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New regime cuts secondment costs - but more should be done Back  
The process of employing foreign nationals in Ireland was improved via the introduction of the Green Card scheme. However, for financial services firms looking to second seasoned executives to Ireland, it can be expensive. So, recent Government and Revenue reforms changing the taxation conditions for skilled professionals as part pf the intra company transfer scheme under the employment permits regime are welcome writes Mark Carter. But he adds that many in the international business community in Ireland are continuing to call for some form of special assignment relief programme aimed at allowing corporations to control assignment costs.
Ireland has benefited greatly from the globalisation of the financial services sector with employment in this area having grown by more than 50 per cent since 1999. Apart from moving work to a location where people were available, thus creating new job opportunities for Irish people this growth has also seen the development of skilled migration in financial services. As the sector has grown, financial services organisations have also employed an increasing number of foreign workers in Ireland.

Many of these foreign nationals are employed as local hires. But some remain employed by their home country employer while being assigned here. There are several reasons why organisations continue to assign seasoned executives and other highly skilled resources from one country to another despite the high costs involved. Such reasons include skills' transfers and career development. In addition, many companies wish to retain consistent business processes throughout their international operations and to promote a consistent organisational culture as they expand across borders. As a host location for many multinational financial services companies, Ireland has greatly benefited from the experience and skills of inbound workers specialising in financial services activities.

While the growth in financial services employee numbers is a positive development, the recent rise in employment costs is not so welcome. Workforce costs constitute one of the largest costs for many organisations and assignee costs are typically two to three times that of a local resource. Most multinational policies dictate that it is the company, rather than the seconded employee, that bears the costs of an international posting.

Controlling the cost of these international workers is therefore of great interest to employers, many of whom consistently review business costs in their various operations. Leading organisations take a strategic approach to the location of their international businesses. A key factor in deciding on whether a corporate location will be established or expanded is not only the availability of local talent but also the opportunity to assign international executives and skilled resources to a host country at an acceptable cost to the corporation. In evaluating such costs a range of factors will be examined. These include hidden costs such as the ease of overcoming host country immigration hurdles for assignees so they quickly become productive resources, to other costs such as the overall expense of supporting international assignees in a host location.

One area where corporations increasingly focus is taxation costs. In the past, the tax treatment of individuals was largely looked upon as a domestic matter. Since individuals were less mobile than organisations, international tax competition concentrated on corporate taxation. However, as employee mobility increases, the ultimate location choice for these multinationals becomes more dependent on the personal tax positions of these experienced and highly skilled individuals.
Ireland was seen as a favourable tax location not only for corporations but also for migrant workers until last year when the 2006 Finance Act severely curtailed the availability of the Remittance Basis of Taxation (RBT). This relief is now limited to qualifying earnings of relevant individuals from non-Irish duties.

The curtailment provoked significant concern as RBT was regarded by the international business community as a key incentive to doing business in Ireland. It assisted organisations to control the high costs of international employees and executives. The cessation of relief on earnings related to Irish duties has had a negative impact for many corporations who assign overseas executives to Ireland.

Such companies will therefore welcome two recent initiatives by the Revenue which have received relatively little attention as they were introduced, not by new legislation, but by Revenue concession announced in their eBriefing publications.

Tax free assignment expenses
The first change involves the extension of tax free subsistence arrangements, previously available for domestic employees, to employees who are assigned to work temporarily in Ireland. From January 1st, 2007 subsistence payments, including accommodation, will be treated as non taxable for up to 12 months for assignees who meet certain conditions. These include an intention that the employees will, at the end of the assignment, return to work at the foreign location from which they were assigned. Also the period of assignment should not exceed 24 months, nor exceed the period of employment with the employer outside Ireland prior to the start of the temporary assignment.

Amongst the exclusions from the relief are expenses for employees who in the normal course of their employment are transferred from country to country.

VAT relief
The second change, announced by Revenue on March 1st, is also effective from January 1st, 2007. This concerns the VAT treatment of charges made in respect of seconded staff to companies established in Ireland from related foreign companies. Previously, such charges were treated as that of a supply which was taxable where received. The foreign employer did not apply VAT to the charge, instead the Irish entity had to 'self-account' for VAT at 21 per cent on the total consideration for the supply of staff and then claim a simultaneous input credit. In many cases this treatment would cancel out the VAT charge, resulting in no net cost to the Irish company. But where a company had limited or no VAT recovery the ability to claim the input credit was restricted or unavailable.

The new concession means there will no longer be a 'self-accounting' obligation in respect of the charge into Ireland by the foreign company to the extent that it represents remuneration of the seconded employee. Certain conditions apply, including:

• The secondment must be from a foreign company into an Irish company or branch within the same group structure.

• The Irish company or branch must exercise control and day-to-day management over the employee, or the employee must have managerial responsibilities over the Irish company or branch.

This change will be of great interest to companies who have limited or no VAT recovery capacity, including many in the financial services sector who stand to benefit from the revised treatment.

Where to now?
In order to continue to facilitate key sectors of the economy to assign international resources to Ireland, it is vital that we streamline the process for organisations wishing to bring in experienced and skilled people. It remains to be seen whether the intra company transfer scheme under the employment permits regime, effective from February1st, 2007, will go some way towards facilitating employers in this regard.

While the above changes are welcome, many in the international business community here are continuing to call for some form of special assignment relief programme aimed at allowing corporations to control assignment costs. The relief could apply to highly skilled resources who contribute to the local economy, and to seasoned corporate executives. It should not be beyond the imagination of our legislators to create such a relief, one with built-in controls for adequate tax payment levels and appropriate time limits, similar to certain other EU countries. This should ensure equity, be transparent, and avoid the potential for abuse in order to protect the domestic labour market. Such a relief would also support critical skills development policies as articulated in the September 2006 report published by the Department of An Taoiseach, Building on Success, which calls for the development of key skills and the creation of higher end middle and front office jobs if Ireland is to move up the value chain in the 21st century knowledge economy.

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