Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

I appreciate the Deputy is requesting a comprehensive report on trans-border workers’ relief. This relief is provided for by section 825A of the Taxes Consolidation Act 1997, TCA, and generally applies in the case of cross-border workers who are Irish resident but who commute to work in another jurisdiction. The relief effectively removes the foreign employment income from a liability to Irish tax where foreign tax has been paid on that income, and such foreign tax is, therefore, not refundable.

As the Deputy may recall, we discussed this relief at last year’s Finance Bill. I indicated at that point that the relief would be examined as part of the work of the Tax Strategy Group, TSG, for 2021. I did this and this relief was examined by the TSG this year. At its meeting on 8 September last, the TSG discussed the review of trans-border workers’ relief and, subsequently, the TSG paper was published and it is available on my Department’s website.

The review specifically focused on trans-border workers’ relief and the requests to place on a statutory footing a concessional treatment granted by Revenue in light of the unprecedented circumstances arising due to the pandemic. This request seeks to allow individuals who are resident in the State, but who work outside the State for a non-resident employer, to continue to avail of the relief if they exercise their duties of employment in the State. This would mean that Irish residents working in the State for a non-resident employer could work in the State and only pay tax in the other jurisdiction.

Ordinarily, to avail of the relief, the duties of employment must be performed wholly outside the State and in a country with which Ireland has a double taxation agreement, DTA. However, a flexible and pragmatic approach was taken by Revenue due to the imposition of public health restrictions to limit movement and to prevent the spread of Covid-19.

The examination undertaken by the TSG encompassed very detailed consideration of all relevant matters, including the equity of treatment between Irish residents who pay tax in the State, the competitive position of Irish employers and the established principles of international tax. The review identified a number of significant concerns from a policy perspective when having regard to the interest of the wider body of taxpayers encompassing Irish resident employees and employers. The review noted that if the temporary concession regarding trans-border workers’ relief was placed on a statutory footing, it would allow residents in the State to avail of the relief while working in the State and pay no tax to the Exchequer. Where employment duties are carried out in the State, Ireland has a taxing right over that income and to not tax that income would be asking the State to give up a taxing right it rightfully has under the Irish tax code. It is unclear to me why Ireland would not exercise those taxing rights and it also unclear how another jurisdiction would then have taxing rights over income earned in the State in respect of duties carried out in the State.

The review identified issues relating to equity for all taxpayers. Currently, there may be different tax liabilities and different effective tax rates between those Irish residents who can avail of the relief as compared to those who cannot avail of the relief. However, there is a key distinguishing factor in that the employment duties are exercised outside the State for a non-resident employer. If trans-border workers’ relief was to be relaxed to allow for work carried out in the State to qualify for the relief, there would no longer be a distinguishing factor between Irish residents as both sets of Irish residents would be exercising their employment duties in the State. In such circumstances, some, that is, those with Irish-resident employers, would be liable to tax at the Irish tax rates and a potentially higher effective tax rate, while others, that is, those with non-resident employers, would be liable to tax at the tax rates in the other jurisdiction and a potentially lower effective tax rate.

This would give rise to a question as to how Irish income tax rules could apply a different Irish income tax treatment to an Irish resident solely because of the location of their employer, as opposed to the location of where they carry out their employment duties, as is the current position. This would give rise to issues of equity and fairness for all resident employees in the State with regard to issues that are fundamental features of our income tax system.

It is not clear how this would be sustainable and acceptable from the perspective of all Irish-resident taxpayers.

This review also found the competitive position of Irish-based employers or activities could potentially be undermined. This is especially the case where salaries would be subject to lower rates of tax, and that may have implications for Irish-based employers' cost base and their ability to attract and attain employees from their talent pool.

It is also important to note Ireland is somewhat unique in having such relief in its domestic tax code. There is no comparable measure in the UK's tax code nor in many countries in mainland Europe that share land borders. Ireland has an extensive network of double taxation agreements which have the effect of eliminating double taxation on the same income source. In the event an individual does not qualify for trans-border worker's relief, he or she may be entitled to relief from double taxation, under the terms of the relevant double taxation agreement, DTA. Thus a double taxation charge would not arise for cross-border workers.

This matter has been reviewed in recent months. It was considered comprehensively in the tax strategy group, TSG, paper. This is a brief overview of the matters raised, but the report is available on the Department's website. In the absence of any new or compelling changes in circumstances, a further review at this time is not needed. Therefore, I cannot accept this amendment.