Donohoe cap on salary tax relief ‘likely cause’ of €4.2m saving

Minister for Finance Paschal Donohoe was advised to highlight the "wisdom" of imposing a salary cap on a controversial tax relief scheme even though the cap had been lifted just a few years before by his predecessor Michael Noonan.

Mr Donohoe had announced a €1 million cap for the Special Assignee Relief Programme (SARP), a controversial scheme that provides generous tax benefits for multinational staff moving to Ireland, in 2018.

However, the cap was simply being reintroduced having been abolished by Mr Donohoe’s party colleague, the then minister for finance Michael Noonan in 2015.

Its removal had led to “significant unanticipated costs” for the taxpayer and the use of the scheme by executives on multimillion salaries for aggressive “advance tax planning”.

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A briefing for Mr Donohoe last summer on the latest data from the SARP programme said the reintroduction of a cap had led to a significant improvement in how much it cost to support jobs under the scheme.

It said there had been a decrease in the cost for each job supported by the scheme to €44,000 in the latest annual figures, compared to €73,000 the year before.

Subject of commentary

In a briefing for the Minister, department officials said the scheme was likely to be the subject of commentary from opposition politicians. The submission said: “In such an event, the point can be made that the data in the Revenue report serves to reinforce the wisdom of the decision to impose the salary cap in the Finance Bill 2018.”

The submission said the cost of the scheme for 2019 – the most recent year for which data are available – was €38.2 million, down €4.2 million on the previous year.

It also said that 862 jobs had been supported through the scheme during 2019, a significant uptick on 584 from the year before.

“The measure to curb the cost of SARP introduced by you in Finance Act 2018 (ie capping SARP eligible income at €1 million) is likely the cause for this reduction in cost,” it said.

The submission detailed how, in its early years, SARP had provided relief from income tax on 30 per cent of salary between €75,000 and €500,000.

However, the €500,000 cap on income was removed in 2015 “to encourage senior decision-makers to come to Ireland”, according to the records.

Limit of €1m

The report said this change had led to a “significant increase in year-on-year costs” with a new upper limit of €1 million having to be put in place in 2018.

The submission said the incentive was designed to bring “skilled individuals” to Ireland and, in turn, facilitate job creation and the expansion of businesses in Ireland.

According to the most recent data, 50 executives earning between €1 million and €3 million benefited from SARP in 2019, with significant tax write-offs available on a large chunk of their income.

The scheme also allows write-offs of private schooling fees up to €5,000 and the cost of a return trip home once per year, if paid for by the person’s employer.

Figures for 2019 show a total of 1,574 people were enrolled on SARP with 433 in finance and insurance, 337 in technology, and 258 in wholesale or retail trades.

Of those benefiting, just over one-quarter – or 27 per cent – were from the United States, 14 per cent from the UK, 13 per cent were Irish people returning to work at home and 8 per cent were from India.

Asked about the briefing documents, a spokeswoman for the Department of Finance said they had nothing further to add to their contents.