Brian Cowen (Laois-Offaly, Fianna Fail)

The Deputy's amendment seeks to confine the provisions of section 1041 of the Taxes Consolidation Act 1997 to commercial property only. Section 1041 applies to all rental income and other lease income received by a non-resident in respect of property located in the State. The section ensures that such income is taxed by requiring the tenant to deduct tax at the standard rate from the gross payment. The tenant is then required to make a return and pay to Revenue the tax that he or she has deducted from the rent. The landlord is entitled to a credit for the tax deducted by the tenant against his or her final income tax liability and is obliged to pay any additional tax that may be due. By excluding property, other than commercial property, from the section the effect of the Deputy's amendment is to remove, without providing for an alternative, Revenue's ability to collect tax from rent paid to non-resident landlords for residential property.

I accept that this provision as it is currently constituted might not be well known to tenants renting residential accommodation from non-resident landlords. However, the provision does have a valid function in that if it was not on the Statute Book, it would be relatively easy for resident landlords to evade tax by establishing off-shore legal entities to hold their residential properties and to receive the rents due on these properties. At present, section 1041 effectively prevents this type of tax evasion. The removal of the requirement to deduct tax without providing for an effective replacement regime would only serve to open up opportunities for tax evasion. While I am sympathetic to the thrust of the Deputy's amendment I am not in a position to open up opportunities to evade tax, nor does she intend to do so, and therefore, cannot accept the amendment.

With regard to the question of reviewing this arrangement, I should point out that the operation and impact of the assessment and collection of taxes are monitored and are subject to review on an ongoing basis as part of the normal work of my Department and the Revenue Commissioners. There are a number of factors that need careful consideration here, not least the need to protect the State from loss through tax avoidance and evasion. As I have already stated, if I were to simply abolish the section, it would probably lead to structures being put in place to pay rents to off-shore entities, with the resultant loss to the Exchequer. However, I will ask my officials, in conjunction with the Revenue Commissioners, to review the issues to see if alternative arrangements can be put in place that minimise the risk of opening up opportunities for tax evasion.

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