Lenihan to reverse Cowen's axing of tax incentives for foreign bosses
Published 04/02/2010 | 05:00
Finance Minister Brian Lenihan is to complete a U-turn on Taoiseach Brian Cowen's removal of tax incentive for foreign executives in Ireland, as the Government focuses on attracting investment.
As Finance Minister, Mr Cowen moved four years ago to scrap the system that allowed foreign executives working in Ireland to pay tax only on the part of their salary that was brought -- or "remitted" -- into the State to support themselves.
The decision to end the so-called "remittance basis of tax" caused uproar. But Mr Cowen rebuffed strong lobbying from accountancy firms and industry bodies who said it sent out the wrong signal to companies looking to invest in Ireland.
It was believed the decision to close the relief was a reaction to a 2005 controversy in which Turkish building firm Gama was using the system to pay Turkish workers based in Ireland through banks in the Netherlands as a way of avoiding tax.
Mr Lenihan carried out a partial reintroduction of the remittance basis at committee stage of last year's Finance Bill, but restricted the tax relief to employees from companies outside the European Economic Area (EEA), which includes the EU, Norway, Iceland and Liechtenstein.
There were other significant conditions, such as only giving the relief by way of a refund. In addition, an individual must be an Irish resident for at least three years but not normally liable for Irish tax.
Sources say the Mr Lenihan is set to extend the scheme to include EEA countries.
The scheme brought in last year applies full tax on up to €100,000 a year, with the tax bill reduced by 50pc on income above that. One senior tax expert said this helps avoid the "Gama effect".
A number of consultancy firms and the Irish Bankers Federation (IBF) argued strongly that similar regimes already operate in other EU countries.
A Budget submission from the IBF last year highlighted that both the Netherlands and Sweden offer attractive tax schemes for foreign workers.
If key conditions are met, a foreign executive working in Sweden is only taxed on 75pc of total salary. Beneficiaries of the Dutch scheme are only taxed on 70pc of their total income.
"Feedback from the financial services industry shows that there are still opportunities, within the international operations of multinationals, to locate new business in Ireland particularly during a period where significant structural changes are happening within organisations globally," the IBF said.
"However this can require moving international personnel into Ireland with specific skill sets and experience," it added.