Seanad Éireann - Volume 181 - 29 September, 2005
Ms White Ms White
Ms White: It is a great opportunity and an honour for me that the Minister has come to the House to reply to this matter. I am a member of the Oireachtas Joint Committee on Finance and the Public Service and members of the committee have had meetings with Department of Finance and Revenue officials. Having studied the issue I wish to raise, various aspects have come to my attention. When one studies an area, one learns a great deal about it.
I am concerned about the whole business of the tax exile and non-resident status of certain Irish people. I will attempt to put this in simple language. Capital gains tax was reduced from 40% to 20%. There are people on the island of Ireland who have made multi-million euro profits who  benefit from non-residency tax status. The tax rules allow people to claim non-residency status and still spend half the year, or 183 days, in Ireland. The 1994 “Cinderella” rule provides that a day spent in the State does not count if the person leaves at midnight. I have heard anecdotal stories about people leaving this jurisdiction at five minutes before midnight, flying north and coming back to Dublin for meetings at 8 a.m.
I am not naming individuals. However, at the last meeting of the Oireachtas Joint Committee on Finance and the Public Services, at which members met with representatives of the Irish Taxation Institute, they said that tax reliefs have a shelf live. This tax relief status was introduced when Ireland had a flagging economy. The Minister for Finance has said that any tax incentive must ensure the right balance is achieved between the benefit to the investor and the good of the community. Tax incentives must be driven by the socio-economic needs of the country. Therefore the litmus test is whether the incentives for the tax exiles have delivered the desired socio-economic objective.
The Minister is also on record in asserting that the Revenue objective must be to continually improve the equity of the tax citizen. This is the crux issue and one where tax residency appears to fly in the face of equity. I believe that where Irish people have made millions of euro in profits here and are not prepared to pay 20% in capital gains tax, that is sheer greed. Without naming them, many of these people make conspicuous sponsorships and charity donations. Most of the PAYE workers in Ireland make charitable donations. I wonder whether such contributions are a more significant part of such workers’ disposable incomes than the contributions made by multimillionaires who will not pay 20% capital gains tax.
Leaving these rules in place has changed Ireland. Such people are held up as icons. They are seen to be successful because they make millions of euro. They have helicopters and can fly out of the country at five minutes before midnight — excusing themselves at parties and dinners on the grounds that they must leave the jurisdiction before midnight.
Anyone who has raised this matter with the Minister is hot under the collar about it, and the bad example these people are giving. What about public servants, people who stay in the Civil Service, for example, who are not concerned with making megabucks? They want to give public service and pay their PAYE. I am not impressed with successful business people of this type being presented to us as role models for younger people.
It would be significant if Fianna Fáil could look at this again. The Minister told the Dáil earlier in  the year that the matter would again be looked at. I do not believe this situation is necessary. I raised the matter with the Minister’s predecessor, the former Minister for Finance, Deputy McCreevy, a year ago and he took the nose off me, saying there would be no change. Following that I have been talking to people on the ground who feel it is very bad example. Its shelf life is over and we do not need to stimulate the economy any longer. Neither do I accept at this stage that such people are putting all this money back into the economy.
Mr. Cowen Mr. Cowen
Mr. Cowen: It is important to set out the facts for the record. It is necessary at the outset to remind the House that the need for a definition of residency arises from the need for clarity as regards which sovereign jurisdiction has the taxing rights in relation to particular taxpayers. If such rules were not formulated and applied there would be potential confusion and conflict, and unfairness to the taxpayer and tax authorities. Different approaches can be taken as to how this dividing line is drawn, but in all cases, persons will fall either one side of the line or other. Tax administrations must strike a reasonable balance while remaining consistent as far as possible with international norms in this regard.
The residency rules in Ireland are of long-standing. Up to 1994 they were a mixture of common law, Revenue practice and court decisions. In order to codify and clarify issues as far as practicable, they were last updated by the Fianna Fáil-Labour Party Government in the Finance Act 1994 following a comprehensive review of the matter by the Revenue Commissioners and the Department of Finance. Under the present residency rules, a person is regarded as resident in Ireland for tax purposes in a particular tax year if he or she spends 183 days in the State in that year, or 280 days in aggregate in that tax year and the preceding tax year. This aggregation rule does not apply if he or she is in the country for less than 30 days in the tax year being looked at. A person is regarded as having spent the day in the State if he or she is there at midnight.
The 183-day rule that contributes to determining residency in Ireland is also a core element of a number of other countries including Australia, Canada, the Czech Republic, Denmark, Finland, Germany, Italy, New Zealand, Norway, Portugal and Sweden. There seems to be a mistaken belief in some quarters that non-residents escape Irish tax totally if they are non-resident. Even if non-resident in Ireland, there is a liability to Irish income tax on Irish income, for example, income from directorships, rented properties, etc. Also, where individuals are resident in countries with which Ireland does not have a double taxation agreement they continue to be subject to a 20%  withholding tax on dividends paid to them by Irish companies. Non-resident individuals are also liable to Irish capital gains tax on gains from land, buildings, business assets, minerals and exploration rights in the State or from unquoted shares which derive the greater part of their value from assets in these categories.
Since 2002, income tax returns require data from self-assessed taxpayers in relation to their residence and domicile status. This is not captured electronically at present but will be in the future. This will make it practicable to derive overall statistics as regards claims to non-residence status. There is no statutory obligation on non-resident individuals to return details to Revenue of income or gains arising anywhere else in the world as these are not liable to tax in Ireland. Therefore, it is not possible to provide the information in the manner the Senator desires. There is nothing untoward in this. Tax authorities are usually not concerned with income over which they have no taxing rights. However, I believe that, in the context of the Senator’s concerns, we may be dealing with a fairly well defined group of individuals.
It is not correct to regard residency rules as a specific tax relief scheme as such, for the reasons explained at the outset. They are therefore not included in the review of tax relief schemes that I announced in last year’s budget. However, as already outlined to the Dáil on 1 June last, I have asked the Chairman of the Revenue Commissioners to monitor the application of the current non-resident rules, through examination of cases handled in the Revenue large cases division, and to provide me with a report once this is completed. The Chairman has confirmed to me that this work is under way and that he will report to  me as soon as possible. I am also informed by the Revenue Commissioners that a number of audits are under way in their large cases division into claims to non-residence as part of their risk based programmes.
Ms White Ms White
Ms White: I am au fait with the points made by the Minister in the earlier part of his reply. I am aware that qualifying individuals pay tax on dividends and income derived in Ireland and residency rules do not form part of the review of tax reliefs announced in the most recent budget. However, the Taoiseach stated recently — I believe it was in April or May — that this issue, which has also been discussed at the Joint Committee on Finance and the Public Service, would be examined. Will it be possible to retrieve the information I require as part of the examination under way in the Revenue’s large cases division? Would the taxes foregone as a result of residency rules not be sufficient to cover the costs of delivering the improved child care policy I seek?
Mr. Cowen Mr. Cowen
Mr. Cowen: There is no evidence to that effect. The residency rules are long-standing and were subject to review in 1994. I have explained in detail how the regime works. As I outlined, the belief that non-residency, by definition, involves non-payment of taxes is incorrect. The Revenue Commissioners monitor the situation on an ongoing basis and are satisfied with the operation of the rules. Should the position change, they will report to me on the results of any examination they undertake. It should not be presumed that Revenue is not applying the rules as they stand. As I outlined, the rules are comparable with many countries. They should be dealt with on the basis of evidence rather than anecdote.
The Seanad adjourned at 2.05 p.m until 2.30 p.m. on Wednesday, 5 October 2005.
Seanad Éireann 181 Tax Code.