THE Minister for Finance has been told by big business interests not to go after wealthy tax exiles in the Budget because tightening the tax rules could frighten off investors.
The representations were made to Michael Noonan, who invited submissions from members of the public on whether he should change the tax residence rules.
Some of Ireland's richest people can avoid paying tax in this country on their worldwide income by moving to more generous tax shelters, cutting hundreds of thousands, if not millions, from their tax bills in the process. They are liable for tax only on what they earn in Ireland.
Research by the Labour Party recently showed that tax exiles were one of the main issues exercising voters. However, Mr Noonan's curiously low-key public consultation process closed on August 1 with only seven submissions sent in to his department.
Five submissions were from "organisations" and two from individuals, which the department said it would publish in due course. Three submissions were from representative bodies for accountancy and tax experts who urged the minister not to tighten up the tax residence rules, and who have already published their proposals on their websites.
One group, Chartered Accountants Ireland, suggested he make the rules less onerous for wealthy business people, who are obliged to jet in and out of the country on the same day in order to avoid their time in Ireland counting for tax purposes.
The two opposition parties, Fianna Fail and Sinn Fein, did not submit proposals to the minister, despite both parties -- Sinn Fein in particular -- demanding reform of tax exile status in the Dail.
The issue of tax exiles is likely to open another front in the looming pre-Budget battles between the coalition partners, with Labour putting pressure on the minister to introduce changes to non-resident tax rules, for the optics at least. The Programme for Government promises to ensure that tax exiles make a fair and equitable tax contribution.
The Minister for Finance is widely perceived as favouring a cautious approach to changing tax exile rules, while Labour has called for the abolition of tax exile status in opposition. Social Protection Minister Joan Burton, who recently questioned the loyalty of tax exiles to the State, said this weekend: "There was a very extensive discussion on all aspects of the Budget last year. I expect there will be again this year."
Colm Keaveney, chairman of the Labour Party, said: "I think there is pressure on the Government to demonstrate the type of social justice that's required, at this important juncture. We are about to enter the most difficult political and economic period of this Government. The Budget itself will result in a lot of unhappy people."
While Michael O'Leary, the Ryanair chief executive who earns more than €1m a year, has said he has no problem paying 50 per cent of his income in tax, a string of other influential business people have taken up residence elsewhere.
JP McManus, the racehorse owner, has a personal fortune estimated at €775m, and owns a 400-acre stud in Limerick. His official residence is the Swiss city of Geneva. The Finance Minister was among the guests at his recent party for 1,500 at his palatial mansion, Martinstown House.
Mr McManus denied last year that he was a 'tax exile', saying: "I paid my taxes before I left the country, in full. I didn't leave the country in order to avoid paying a tax or to avoid paying a future tax that was about to come down the line."
Others include John Magnier, who owns Coolmore Stud, and has an official residence in Switzerland.
Dermot Desmond, who is a co-investor with Mr McManus and Mr Magnier in various schemes, has also denied being a tax exile. "Through my various investments in Ireland, I create millions in tax revenue in Ireland. I could have all of these jobs in India," he told Business and Finance magazine eight years ago.
"The reason I left is to have the freedom to do what I want to do. I'm avoiding politicians, I'm avoiding the press and I'm avoiding small-minded people."
Denis O'Brien, the telecoms tycoon and major shareholder in Independent News & Media, was resident in Portugal when he sold his mobile phone company, Esat Digifone (having won the phone licence with the help of government minister Michael Lowry, according to the Moriarty tribunal). He did not have to pay capital gains tax on his share of the profits in Ireland.
Others include Sir Anthony O'Reilly, who was ousted from control of INM by Denis O'Brien, and who is also a tax resident abroad; Michael Flatley, who is tax resident in Monaco; and Michael Smurfit, the paper-packaging tycoon, also based in Monaco, who said three years ago: "I'm paying the taxes anybody else is paying on all my income arising in Ireland. And in America I pay all my income tax that derives in America. It's not that I don't pay any taxes."
U2 moved their business from Ireland to Holland after the Government capped the tax exemption scheme for artists resident in Ireland. The band's guitarist, the Edge, wrote to the Baltimore Sun newspaper last year to declare the band had a totally clean tax record and had never been involved in tax evasion.
Some of the 800 property developers in hock to Nama are also not tax resident in Ireland and the agency pays one of them a salary of €200,000 a year.
They are among 10,686 people who were non-resident for tax purposes in 2010, according to the Revenue Commissioners. While it dealt with 450 "high-wealth" individuals last year, it was unable to say how many of these were non-resident for tax purposes.
By relocating to a foreign tax shelter, wealthy Irish business people can avail of more generous tax rates on their global earnings, limiting their tax exposure here.
In order to qualify as "non-resident", they must spend less than 183 days a year in Ireland, or 280 days over two years. A day isn't counted as a "tax day" if they are gone by midnight. In recent years, the Revenue has begun monitoring the Irish homes of tax exiles to establish whether they are in the jurisdiction, and they are required to present flight logs to prove their entry and exit from the country.
The previous government introduced a domicile levy of €200,000 to ensure that Irish citizens living abroad for tax purposes, who earned more than €1m and owned property worth more than €5m, made a minimum tax contribution.
However, the levy could be written off against any income tax they already paid here, while others escaped by simply renouncing their Irish citizenship. Eleven people paid the levy in the tax year 2010, raising €1,667,011.
Michael Noonan abolished the Irish citizenship condition in the last Budget. The Programme for Government promises to ensure that tax exiles make a fair and equitable tax contribution.
For the public consultation process, Mr Noonan asked that any proposals should bear in mind "the continued promotion of Ireland as a location for inward investment".
Chartered Accountants Ireland, the Society of Trusts and Estates Practitioners (Step), and the Irish Tax Institute all urged the minister not to change the tax residence rules.
Chartered Accountants Ireland said the rules were already "robust" and "fair" and changing them could have "a negative impact on investment".
It proposed easing the rules that force a tax exile to leave the country by midnight, to avoid it counting as a tax day, by allowing for a 24-hour period to include an overnight, with only the second day counting as a tax day.
Step argued against introducing new tests for individuals, such as proving the location of their permanent home, or their "centre of vital interests" -- where most of their business is done.
Such rules would be "too costly and difficult to administer and would act as a disincentive for people coming to Ireland, whether for business, work or pleasure or with a view to investment".
The Irish Tax Institute emphasised the importance of foreign investment and said that tightening the rules on the number of days a non-resident could spend in Ireland could cause some to move, losing money for the Exchequer rather than raising it.
Michael McGrath, the Fianna Fail finance spokesman, said the 183-day rule should be reduced quite significantly and that "where a person spends more than 12 hours in Ireland in any given day, it should count as a day towards the residency test".
"I doubt very much that there will be any willingness within Fine Gael to force tax exiles to pay a greater share of their liabilities in Ireland.
"This review of tax residence rules will be a key test for Coalition and will tell us a lot about their commitment to ensure the burden of taxation is evenly spread across society," he said.