THE government considered a special tax regime that could have allowed thousands of highly paid executives in large multinational companies to pay a flat rate of just 30% in the tax.
The plan – which was designed to be one of the most generous tax incentives in Europe – was abandoned however, following advice from the Attorney General.
Legal advice given to the Department of Finance suggested the regime could fall foul of European Union rules on state aid.
Full details of the proposed regime have not been made public before with the Department saying the idea had come about as the result of a “brainstorming” session.
The scheme would have created a large group of people who would have operated in an entirely separate tax system to the rest of the country for up to five years each.
Details of it explain how it could apply to up to five percent of a company’s workforce in return for their employer creating ten jobs per beneficiary.
An internal submission said: “The assignee would have paid either a flat rate of tax of 30% or an effective rate of tax of 30% on salary in excess of €75,000.
“There would have been no upper salary limit. A maximum of 5% of a company workforce could avail of the relief.”
The Department said it would have been managed and overseen by the IDA while the Revenue Commissioners would look after the granting and administration of the tax relief.
The submission said this scheme was the “preference” of the Department of Finance but that this had been scuppered following discussions with the Attorney General.
“Advice was received that the new proposal has the potential to raise state aid issues,” the submission said.
“The proposed requirement to include IDA certification of the jobs created after three years and the mandatory nature of the requirement for job creation could result in the scheme being considered State Aid rather than as a taxation measure.”
The scheme was proposed ahead of Budget 2015 as part of a review of a separate incentive scheme known as SARP, or the special assigned relief programme.
SARP is a smaller-scale scheme that allows for 30% of income earned above €75,000 to be exempt from tax along with tax-free allowances for school fees and one trip home a year.
A cap on the scheme has just been introduced by the Department of Finance after the amount claimed under it doubled in the space of a year even while the number of jobs it created stalled.
This year’s ministerial submission explaining in detail why removal of the cap was needed has been withheld under FOI by the Department.
They said its release would be “contrary to the public interest” before the Finance Bill was enacted.
The earlier submission on the SARP scheme explains why the relief was originally extended and the cap on earnings removed.
It said that because of international moves to curb tax avoidance schemes (including the notorious ‘double Irish’), Ireland needed a generous scheme so as to stay competitive in encouraging foreign direct investment.
The scheme had until then proven something of a “deadweight” and was considered to be “of limited value in its current form”.
Instead, the submission said it should be expanded so that a €500,000 upper threshold on salary was removed, rules on tax residency changed, and beneficiaries allowed to work in Ireland and overseas at the same time.
It explained how a person on €800,000-a-year would have an effective tax rate of 40.1 percent instead of 46.6 percent.
It also claimed that “very few (if any)” individuals involved in the scheme would be paid a salary in excess of €1 million.
However, this prediction proved inaccurate and eighteen people earning annual wages of between €1 million and €10 million were on the scheme in 2016.
The submission warned too that any extension of the measure was not going to be universally popular.
“While any extension/enhancement of the scheme is likely to raise opposition in some quarters, we believe it can be justified in terms of helping to improve Ireland’s overall competitiveness,” it said.
A spokesman for the Department of Finance said that the abandoned 30% scheme was “one of a number of proposals that were looked at the initial consideration stage [brainstorming]”.
“This occurs when any new taxation measure is considered by officials who will always provide various options for consideration for senior management [or the] minister. The decision was taken that this particular option would not form part of the scheme.”