Revenue to carry out residency audits on tax exiles

The Revenue Commissioners is to carry out random audits annually to investigate whether tax exiles are complying with residency rules that limit the amount of time they are allowed to reside in the country in any given year.

The audits will include travel records and other documentary evidence, which will be sought from individuals who make declarations to the Revenue Commissioners that they are resident outside the State for tax purposes.

The move follows a special investigation last year to establish whether there was compliance with the residency rules.

The investigation, carried out by the Revenue Commissioners large cases division, carried out an audit of nine individuals and found that they were all complying with the residency rule for declaring they were non-resident for tax purposes.

The audits are believed to have included an examination of travel records from both the individuals and "intelligence" gathered by inspectors. The nine were a cross section of individuals who have made non-resident tax declarations to the Revenue. The number of tax exiles is believed to be quite small, although the Revenue Commissioners have never released the exact figure.

Claiming non-residence for tax purposes can save wealthy individuals significant amounts of money, with all money earned outside the State not subject to income tax by the State.

Income earned within the State and profits by Irish-based companies belonging to a tax exile are still subject to tax, however.

In recent weeks Revenue Commissioners chairman Frank Daly wrote to the Minister for Finance Brian Cowen outlining the findings of the investigation and informing him that the Revenue would continue to carry out similar audits on an ongoing basis.

The audits, however, do not address the issue of the so-called "Cinderella rule", which enables tax exiles to increase the amount of time they spend in the State without breaking the rules governing non-residency.

Under the general rules, a person who claims non-resident status can spend no more than 183 days in the State in any tax year, and risks losing tax exile status if that limit is exceeded.

However under the Cinderella rule, introduced in 1994, if an individual leaves the jurisdiction before midnight on any given day, that day is not counted as one where they were in the State.

The rule has been sharply criticised by the Labour party as enabling tax exiles with private air transport to spend much of their time within the State without risking their tax exile status, although the Government has indicated that it does not intend to change the rule.