Chamber warns on end to Gama-type loophole

Tax scheme: The end of a scheme that allowed construction company Gama to pay some of its workers outside the Republic will damage the State's ability to attract in highly skilled executives, a number of organisations warned last night.

Minister for Finance Brian Cowen is proposing to end the so-called "remittance basis of taxation" system.

This allows someone working for overseas companies to receive their salary outside the jurisdiction, and pay tax only on what they bring in or "remit" to the Republic to support themselves.

For example, if someone in this position is paid €200,000 a year, and they bring €100,000 into the Republic, then that is the sum on which they are taxed.

The scheme was the subject of controversy when multinational building company Gama used it to pay Turkish workers employed on projects in the Republic. Most of their salaries were paid to a bank in the Netherlands.

Multinationals also use it as an incentive to bring executives to the Republic, particularly where they are establishing a base for the first time.

Mr Cowen plans to end the scheme and tax the entire income of anyone employed here by overseas-based companies, irrespective of where their salaries are paid.

He expects this to earn the State an extra €100 million a year in income tax revenues, he told the Dáil yesterday.

However, Deloitte and Touche tax partner Pat Cullen warned last night that the current system provided an incentive to executives in the multinational sector to come and work in the Republic. "It's one of our incentives, and we run the risk of losing executives with the skills that we need," Mr Cullen said.

The American Chamber of Commerce in Ireland, which represents the US investors that employ 90,000 people in the Republic, warned that the consequences of the move would be more far-reaching that foreseen by the Government.

"The remittance basis of income taxation is a key feature in the package of tax measures that have attracted overseas multinationals and their senior executives to Ireland," the chamber in a statement.

"Senior overseas executives with multinationals are often brought to Ireland on contract to manage complex projects, particularly in the start-up phase.

"It is critical that Ireland continue to attract people of this calibre. The abolition of the remittance basis may make Ireland unattractive as a base for these senior executives."

Ernst and Young tax partner Jim Ryan also warned that it could discourage new investors.