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Saturday, 19th September 2020
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EU and Tax Back  
The making of Irish taxation policy now seems like a joint effort between the EU and the Irish Government. Even if a satisfactory resolution is arrived at regarding the "State aids" row regarding double rent allowance in Urban Renewal areas, there remain several aspects of Irish tax legislation that may not be EU compliant.
Some Irish taxes are subject to EU harmonisation rules. These include Customs Duty, Value Added Tax, Capital Duty and Mineral Oil Duty. Irish Government changes to these taxes have to remain within the framework of EU directives. Other taxes, and in particular the direct taxes such as income tax, corporation tax, and capital gains tax, are not harmonised by EU directives. In principle Ireland remains sovereign in these areas. But even these taxes have to comply with our obligations under the basic EU treaties.

These treaties provide for freedom of movement of workers around the Community. Irish tax law denies a non resident cross border worker married rate band and allowances if his spouse does not have Irish source income also. This is probably an illegal obstacle to free movement of workers, on the basis of existing EU case law.

We are obliged to allow freedom to businesses to establish where they please in the Community and in whatever form (be it resident company, branch of non resident company, partnership etc) that they choose. Notwithstanding some attempt in the Finance Act 1999 to bring our rules into line with EU requirements, we still do not permit a company resident elsewhere in the EU to benefit from a relief known as "capital gains group relief". This relief permits a company in a group to transfer assets to another group member without triggering taxable capital gains on the transfer. Such a transfer is permitted between Irish resident members of a group only. A non resident company trading here through a branch, and therefore subject to corporation tax, is denied this relief vis a vis Irish resident associates, as is any non resident parent of Irish resident subsidiaries. This treatment is probably contrary to EU rules.

The tax treatment of Irish holders of life assurance policies or units in collective investment undertakings differs depending on whether the policy or unit is issued by an Irish company, or by a company resident elsewhere in the EU. A policy issued by a company resident in another member state of the EU attracts a much less advantageous tax regime. This may be an unlawful obstacle to EU members providing financial services in Ireland.

Our tax rules give differing treatment to UK investment income as compared to investment income from other member states. On the one hand, a non domiciled Irish resident is taxed on investment income from member states other than the UK and Ireland only insofar as they remit that into Ireland. The UK is thus at a disadvantage in attracting Irish investment from such taxpayers. On the other hand, by administrative arrangement UK investment income is not subjected to Irish dividend encashment tax, whereas investment income from other EU member states is subjected to the tax, thus giving the UK an advantage. Such discrimination may well be unlawful.

Some reliefs, such as artists exemption, are dependent on a person not being resident outside of Ireland for more than three years. Such a requirement may be an unlawful obstacle to the freedom of individuals to determine their residence as they please.

Some of our withholding taxes hit persons resident in other member states of the EU more severely than they hit Irish residents. These include the 15% withholding tax in relation to capital gains tax (from which Irish residents obtain an almost automatic exemption, but which non residents will find very difficult to avoid). It also includes the withholding tax on Irish rents paid to a non resident. The landlord of an Irish property who is resident elsewhere in the Community may find it more difficult to get a tenant in Ireland by reason of tenant's dislike of having to operate a withholding tax mechanism. Such discrimination may be a breach of EU rules.

Ireland is not alone in possessing a tax code that may not be fully EU compliant. In fact it is by no means certain that we are the worst member state in this regard. The EU Commission are now moving quite rapidly to challenge aspects of national tax codes that are in breach of the basic treaties. Ireland will have to take account of this.

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