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New Irish Tax Rules Unfairly Weighted Against Taxpayers, Says Expert

by Jason Gorringe,, London

13 November 2003

New tax arrangements introduced by the Irish government this month have been harshly criticised by a tax expert at accounting firm Deloitte and Touche for being detrimental to taxpayers whilst benefiting the Revenue Commission.

When the new rules became effective on October 31 this year, Finance Minister Charlie McCreevy announced that the changes “will better balance the position of the tax claimant while safeguarding the position of the Exchequer”. However according to Pat Cullen, senior partner at Deloitte and Touche, “there is no doubt that this is a rebalancing which is weighted overwhelmingly in favour of the Revenue.”

“It is difficult to see where there is any balance or equity,” Mr Cullen contended.

The changes mainly affect interest payments on overpaid or unpaid tax and the way payments are made to the Revenue by the taxpayer. For example, interest payable on tax refunds has been reduced from 6% to 4% while the rate of interest payable on underpayments has been left unchanged at a penal rate of 12%.

“The stated Revenue objective is that interest should compensate the Exchequer for being out of funds for a period,” explained Mr Cullen, adding that: “At a rate of 12% (non tax deductible) the interest also includes a severe penalty at a time when Revenue may also be seeking separate penalties or surcharges for late payment.”

Furthermore, all companies are required to make a payment of preliminary tax which for 2003 must be at least 36% of their final liability. This will rise to 90% by 2006 and “will inevitably be a best estimate only”, according to Mr Cullen.

Another blow to the taxpayer is being dealt by new rules which state that no interest will be paid by Revenue on any overpayments arising, if the repayment is made within 6 months of the filing of the tax return for the year. In many instances, this could mean taxpayers “will be at least 12 months out of pocket with no interest on the refund,” Cullen observed.

The same rule will apply to all self employed taxpayers, many company directors and other taxpayers in the self assessment system, who also must pay their preliminary tax based on their best estimate by 31 October in the tax year.

As a consequence of these new rules, Cullen fears that there will be a tendency amongst firms and individuals to underestimate their tax liability.

“As interest on tax underpayments now arises at 12% and the Revenue now apply the interest provisions strictly, many more taxpayers may in future choose to be conservative with their preliminary tax payment to protect themselves against interest. This though in future will represent an interest free loan to Revenue,” the D&T partner observed.

“The Department of Finance and Revenue may claim that there are corresponding benefits to taxpayers in some areas in these changes but such benefit will accrue to a very small number of taxpayers as compared with the huge number of taxpayers who will be disadvantaged by these changes,” he argued.

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