Brian Hayes (Dublin South West, Fine Gael)

In welcoming the Finance Bill 2012 introduced yesterday by the Minister for Finance, Deputy Noonan, I want to expand on two measures — the special assignee relief programme and the foreign earnings deduction — it contains to help business and to promote the Government's key objective, the creation of jobs.

The special assignee relief programme, SARP, is intended to reduce the cost to employers of assigning skilled individuals in their companies from abroad to take up positions in the Irish-based operations of the employer. As similar schemes are in operation in some countries with which we compete for foreign direct investment, for example the Netherlands and Sweden, it is important we respond. Such initiatives can be a persuading factor when companies decide where to locate investment projects and we need to compete strongly for foreign direct investment.

SARP will provide an exemption from income tax on 30% of salary between €75,000 and €500,000 for employees who are assigned for a minimum of one year. The exemption will be available for a maximum of five years. The scheme will operate through the PAYE system as a deduction from income tax but USC will continue to be payable on the full income amount. Social insurance will also be payable where the individual is not liable to it in his or her normal state of residence. The assignee must have been employed by the company in a country with which Ireland has a double taxation agreement, DTA, immediately prior to the assignment to Ireland, must be tax resident in Ireland and not tax resident in another state in the relevant tax year to qualify for SARP. One trip home per year will be allowed tax free. No other day-to-day expenses will be permitted free of income tax.

In recognition of differences in curricula taught and languages spoken by assignees and their children being brought to Ireland, vouched school fees of up to €5,000 per annum per child where paid for by the employer on behalf of an employee will be allowed free of benefit-in-kind taxation. Share-based remuneration can also qualify for the exemption and there are no restrictions on where the income can be remitted.

The scheme will be introduced for an initial three-year period ending on 31 December 2014 to allow for review. The scheme will be reviewed in 2014 before any decision is taken to extend it. Employees will have to apply to the Revenue Commissioners for the relevant tax treatment and provide clarification of their assignee status from their employer. In addition, employers will have to complete an annual return setting out the numbers availing of the scheme and the value of the salaries exempted.

It is difficult to forecast the take up of any new scheme and its associated costs. Excluding expenses, the maximum amount of exempt income that an employee could have per annum would be €127,500. This would equate to €52,275 in tax foregone for a taxpayer subject to the higher rate of 41%. Accordingly, for every 100 assignees who avail of the programme up to the maximum level of relief, the tax cost would be just over €5 million.

The exemption will be provided for an introductory period of three years at which point it will be reviewed. At that stage, additional information will be available on the number of individuals availing of the exemption, the sectors of industry that the individuals are employed in and the cost of the programme that can feed into the review. Depending on the outcome of that review, the Minister for Finance can decide whether the relief should be retained. This new programme replaces an existing incentive in the tax code that provided for the repayment of tax where the earnings were not remitted.

The number one priority for the Government is the creation of jobs. The introduction of this tax incentive is aimed at reducing the costs to businesses of locating key personnel in Ireland, thereby increasing the potential for additional job creation in new divisions or for new projects of the relevant business. Where an individual transfers from a jurisdiction with lower effective tax than Ireland, the employer often has to increase the salary payable in order to ensure that the relevant employee did not suffer a loss in net pay as a result of accepting the assignment. The requirement for increased salaries imposes additional costs on employers. Costs may also arise in temporarily moving a family to Ireland. In the absence of the incentive, it could be more cost efficient for a multinational to assign such individuals and any associated jobs to some of our competitor countries.

The Minister also announced the foreign earnings deduction scheme in the context of this Bill. This is a deduction from income for income tax purposes in respect of employees who travel abroad to certain countries as part of the duties of their employment. At his press conference last Wednesday to launch the Finance Bill, the Minister acknowledged the work done by these employees on behalf of this country and indicated that they should be encouraged. The new scheme will grant a deduction from salary of up to a maximum of €35,000 for employees travelling to the so-called BRICS countries, namely, Brazil, Russia, India, China and South Africa. This deduction will, however, remain chargeable to the USC. The individual claiming the deduction must be absent from the State for a minimum of 60 days in a tax year. These days can be accumulated from a number of visits. The individual must be present in the foreign state for a minimum of ten days per trip. This deduction will be proportional. It will be calculated based on the numbers of days spent abroad, the salary of the employee and the length of the employment. The relief will be provided by way of refund at the end of the tax year.

BRICS countries were selected because CSO data suggest that approximately 4% of Irish exports are currently made to them. The Minister believes there is potential for Ireland to increase exports of goods and services to the large populations of these countries. Anecdotal evidence would indicate that certain employers are encountering difficulties in encouraging employees to embark on trade missions to the countries concerned and it is against this background that the scheme has been proposed. According to CSO data the value of Irish exports in 2010 was €89.4 billion, of which €3.6 billion was exported to BRICS countries, representing approximately 4% of the total amount exported. With a combined total estimated population of 2.8 billion, these countries represent an enormous potential market for Irish businesses.

The deduction will be provided for an introductory period of three years until tax year 2014, at which point it will be reviewed. At that stage we should have additional information from the CSO regarding export levels to the targeted countries to feed into the review. Depending on the outcome of that review, the Minister will decide whether the relief should be retained. It is difficult to forecast the take up of any new scheme and thus the associated costs. The maximum amount of exempt income an employee could enjoy under the schemewill be €35,000 per annum.

These new schemes are aimed at helping Irish companies to export to some of the largest markets, with which Ireland currently does relatively little trade, and to encourage the relocation to Ireland of assignees who can generate further jobs through their work. These are progressive and useful measures which together will help us achieve our principal objective of creating jobs. The schemes are relatively cheap and we will see whether they work. In circumstances where there is very little money, they are worth trying and I hope they succeed.

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