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Saturday, 13th April 2024
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Solutions to the remittance tax issue to emerge Back  
Following on from the move in Budget 2006 to abolish the remittance basis of taxation for foreign employees, and the recent publication by The Revenue Commissioners of guidelines on the issue, Ireland’s leading taxation experts are to put forward potential solutions to the problem, which are aimed at enabling Ireland to remain an attractive location for international financial services professionals.
A positive way forward to deal with the decision to abolish the remittance basis of taxation, which would allow the Government’s concerns over offshore based low cost employment to be met, while at the same time solving the problem it is causing for financial services companies, has been put forward by Ireland’s leading tax advisers.

At a pre-conference meeting to formulate the agenda for the Tax Panel Discussion at the Finance Dublin conference in Dublin Castle on March 28th and 29th, the country’s top corporate tax advisers, representing the leading accountancy firms in the country, agreed to present a joint agenda for moving forward on the remittance tax issue.

The remittance decision was greeted with widespread dismay when it was announced in December in Budget 2006. As the industry Ireland tries to move up the ‘value chain’ and attract more front-office operations to the country, the Government’s decision is seen to be at odds with this strategy, as it may now be increasingly difficult to attract skilled international professionals to Ireland as a result. The decision sets back, in a serious way, hopes to establish Ireland as a location for hedge fund management, for example, or for other high added value skill occupations, such as trading, dealing and securitisation.

Moreover, the surprise element of the decision, has disappointed the industry. Writing in this month’s KPMG Tax Monitor, editor Brian Daly argues that, ‘the elimination of the remittance basis was extremely disappointing and has certainly caused inward investors to wonder whether the mantra about a stable and consistently positive environment for inward investment is as true today as it has been in the past’.

The reason for the Government’s move on the issue stems from pressures arising from the operation of transnational companies, in areas such as construction and shipping, in which low cost employees have come in to the Irish economy, a trend which has caused many trade unions to make representations about the impact on low cost sectors where labour is in abundant supply. An unintended by-product of the measure is that high cost sectors are particularly disadvantaged, to the extent that most of the tax advisers now feel that left untouched, Ireland has become uncompetitive as far as the establishment of new positions at a senior financial services level are concerned.

The solutions proposed by the tax experts focus on reinstating the PRSI ceiling, which was abolished in 2001, and introducing a time threshold on the salary side – i.e. Employees have to spend a maximum and minimum period of time in Ireland to qualify for the remittance basis of tax.

Moreover, at the recent European Insurance Forum held on March 15th and 16th, Fiona Dunn, international insurance representative at the IDA, told the audience that the Government sponsored promotional body is currently in discussions with the Department of Finance regarding the issue. She says that they are hopeful that some sort of ‘ring-fencing’ solution, which would exclude key international professionals working in the sector in Ireland, from the abolition of the remittance basis of taxation.

Revenue’s guidelines
On March 3rd the Revenue Commissioners publsihed their guidelines for the withdrawal of the remittance basis of taxation in Ireland. The guidelines address the following: penalties for non-compliance; 2005 Bonuses paid in 2006; temporary assignees; and pension contributions by foreign based employers. Further clarifications are expected to follow.

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