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CAI Comments On Irish Finance Bill

Tuesday, February 9, 2010

Chartered Accountants Ireland (CAI) has welcomed provisions in this year’s Finance Bill that will enhance Ireland’s attractiveness to international investors, and also empower the Revenue Commissioners with greater powers to collect taxes and enforce Ireland’s tax laws.

Of the measures, introduced by the bill, CAI welcomed in particular changes to the Corporation Tax regime. The body’s statement said: “[These changes] will make it easier for multinationals to locate their headquarters, their research departments and their patents and copyrights here. The financial services industry located primarily within the IFSC (International Financial Services Centre) will benefit from changes to modernize the tax rules governing the investment of funds.”

The CAI also lauded the introduction of further Islamic Financing Arrangements:

“Islamic financing arrangements which are compliant with the principles of Shari'a law don’t feature the making or receiving of interest payments. This means that there are different structures put in place to provide investment, financing and insurance services. Where possible, the Irish Revenue have applied tax to Islamic Financing arrangements as if they operated along the lines of equivalent Western models. The new rules in today’s Finance Bill will formalize these tax treatments. They should enhance Ireland’s ability to attract Islamic Financial Services providers to the IFSC, while at the same time facilitating the provision of services to our Muslim population.”

“A key element of any inward investment strategy is the network of Double Taxation Agreements, and Ireland needs to arrange more Agreements with Muslim states,” the CAI stated. Ireland recently concluded an agreement with Bahrain, and agreements are at an advanced stage with countries such as Kuwait, Saudi Arabia, United Arab Emirates and Egypt.

Turning to discuss enforcement powers granted to the Irish Revenue Commissioners under the bill, the CAI commented:

“Revenue are granted significant additional powers of investigation, collection and enforcement across all tax heads. It must be remembered that Ireland already has very high levels of tax compliance by international standards. Tax evasion is not in anyone’s interest.”

“But businesses exist for purposes other than to act as taxpayers and tax collectors, and the new powers being granted to Revenue must be used sensibly and sparingly. Otherwise, the cost of tax compliance for compliant businesses will be too high,” the body warned.

Lastly, turning to discuss income tax proposals in the bill, the CAI reflected on restrictions to tax reliefs for high earners.

“The measures in the Finance Bill to increase the effective rate of income tax for those benefiting from reliefs to 30%, and to change the entry point to the restriction to EUR125,000 with the full restriction applying at EUR400,000 in effect represents the elimination of the use of tax reliefs and incentives. It had been government policy to promote tax based investments, but the promised tax benefits are now heavily restricted.”

“Our research shows that taxpayers in the higher income brackets pay on average an effective rate of 30% anyway before these changes. As many of the reliefs which are restricted are based on property investment, one of the main effects of this change will be to reduce an individual’s capacity to pay back borrowings. This is an unwanted consequence especially in the light of the problems in the banking sector.”

Commenting on the New Domiciles Levy, the CAI said: “The levy will be a EUR200,000 a year charge for individuals with Irish assets worth EUR5m and annual income of EUR1m, but the question remains as to how Revenue can enforce it. Ireland’s tax residence rules may require modernization – they predate electronic commerce and our modern communications network, and the Commission on Taxation suggested ways in which this could be done. Re-introducing the concept of domicile (which depends for example on where you want to be buried) as the basis for a significant tax charge is not the way forward.”

Concluding, the body welcomed changes to the tax payment and filing system for Capital Acquisitions Tax – observing that it has been brought more in line with other self assessment taxes – but noted that many taxpayers may be disgruntled by other changes to the tax law, which will mean that tax will now be due on the transfer of family businesses where the value exceeds EUR750,000.