Charlie McCreevy (Kildare North, Fianna Fail)

This recommendation is concerned with our current residency rules which were introduced in the Finance Act 1994 following detailed consideration by my Department and the Revenue Commissioners. They replace the previous unsatisfactory approach which was based primarily on case law and Revenue practice and reflected the development of the income tax system in the United Kingdom from its introduction in 1799. Interestingly, last April the British Treasury published a background paper entitled "Reviewing the residence of domicile rules as they affect the taxation of individuals". In this paper, it acknowledged that Britain's current rules on determining residence of domicile, developed over the past 200 years, are complex, poorly understood and do not reflect the reality of today's integrated world. The British rules are effectively the rules we would now have if we did not take the initiative we did in 1994.

The essence of this recommendation is twofold. First, it proposes that every Irish citizen be treated as tax resident in the State unless he or she can prove to the satisfaction of the Revenue Commissioners that he or she is being taxed in that year in another jurisdiction. Second, it proposes that the question of an Irish citizen being present in the State for any day be asked on the basis of whether the individual was present in the State at any time during that day. The current regime only asks whether a person is present in the State at the end of that day.

A Fianna Fáil-Labour Government introduced the changes in 1994. The then Fine Gael spokesperson, Ivan Yates, pointed out on Committee Stage of the 1994 Finance Bill that the provisions, as they were then drafted, would render a person who stayed overnight in the State present here for two days rather than one. Hence the rule was changed to account only a presence at the end of a day. This was consistent with Revenue practice prior to the introduction of the 1994 rules.

The 183-day rule is the common rule among other jurisdictions. However, it is not applied in the same way in every jurisdiction. For example, Britain ignores the days of arrival and departure, regardless of the number of visits in a tax year. If one arrived in Britain on a Monday and left on a Wednesday, one would only have been deemed resident for one day. Indeed, were one to arrive on a Monday and leave on a Tuesday, one would not be deemed resident for any day. In Denmark, an individual is deemed resident if he or she has lived there for six consecutive months.

Senator Browne's recommendation seems to force an obligation on all Irish citizens, regardless of where they reside, to convince the Revenue Commissioners that they are not liable for tax in Ireland. Even if such an approach were administratively feasible, I cannot see how it would be of assistance in keeping Ireland competitive in the global economy.

The USA is unique among OECD countries in basing its tax residence on citizenship and not on where a person lives. Several OECD countries apply the same basic residency tests as we apply in this State, namely, the number of days spent in the State in the tax year. Ireland's approach to this is not unusual.

The change brought about after long discussions within the Fianna Fáil and Labour Party coalition Government in 1994 put this complex area on a much better footing. As I have pointed out on previous occasions, the rules on residency and domicile were complex and based on a mixture of administrative practice and other arrangements. The 1994 decision put this on a legislative basis and has worked well. All countries I know have this income tax residency rule, except the United States, which has a citizenship rule.

This recommendation is another example of the bar stool approach to economics. While one can get a cheer by proposing this, it is not based on any sense of reality. We live in a global economy and people are entitled to live in whatever jurisdiction best suits them. There is nothing unusual about the Irish case. Our residency rules are in line, and in some cases more stringent, than tests applied in other countries. As I have said in the Dáil, changing this is not on my agenda.