Tax avoidance is no laughing matter
IRELAND’S UNUSUALLY low corporation tax rate kept cropping up this week when financial advisers were asked about the ongoing controversy in the UK over tax avoidance.IRELAND’S UNUSUALLY low corporation tax rate kept cropping up this week when financial advisers were asked about the ongoing controversy in the UK over tax avoidance.
The huge gap between the tax on corporate profits of 12.5 per cent and the more than 50 per cent that can be levied on income is the main driver of avoidance measures in Ireland today, according to a number of experts in the area.
“The whole problem in Ireland is the disjuncture between the corporate tax rate and the personal tax rate,” said one financial adviser. “It’s not rocket science. If you want to avoid tax, form a company.”
The London Times revealed last week that comedian Jimmy Carr had reduced his income tax bill to about 2 per cent by using a Jersey company to invoice for his services and DVD sales, and then getting loans from that company. Disclosure of the scheme, called K2, prompted UK prime minister David Cameron to say such aggressive avoidance measures were “morally wrong”.
All the Irish advisers we spoke to this week were of the view an aggressive tax scheme such as that used by Carr would not be illegal here. Carr was reportedly one of thousands of high net worth individuals who had collectively invested up to £168 million (€209 million) in the Jersey-based scheme.
While the UK revenue service said it was investigating whether the scheme was legal, Carr told the media he had been advised the K2 scheme was legal and had been fully disclosed to the UK Inland Revenue.
He apologised for his use of the scheme and said he had now withdrawn from it.
Further media reports in the UK drew attention to other aggressive tax avoidance schemes being used by celebrities, including one being availed of by singer Gary Barlow, an associate of Cameron, and some other members of the band Take That.
The use of film productions to assist high net worth people in avoiding billions of pounds in income tax was another scheme highlighted. The Guardian newspaper carried a column saying the scale and generosity of the tax breaks that could be achieved by investing in film productions explained why so many bad films had been produced in the UK in recent years.
Danny Alexander, a Liberal Democrat MP and chief secretary to the Treasury, told the BBC the use of aggressive tax schemes by the wealthy meant people on lower, more typical incomes ended up paying higher rates of tax.
A spokeswoman for the Irish Revenue Commissioners said it was not aware of cases of the K2 scheme used by Carr being used in Ireland.
Irish tax advisers who spoke to The Irish Times on a background basis all agreed that most ways for individuals to shelter income from tax had disappeared or become highly restricted in recent years. However, they said demand for tax avoidance services had risen as a direct result of increases in the top income-tax rate and in the capital gains tax (CGT) rate in recent years.
The top rate of income tax is now 41 per cent. Income is also subject to the universal social charge (USC), which is 7 per cent on income above €16,000, making for a combined marginal charge of 48 per cent.
The CGT rate is now 30 per cent, having been increased from 20 per cent since the onset of the financial crisis.
However, successive governments have battled hard to maintain Ireland’s corporation tax rate of 12.5 per cent, which is seen as key to Ireland’s ability to attract foreign direct investment.