Revenue concerns over fairness of foreign executives' tax break

THE REVENUE Commissioners raised serious concerns over the fairness of aspects of Government tax breaks aimed at luring multinational executives to Ireland before they were signed into law earlier this year.

The tax incentive contained in the recent budget provided an exemption from income tax on 30 per cent of a salary of between €75,000 and €500,000 for employees assigned to work here for up to five years.

In addition, expenses paid to employees for private school fees of up to €5,000, along with travel and trips home, are exempt from taxable income.

A Department of Finance briefing document prepared earlier this year noted concern from the Revenue, pointing out that it had been established policy not to provide tax breaks for private education.

“The Revenue has raised serious concerns as to how such a provision would be perceived among the wider taxpaying population, particularly against the background of cutbacks in education spending,” the document states.

Department of Finance officials however countered that the perks should be allowed as an additional incentive for employees to take up positions in the Irish-based operations of their employer.

Officials also decided the tax break should not be classified as a tax relief, as this would bring it under restrictions for high earners introduced in recent years. These restrictions ensure that people earning above €125,000 pay a minimum tax rate of 30 per cent.

The introduction of the tax break – known as the Special Assignee Relief Programme – followed lobbying from a number of companies such as Citibank, consultants KPMG, PwC and Deloitte, along with industry groups such as the American Chamber of Commerce, the IFSC’s Tax Strategy Group and the Irish Funds Industry Association.

Officials told the Minister for Finance it was difficult to estimate how much tax would be forgone by the exchequer as a result of the measure.

The maximum amount of income exempt from tax for an individual employee under the scheme would be €127,500. This equates to €52,200 in tax forgone.

As a result, for every 100 employees, the tax lost would be a maximum of €5 million.

Officials preparing the tax break anticipated that it would attract some political opposition.

“The introduction of any measure which results in the reduction of tax paid by high earners, even if done for compelling reasons such as attracting economic activity into the State. . . will be criticised in the context of an increasing burden on ‘ordinary’ employees,” according to a department document, released under the Freedom of Information Act.

The move was criticised by some political parties such as Sinn Féin, but was welcomed by industry groups as a way of attracting top executives into the State.