This type of assessment applied to foreign executives who worked here but were paid from abroad. Their liability for Irish income tax was confined to that portion of their income “remitted”, or paid to them, in Ireland.
Although not as important as our low corporation tax regime, the fact that foreign executives could escape paying tax on a significant part of their salary was used to encourage foreign multinationals to move here. It was an incentive for executives who might have been reluctant to leave sunnier climates.
That all changed when the minister announced that from January 1 the practice would end and these executives would pay tax on all their earnings, wherever they were paid. This means that foreign executives who had entered into contractual arrangements with their multinational employers on a remittance basis could now face a large tax bill.
This is hardly fair as these executives were legitimately taking advantage of a tax code that had existed for many years. They had entered into pay arrangements in the reasonable expectation that the remittance tax system would not be altered during their stay in this country.
The change was brought in by the government in response to concerns that the remittance device could be seen as an incentive for Irish firms to employ foreign executives over Irish ones and reduce wage costs by keeping some or all of the tax benefit.
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The minister has estimated its abolition will increase the tax yield by €100m in 2008. Unfortunately life is not that simple.
The announcement has had a much wider impact and will not assist “Ireland Inc” in encouraging multinationals to move here. This is particularly relevant in the context of increased competition for inward investment from new European Union member states.
Extensive lobbying has taken place since the announcement. One solution being explored is the introduction of a green card system. Under the proposal the remittance basis would continue to apply if an employee held a green card. This would be granted only to a person with skills that are in short supply here and who earned a certain salary.
No matter what the outcome of the lobbying, the whole affair ithighlights a flaw in the manner in which tax legislation is introduced. Far too often such law is passed without proper consultation. How many times have we seen important legislation introduced at the committee stage of a finance bill, where there is no time for proper debate? It seems to me that such a radical change in tax law should not be introduced without proper consultation from various interested groups.
In Britain, when such changes were considered, the Treasury published a consultative document and all interested parties had an opportunity to respond.
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It is a pity we did not go down the same path we did when the property tax incentives were revised only after a consultation process. Instead we have a public debate after the event that is no doubt being watched carefully by the EU.
Brian Purcell
chairman, Certified Public Accountants
Taxation Committee