The Commission on Taxation has, as expected, recommended the abolition of the artists' tax exemption and it said consideration should be given to introducing "income averaging" in the taxation of income from creative work.
A total of 28 of the country’s artists who had incomes over €1 million saved a total of more than €32.5 million in 2006 under the tax exemption scheme. This is the most recent year for which figures are available.
But some 1,366 artists, almost half the total of those who benefited from the scheme in that year, were earning less than €10,000 a year and the tax lost to the State as a result of their claims was less than €1 million.
Minister for Finance Brian Lenihan said in July an estimated 2,890 artists availed of the exemption scheme in that year at an estimated cost to the Exchequer of €66 million.
An amendment to the scheme in 2007 capped earnings at a maximum of €250,000 per annum after which tax is payable.
According to an analysis by the Revenue Commissioners, the 28 artists claimed exemption at the 41 per cent tax rate on gross income totalling €77,931,694. Twenty-one artists earning between €500,000 and €1 million claimed on earnings totalling €14.3 million and saved themselves €5.9 million in tax.
There were 27 artists earning between €250,000 and €500,000 and they claimed on earnings totalling €9.2 million, saving themselves €3.8 million.
In the €100,000 to €250,000 income bracket, 129 artists wrote off a tax bill of €7.5 million on earnings totalling €19.7 million.
The Revenue analysis shows 1,366 artists were earning less than €10,000 a year and the tax lost to the State as a result of their claims was less than €1 million.
Artists have been able to claim the exemption under five categories: a book or other writing, a play, a musical composition, a painting or sculpture. It was introduced by former taoiseach Charles Haughey in 1969.
Scrapping the schemes will discourage artists from staying in Ireland to pursue their careers, the Arts Council has warned.
The organisation said it would argue a "strong case" to Government for the retention of the scheme in its entirety. The report from the Commission on Taxation this morning recommended the artist's tax exemption scheme should be discontinued as part of a reform of the taxation system.
Chairwoman of the Arts Council Pat Moylan said Ireland has a "tremendous opportunity" to promote itself in a positive way through its global cultural profile.
"If the exemption was withdrawn, a situation would be created where there would be pressure on that profile," Ms Moylan said.
"If the exemption goes, we could lose entirely, or in part, to the art world or other jurisdictions, a considerable number of artists. This would not be for the public good."
The organisation said its figures estimated scrapping the exemption could lead to the loss of €36 million in tax revenue to the country as artists leave Ireland.
Ms Moylan warned that the loss of the tax exemption could discourage people from continuing a career in the arts, and denied it was a "rich man's relief".
"The greatest number of its beneficiaries struggle for financial viability on a year-on-year basis. This is true of relatively unknown beneficiaries, as well as certain of Ireland's most internationally renowned and critically acclaimed artists," she said.
"Arts Council research has shown that over half the beneficiaries of the Scheme have average earnings of less than half the minimum wage. Of the two per cent who are considered high earners, most of whom are in popular music and writing, only one-third of their income qualifies for the relief."
Ms Moylan said having high profile artists such as U2, Louis le Brocquy, Seamus Heaney, Jim Sheridan, Roddy Doyle, John Banville and others resident in Ireland was important for the country's profile.
"Apart from the global perception this creates for Ireland, it has helped put in place world class local infrastructures in artistic management and technical expertise. For up and coming artists, this is of considerable assistance. Without the high earners, who support the infrastructure in a major way, this professional layer would be lost to Ireland," she said.