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Salvage the remittance basis Back  
The European Commission ('EC') has requested that Ireland amend its remittance basis legislation. It is important that this recommendation be followed. However this should not precipitate further damage to what remains of the remittance basis following its needless curtailment in 2006.
The EC request
The EC has formally requested Ireland to amend part of our remittance basis legislation, which it claims, to be discriminatory. According to the remittance basis, Ireland does not tax income received by non domiciled and by non ordinarily resident persons from money invested abroad and not remitted into the State. UK source income is excluded from this rule. The EC considers this to be contrary to the EC Treaty and to the EEA Agreement, as it restricts the free movement of capital. If Ireland does not reply satisfactorily to the request within two months, the EC may refer the matter to the European Court of Justice. The EC has sent a notice to the UK requesting information about similar remittance rules, which appear to discriminate against Irish source income.

Is the EC justified?
The EC is correct in its claim to discrimination. This provision is a relic of the union between Ireland and the UK and should have been long abandoned in both jurisdictions.
Take for example, the case of two individuals seconded to work for an Irish subsidiary of a multinational for a number of years. They become Irish resident. One is French domiciled, the other is British domiciled. They both have investments and savings accounts earning income returns in their home jurisdictions. In theory they should be subject to Irish tax on such overseas income only to the extent that they remit it to Ireland. However, due to this archaic rule, the British individual is subject to Irish tax, at marginal rates, on his UK investment and savings income whether remitted to Ireland or not. The French individual has no exposure to Irish Tax provided he does not remit the income.

The same issue arises for the many Irish who have lived and worked in the UK over the years. To the extent, they maintain Irish bank accounts or investments instead of moving their affairs offshore, they are exposed to UK tax on the Irish income. By contrast, none of their non Irish contemporaries face this issue. It is only surprising that it has taken this long for this issue to come within the radar of the EC.

This is not only a personal tax issue. Ireland markets itself as a location for collective investment schemes. Any operation considering such a set up is likely to target a significant UK investor base which will consist of non UK domiciled individuals. However, if a UK resident, non UK domiciled individual invests in an Irish collective investment scheme, income from such investment would be automatically subject to UK tax at marginal rates. This gives countries such as Luxembourg an unnecessary advantage over Ireland in the funds market. This is another reason why the Irish authorities would do well to react quickly to this EC request and in so doing, encourage their UK counterparts to do the same.

Retain remittance regime
A simple amendment is all that is required here to remove the UK exception to the remittance regime. There must be no question of further limiting the regime as a result of this request.

The damage which was done by the amendments made to the regime as it applied to employment income in 2006 has not yet been measured. It should be. The Taoiseach claims that Ireland's new employment opportunities are primarily in areas which 'move us up the value chain'. If we are serious about such a move, we need to do our utmost to attract inward investment from highly skilled industries and foreign talent for indigenous industry. The tax profession has provided potential approaches to solve the problems being targeted by the Revenue whilst retaining the core regime. To date, these efforts have been ignored.

The move from a domicile to a residence based system of Capital Acquisitions Tax ('CAT') some years ago was also counterproductive. Ireland has only two double tax treaties that provide relief in respect of CAT and unilateral relief is limited.

Many of the experienced people we need to attract to this country for our move 'up the value chain' are wealthy and non-domiciled. Such individuals can generally choose where they want to live and work. A domicile based tax regime is an inducement for them to choose the country offering that basis, since it would enable them to shield a part of their income and gains from Irish tax.

Our ability to use our tax system for economic development is curtailed at EU level. Ironically, the damaging changes referred to above were not instigated at EU level. The EC has endorsed tax breaks for expatriate foreign experts. We should now follow the EC's latest request and seize the opportunity to revisit this area and to restore the incentives that previously existed.

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