Will easing rules for tax exiles really make sure charity begins at home?

FRANK Flannery is an influential guy. He has been one of Fine Gael’s leading power-brokers for over 30 years, even though he never held elected office, serving instead as an administrator and strategist.

He hasn’t been in a full-time role with the party for many years and may not have the same sway under Enda Kenny that he had with other leaders but he remains in sufficiently good odour with enough senior people in the party that when he pitches an idea it gets an audience.

It’s why the Minister for Finance Michael Noonan has made soothing and approving noises about Flannery’s latest wheeze. Flannery is the chairman of the Government-backed Forum on Philanthropy. He is looking for ways to increase charitable giving in Ireland. No harm in that. The problem may be his way of going about it.

Flannery is rightly concerned that two of Ireland’s largest sources of philanthropic funding, Atlantic Philanthropies — funded by Irish American Chuck Feeney — and the One Foundation — led by the estate of the late Cathal Ryan — are preparing to go out of business, after making massive contributions in recent decades, having spent nearly of their available funds, running into hundreds of millions of euro over time. They have done the State much service, filling the gaps, and owing us nothing; we owe them a debt of gratitude. The consequences of their absence will be felt harshly by this dependent State.

Controversially however, Flannery wants to encourage the group of citizens commonly known as “tax exiles” to invest in charities and small business and to ease the current rules that (loosely) bind them in return.

It is reckoned that there are about 400 or so of these “tax exiles”, people who have accumulated enormous wealth and who do not wish to be taxed on their profits or income in Ireland because of the rates of tax we apply. Instead, they use international tax laws to establish tax residency in other countries, sometimes in countries they may visit just once a year and where they keep just a small apartment for the sake of appearances.

Some of Ireland’s richest men are residents of places like Malta, Gibraltar and Portugal, all because it minimises the amount of tax they pay anywhere. But as they are Irish citizens the biggest loser in revenue terms is Ireland. Many of these people continue to live in Ireland for large parts of the year; indeed, their wives and children often reside full-time in this country. Their domestic residences are among the most expensive houses in the country.

Although much of their money is made elsewhere some of these people have substantial and high-profile business interests in Ireland from which they make big profits, although ownership of these assets are often held in off-shore locations, again to minimise the tax paid in Ireland.

There is absolutely nothing illegal in any of this. Indeed, many accountants get paid well to ensure that all is done exactly to the letter of the law. There are some small hardships inflicted upon these Irish citizens, many of whom are vocal in telling the Government what it should be doing to resolve the economic crisis. These people are restricted in the number of days they can spend in the country: they can stay in Ireland only for 182 days in a single year, or 272 in any two years. Flannery’s idea is to relax things so that these people could spend 182 days in each of the two years in Ireland, or 364 days in all, an increase of 92 days over the two year period. In return, these people would agree to invest €5 million each in a business or philanthropic activity, creating a minimum of 10 jobs within five years. They would also make an additional tax payment of €1m each year for 10 years. The optimistic Flannery believes that even if a tenth of the 400 exiles signed up it would be worth €200m to the economy and if all signed up it would be worth €2 billion “with an ongoing income stream of €400m each year with not one penny in displacement”.

Flannery sat in front of me in a radio studio last week arguing that it was worth taking a chance on this scheme, that it is the type of innovation we need. He also regarded it as a way of putting it up to the tax exiles to do more. He regards himself as pragmatic, that it would be better if the rich paid more but that if they don’t then this is the way to make them do it.

He seemed a little surprised however when I told him of a newspaper report from the previous day that said the Revenue Commissioners had been chasing some of the 400 for the €200,000 annual levy that applies to those who choose to pay tax abroad while retaining their Irish citizenship. If that is their attitude to their equivalent to the USC the rest of us resident mere mortals pay then what the chances of getting them to agree to Flannery’s proposal? Yet Noonan hasn’t laughed him out of the country.

Instead he has asked the Oireachtas Committee on Finance, Public Expenditure and Reform to “look” at the proposal. In a letter to that committee he said he believed it might be “an attractive initiative”. He might, but the Labour party would have to be fairly desperate to go along with it. The idea is likely to have some supporters. Maybe Noonan actually is an advocate. After all, he lives in Limerick which has benefited enormously from Feeney’s donations to the University of Limerick and from the investments across sport, education and cancer care by the professional gambler JP McManus. It was interesting to note how McManus was thanked from the Mackey Stand last Sunday by victorious Limerick hurling captain Donal O’Grady. McManus has not just boosted cancer care in Limerick but put substantial sums into local GAA provision. He is as popular in Limerick as Robin Hood was in Sherwood Forest, regarded by some as a wonderful counterbalance to the wasteful “establishment”.

IT IS undoubtedly better that McManus does all of this than not, given his decision to live elsewhere for part of the year for work reasons, one that unhappily deprives him of the requirement to pay as much tax in Ireland as would be the case if he lived full-time in his extraordinary Limerick mansion. Two cheers to him for that.

But wouldn’t it be even better if he just lived here and paid his taxes and then did all of the charitable stuff on top of it, out of after-tax income, as most hard-pressed people in this country do? Wouldn’t we all love an opportunity like the one proposed by Flannery, to decide which charities should benefit from our tax money? Better still, instead of paying tax wouldn’t it be great if we could invest the money instead in a company from which we could potentially make a profit as well as providing “national assistance”? Maybe Flannery is right if he believes that you have to target those who have the loot with incentives if they are to give more to others, no matter how much most of us might cavil at such kowtowing. But it leaves a bad taste. It copper-fastens a system of excessive rewards for the few, who get to keep a greater proportion of those rewards, because they are able to play the tax system to pay proportionately less, and who then have to be induced to do a little bit more for others on the basis that it is to their advantage.

Flannery is experienced and wily as a result of his many years in Fine Gael. He is clearly uber-pragmatic. The question is whether despite all of that he may also be a little bit naïve.

- The Last Word with Matt Cooper is broadcast on 100-102 Today FM, Monday to Friday, 4.30pm to 7pm.

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