MINISTER FOR Jobs Richard Bruton privately warned earlier this year that tax breaks aimed at luring multinational executives to Ireland were not generous enough.
The special assignee relief programme, contained in the budget, provided an exemption from income tax on 30 per cent of a salary of between €75,000 and €500,000 for employees assigned to work here for up to five years.
In addition, expenses paid to employees for private school fees of up to €5,000, along with trips home, are exempt from taxable income.
The move – signed into law at the end of last month – proved controversial and drew sharp criticism from the Irish Congress of Trade Unions, who warned that it would undermine trust in the tax system.
The fairness of the tax break was also the source of “serious concern” from the Revenue Commissioners, which felt it could be viewed negatively by the wider taxpaying population.
But, in a letter to Minister for Finance Michael Noonan last February, Mr Bruton warned the new scheme was less generous that an existing tax scheme for foreign professionals which had not been availed of by any executives over a three-year period.
The 2008 tax break was aimed at attracting highly skilled individuals to work in the State by allowing them to seek repayment of PAYE tax deductions. However, no claims were made under the scheme between 2008 and 2011.
This tax break, in turn, replaced a much more generous tax relief which was closed off in 2006 after well-publicised abuses. It allowed employees of foreign employers to earn money which, for the most part, was outside the income tax and PAYE system.
In a briefing note prepared for Mr Noonan, senior officials at the Department of Finance told him the 2008 tax break “had not proved a success and no individual has claimed it to date”.
They said they had received numerous submissions seeking to make it more attractive to multi-national companies and help Ireland compete with other jurisdictions in attracting highly skilled employees.
Among the firms lobbying for more generous terms were KPMG, PricewaterhouseCoopers and Citibank, as well as various groups linked to the Irish Financial Service Centre, employers’ group Ibec and the American Chamber of Commerce.
They argued that highly skilled workers moving here would act as potential “magnets” to attract more business and investment.
However, officials noted that no evidence or examples had been provided to shows instances of where Ireland had suffered or lost a major investment due to the lack of tax breaks.
But one official commented: “Awaiting such a development before considering an appropriate response would be akin to closing the stable door after the horse has bolted.”
In a briefing note obtained under the Freedom of Information Act, Mr Noonan was advised that the new special assignee relief programme was more beneficial than the 2008 tax break on the basis that:
the “up front” exemption from tax was more attractive to companies and employees, compared to the previous arrangement where individuals had to claim the relief at the end of the year;
the relief extended to income from shares, which the previous scheme did not allow;
it also allowed for tax relief associated with trips home as well as schools fee at primary and secondary level.
Officials argued that the tax incentive would help Ireland compete with schemes in other jurisdictions, such as the Netherlands, Sweden and Luxembourg.
In the Netherlands, for example, officials said that qualifying workers – earning in excess of €73,000, or less for PhD graduates – are allowed 30 per cent of their salary tax-free and tax relief is available for moving costs and school fees.
