Bertie Ahern (Dublin Central, Fianna Fail)

Yes. It is also being availed of by returning Irish expatriates working here during the three year period after a return, during which they are not ordinarily resident in the State. The remittance basis of assessment is of long standing and was intended originally for genuine foreign income. However, there is increasing evidence of residents who are either not domiciled or not ordinarily resident here arranging their affairs so that they can avail of the remittance basis, with a clear objective of reducing their tax liabilities.

While technically the income concerned may be treated as sourced abroad because of foreign contractual arrangements, in substance it is Irish income because it is earned for work done here. It is the reason people are seeing a high number of workers without the corresponding income tax revenues, an issue which has been discussed for the past few years. It is no longer acceptable that taxpayers should be able, by such artificial arrangements, to avail of the remittance basis to reduce their tax liabilities in respect of their employment income. Therefore, the resolution before the House proposes to abolish the remittance basis of assessment in respect of employment earnings to the extent that those earnings are attributable to the performance of the State of duties of the employment.

The change will ensure equality of treatment for tax purposes for all Irish resident employees, regardless of nationality. The change will take effect from 1 January. The yield from the measure is estimated at more than €50 million in 2006. I recommend the resolution to the House.

Financial Resolution No. 3 also concerns income tax. It is a curtailment of relief on loans used for acquiring interest in companies. The resolution will re-focus the relief which is available to individuals in respect of interest paid on loans used for the purpose on acquiring an interest, either by way of equity or loan capital, in certain companies. At present, the relief covers both trading companies and rental companies, that is, companies in which income arises wholly or mainly in the form of rents or other income from property.

The relief was examined as part of the review of certain tax incentive schemes and exemptions that were announced on this day last year by the Minister, Deputy Cowen. The original objective of this tax incentive was to encourage economic activity and employment by assisting those involved in companies to invest in those companies. The review of the relief found that the relief for interest costs of investing in rental income companies is not effective, at this stage, in achieving its original objective.

Like all significant tax reliefs, this one can be the subject of tax planning attempts. What is new? There is evidence that the relief, particularly as it applies to rental companies, has been used to fund the acquisition of overseas properties, where people can individually or collectively buy a property abroad and claim the interest relief on that against their entire incomes here. Obviously, this was not intended, so we have introduced this resolution to the House and propose to deal with the abuse by excluding rental companies from the ambit of the relief altogether. Loans taken out after today will accordingly no longer qualify for relief.

I should point out that existing loans are not affected by the change because they have already been dealt with and one cannot have retrospective taxation. Nor are loans applied to acquire interest in trading companies, which will continue to qualify for what was the original issue. It is the close down of what was there. The yield from this measure is estimated to be negligible in 2006 and €5 million in a full year. I commend the resolution to the House.

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