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.
Disclaimer: This article just provides broad information. It is only up to date as of the posting date. It has not been updated and may be out of date. It does not give legal advice and should not be relied on. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.