Cowen scraps ‘remittance’ tax scheme despite firm resistance

FINANCE Minister Brian Cowen yesterday announced he was pressing ahead with scrapping a generous tax arrangement that allowed foreign employees of multinational companies escape paying most of their tax on Irish income.

The so-called ‘remittance basis of taxation’ allowed non-domiciled employees of non-resident firms arrange their affairs so that most of their income from working in Ireland was paid outside the State to avoid paying income tax in Ireland.

Mr Cowen’s announcement in December’s budget that he was ending the arrangement led to an intense lobbying campaign from multinational companies and from the American Chamber of Commerce.

Large companies were able to recruit employees who worked in Ireland on a transitory basis but whose Irish income was paid to them abroad. The arrangement was used by companies as diverse as Microsoft and GAMA.

According to sources close to the minister, he resisted the pressure and stood firm on his decision, which may save the State in excess of €100 million in lost income tax revenue.

Speaking yesterday, the minister and senior officials of his department, said that the evidence was that the scheme was being too widely used.

They said it was being used in the tourism, financial, technology and pharmaceutical sectors. While not using the term, the clear inference from Mr Cowen was that the arrangement was being exploited.

It was one of a raft of new measures that were announced yesterday in the Finance Bill to tackle tax avoidance.

Introducing the bill, Mr Cowen said he wanted to introduce “a fairer and more equitable tax system for everybody”.

One such provision is a new requirement on financial institutions to automatically report to Revenue all interest and other profit payments made by them to customers.

This key recommendations of the Revenue Powers Group report is to prevent the prevalence of schemes such as those uncovered by the DIRT inquiry.

Asked was he breaching bank/client confidentiality, Mr Cowen replied that many EU countries, including the UK, had full disclosure requirements.

Another measure is the introduction of a surcharge of 10% on undisclosed transactions that are ultimately determined to be tax avoidance schemes.

If a company doesn’t disclose a transaction, because it later wants to claim it is a tax avoidance scheme, the surcharge will apply if it is found not to be.

However, if a company is up-front about disclosing the transaction to Revenue, or it is found to be a valid scheme, no surcharge will apply.

Other anti-avoidance measures include the use of expert scientific evidence to assess the validity of reliefs claimed under R&D schemes.

Fine Gael’s Richard Bruton criticised the extension Mr Cowen has given to some tax reliefs. He said measures to prevent the richest people from minimising their tax bill to near zero were also very timid.

Joan Burton of Labour criticised the “massive extension” of tax reliefs for private healthcare.

This private healthcare incentives also came in for severe criticism from Caoimhghín Ó Caoláin of Sinn Féin.