Q & A

Foreign Earnings

I received a tax refund because I was out of the country on work training for more than 90 days. The company I work for operates a tax equalisation policy under which, before being allowed to take up the overseas assignment, we were asked to sign a document which means we have to hand in our refund to the company. Is this legal and, if so, can we claim any tax relief on the money we give back to the company?

Mr S.M., e-mail

The question you raise is an interesting one in an environment where more and more Irish employees are travelling abroad to work for their companies. This is particularly so in the case of multinationals where staff may be assigned to various parts of the corporation without regard to national boundaries.

The tax refund and the 90 days to which you refer come under the provisions of claim for foreign earnings deductions with which we dealt a couple of weeks ago. Basically this kicks in where someone resident in the Republic for tax purposes spends more than 90 days - or more particularly nights since midnight is the hour at which each day's absence is recognised - in any one tax year or in a continuous period over two tax years. Each spell abroad must be for a minimum of 14 days to count as part of the total and the time abroad must predominantly be spent on work. By the way, time spent in Britain, including Northern Ireland, does not count.

What the deduction effectively does is reduce your income by that proportion of time spent abroad for the purposes of income tax. The formula is: number of qualifying days multiplied by one's total earnings - from work at home and abroad in the year with that total divided by 365.

The phenomenon you then talk about - "tax equalisation policies" - is a relatively new feature of the Irish corporate landscape and one which has arrived together with the influx of multinational corporations which currently underpin the economy.

As Jim Ryan, director of personal taxation at Ernst & Young explains it, tax equalisation is a policy designed to ensure that employees fare no worse nor any better by virtue of their assignments from the company. It is essentially a guarantee of net pay. Those employees who receive an income tax refund under national tax legislation because of time spent working abroad must return it to the company. Similarly, those employees who may find themselves facing more tax demands locally than they would in the state in which they are tax resident have the difference made up by the company.

The policy generally exists in those multinationals, primarily US, groups where employees undertake substantial international travel for work and training purposes.

So, in simple terms, it appears it is not illegal. You certainly have no chance of getting the money paid back to the company or any portion of it from the Revenue here.

After all, the employee must claim the foreign earnings deduction from the tax authorities in the first place. This is done by submitting your tax return with a statement showing a breakdown of your total income between Irish and foreign income and the days and dates you spent abroad. Only when it is received does it get refunded by the employee to the company. As far as the Revenue is concerned, it has paid any tax refund due to the taxpayer and it would not be likely to pay the same money twice.

Telecom shares

I recently received a letter from Telecom about its plan to sell some shares. How does this apply to me and what should I do with the form it sent? Would I have to send money if I register for shares?

Mr P.D., Dublin

You really should not worry too much about the form you have received from Telecom Eireann. Everyone on the electoral register should have received one.

This is a very early stage in the proposal by Telecom to sell up to 35 per cent of the company, largely to its private customers. All the company is doing is trying to gauge the interest among its customers for the deal before committing itself to exactly how much of itself it wishes to sell. After all, it wouldn't look very smart if it offered to sell 35 per cent of the company and no one wanted to buy it.

These forms you refer to are simply a method of registering your interest, if you have one, in buying some Telecom shares should they come on the market. You are making no binding commitments and if you change your mind between now and the flotation, there is no problem. You will not receive a bill for shares you do not want.

What will happen though is that those people who register an interest now in buying shares will jump to the top of the queue when the shares are allotted if they still want to buy them. That is not to say other people will not be able to buy these shares, but certainly you should register your interest if you have any intent to buy a piece of Telecom. Come to think of it, the Government could hardly have hit on a better way to persuade people to sign on to the electoral register. After all, there is nothing to say they will not use the same database when it comes to other public flotations of State bodies.

You should not enclose any money with this registration of interest form. The only time you need to worry about money is if you eventually decide to buy the shares. If you do declare your interest, Telecom will automatically send you a brochure about the company, its proposed share offer and some general points about owning shares. Later, an application form and prospectus will arrive at the time of the share offer itself. This information will not necessarily be sent to those who do not now register an interest, so it would seem to make sense to do so, if only to make sure you remain informed about the future of one of the biggest companies in the State.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, Fleet Street, Dublin 2 or e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering queries. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.