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Minister urged not to scrap special tax relief scheme for top executives of foreign companies

Business Minister Heather Humphreys said ‘for reputational reasons’ the government should not remove the tax relief scheme.

Image: Shutterstock/ajcabeza

FINANCE MINISTER PASCHAL Donohoe was urged not to make any changes to a special tax deal available to high-earning executives ahead of this year’s Budget.  

Under the scheme, executives from foreign-owned companies who relocate to Ireland for a number of years get tax relief of 30% on income over €75,000.

For 2019, the relief was subject to an income cap of €1 million for new claimants. 

It does not apply to USC which has to be paid in full.

Beneficiaries can also avail of a €5,000-a-year tax-free allowance for private school fees for each of their children.

It was proposed the scheme, known as the Special Assignee Relief Programme (SARP), be extended for another two years in Budget 2020. 

A pre-Budget submission by Business Minister Heather Humphreys to the finance minister, obtained by TheJournal.ie and its investigative platform Noteworthy under the Freedom of Information Act, shows that Donohoe was urged not to make any changes to the scheme.

Humphreys states in her letter that it would “reduce the effectiveness of the scheme in alleviating the income tax burden for incoming assignees”.  

She states that the “lack of competitiveness of our personal tax regime, in the face of competing talent attraction schemes, underscores the need for the continued availability of SARP”.

Eighteen people earning between €1 million and €10 million benefited from (SARP) in 2016 with four of those earning more than €3 million.

It is understood that the Exchequer lost out on €28.1 million in tax in 2017 due to the scheme, which has benefitted 1,084 employees.

The minister states in the submission that “whilst we understand that this programme is currently the subject of a comprehensive review and that the outcome of that review will influence any changes to the programme, it is worth reiterating the importance of this scheme in providing a competitive environment in which to attract Foreign Direct Investment”.

She adds that while the tax exemption is not the only element that attracts workers to Ireland, she believes “the ability to provide a competitive personal taxation regime influences our attractiveness for Foreign Direct Investment and is a factor considered by enterprises when they compare the costings of various locations prior to making investment decisions”.

Therefore, “for reputational reasons”, Humphreys argues that it is “important that any changes advanced following the conclusion of the review are minimal and are well signposted in advance if appropriate”.

More lobbying

Correspondence between the IDA and an unnamed accountancy firm whose clients were concerned about possible changes to the scheme were previously obtained Noteworthy in September

In the documents, the IDA argued the scheme was crucial in attracting certain types of investment to Ireland which in turn helped fuel the high levels of corporation tax that the state depends on.

It urged the government to look at extending the qualifying time period from five to eight years “to compete with other European locations, such as France”.

The IDA also wanted the scheme to expand to include newly hired staff in multinational companies. “This is particularly relevant in the context of winning Brexit-related investment,” it said.

The agency also looked for smaller changes including increased time for executives to get signed up to the scheme, along with changes to protect some people from the immediate introduction of a €1 million cap on earnings.

That final suggestion was acted on by the Department of Finance amid concerns some executives – who had signed up when no cap was in place – would be hit with unforeseen tax bills.

In her submission, Humphreys tells Donohoe that “it is important to keep in mind the relationship between the location of key personnel and corporation tax”.

She notes Ireland’s reliance on corporation tax, which makes up 20% of the State’s Exchequer returns. 

Earlier this week, the Irish Fiscal Advisory Council (Ifac) warned that up to €6 billion of the corporation tax take may be temporary, which leaves Ireland extremely exposed financially.

“The importance of corporation tax to the exchequer receipts has never been higher nor has there even been more uncertainty as to the future direction of international taxation and the taxing rights of profits,” Humphreys says. 

“It is important that we give our enterprises as much certainty and assurance about the future as is possible,” she adds.  

“SARP facilitates the attraction of senior executives… to Ireland and helps to establish high value added FDI (foreign direct investment) activities in Ireland along with associated project teams and jobs, thereby supporting the substance of their operations here.

“With the economy now at full employment, enterprises of all sizes are struggling to attract talented individuals who they need in order to innovate and grow, or in the case of multinationals to win the projects and secure investments made by their Corporate Headquarters,” says Humphreys. 

She notes that the talent shortage is particularly acute in ICT, where more than 50% of businesses have had difficulty in recruiting ICT specialists every year since 2012.

“In those circumstances, SARP can serve an important purpose in helping Irish based businesses recruit in these areas of need from within their own pool of worldwide talent,” she says.

“In light of the ongoing review, we have not made any specific proposals with regards to SARP at this stage.”

In her letter to the finance minister, Humphreys said she is “mindful of the pressures facing you as you endeavor to formulate fiscal policy in a context of considerable uncertainty and in the circumstances where the economy may be on the very of overheating”. 

During the passage of this year’s Finance Bill earlier this month, Sinn Féin spokesperson on Finance Pearse Doherty criticised SARP stating that it is not fair and “costs a fortune”. 

This investigation was supported by the Noteworthy general fund. To find out more, click here.

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