreported income or gains and errors on a tax return or
a tax relief/refund claim. Interestingly, a taxpayer can still
participate in the Irish Disclosure Program even if the Irish
Revenue has initiated a tax audit against the taxpayer. If a
qualifying disclosure is made by a taxpayer, the taxpayer will
receive penalty relief and immunity from criminal prosecution in
connection to the disclosure. In addition, the Irish Disclosure
Program offers a unique relief, stating that settlement details
stemming from the disclosure will not be published on the list of
tax defaulters. The list of tax defaulters is complied by the Irish
Revenue of every taxpayer upon whom a tax fine or other penalty was
imposed by a Court, and is in effect a public shaming, by including
the taxpayer’s name, address, occupation/business, penalty
amounts, and number of charges.
Pro Tips – Disclosure In Different Countries
A taxpayer who may need to voluntarily disclose prior
non-compliance in more than one country should be aware of the
difference in the process, including timeline, limitation on
matters to be disclosed, process of disclosure, and available
relief etc. For example, although Canada does not permit taxpayers
to partake the voluntary disclosure program after the CRA has
initiated actions, Ireland allows taxpayers to partake in the
Prompted Qualifying Disclosure after they receive notices of a tax
audit. Another example is the difference in available relief
between the Voluntary Disclosure Program in Canada and the
Voluntary Self-Disclosure in Germany. Instead of offering relief,
Germany applies a surcharge on the taxes otherwise payable, up to
20% for amounts over 1 million Euros.
Consequently, when submitting a voluntary-disclosure
application, a taxpayer must pay close attention to the applicable
rules, especially if the taxpayer is an
immigrant. If you are an immigrant in Canada and are concerned
about your tax reporting obligations in Canada regarding
foreign income and assets, you should engage with one of our
expert tax lawyers. Our knowledgeable
Canadian tax lawyers can provide legal advice specific to your
case.
FAQ
Can I File Voluntary-Disclosure Applications In Multiple
Countries?
From the CRA’s perspective, there is no restriction against
taxpayers who may have tax filing obligations in foreign countries.
Whether you will need to file a voluntary-disclosure application in
other countries depends on the non-compliance issues to be
disclosed. Our experienced Canadian tax lawyers can assist you with
any questions regarding the Canadian voluntary disclosure program.
If you suspect that you may need to file a voluntary-disclosure
application in another country, we recommend that you speak with a
licensed tax professional or lawyer in that country.
Do I Need To Disclose My Foreign Assets And Income In My
Canadian Voluntary-Disclosure Application?
Yes, for a voluntary-disclosure application to be accepted in
Canada, the disclosure must be complete. The application must
include all relevant information and documentation and disclose all
prior non-compliance, whether or not such non-compliance actually
incurs penalties and/or interests. For example, if you have
significant equity in foreign corporations, you likely need to file
a
T1134 form for each year. If you fail to file the T1134 form
and intend to submit a voluntary-disclosure application, you should
include T1134 forms for all applicable years in your
application.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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