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Restricting Irish Tax Reliefs 'Justified' Says Cowen

by Jason Gorringe, Tax-News.com, London

25 September 2007


Further evidence that a small number of wealthy individuals are managing to reduce their Irish income tax liability to miniscule amounts justifies the restriction of certain tax reliefs in the 2006 budget, Finance Minister Brian Cowen has said.

Cowen announced on Monday that according to the results of a study into the top 400 earners by the Irish Revenue Commissioners, the vast majority of those with high incomes pay tax at or close to the top rate (42% in 2003, the year upon which the study is based) and the top 1.5% of income earners pay more than a quarter of all income tax in Ireland.

According to the Revenue Commissioner's report, only three taxpayers had an effective tax rate of 0% in 2003, down from six in 2002. Taxpayers with an effective rate of less than 15% increased from 79 to 80, while taxpayers with an effective rate of less than 30% increased from 95 to 104. In both 2002 and 2003, approximately three quarters of the taxpayers concerned had effective tax rates of 20% or more, and about half had effective rates of 35% or more.

However, Cowen acknowledged that historically, there have been some individuals with high incomes who, using entirely legal reliefs, pay a very low level of tax. But he added that the measures announced in the 2006 budget, which took effect this year, will "greatly restrict" the availability of special tax incentives – especially in the property sector – and reduce the ability of high earners to offset these reliefs against annual income.

“The restriction of relief measures which took effect from the 1st of January this year will mean that the tax take from the better off will rise and the tax system will be more equitable as a result,” explained Cowen.

Government proposals to establish a Commission on Taxation will further examine tax reliefs and incentives in Ireland, he added. While noting that the tax incentives were "a valid and useful policy instrument" to influence economic behaviour, he conceded that they had to be used "judiciously and with an eye to their cost effectiveness and impact on the overall fairness of our tax system".

A comprehensive report in our Intelligence Report series giving background tax and residence information on many of the key offshore jurisdictions is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report4.asp

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