Brian Cowen (Laois-Offaly, Fianna Fail)

It is important to set out the facts for the record. It is necessary at the outset to remind the House that the need for a definition of residency arises from the need for clarity as regards which sovereign jurisdiction has the taxing rights in relation to particular taxpayers. If such rules were not formulated and applied there would be potential confusion and conflict, and unfairness to the taxpayer and tax authorities. Different approaches can be taken as to how this dividing line is drawn, but in all cases, persons will fall either one side of the line or other. Tax administrations must strike a reasonable balance while remaining consistent as far as possible with international norms in this regard.

The residency rules in Ireland are of long-standing. Up to 1994 they were a mixture of common law, Revenue practice and court decisions. In order to codify and clarify issues as far as practicable, they were last updated by the Fianna Fáil-Labour Party Government in the Finance Act 1994 following a comprehensive review of the matter by the Revenue Commissioners and the Department of Finance. Under the present residency rules, a person is regarded as resident in Ireland for tax purposes in a particular tax year if he or she spends 183 days in the State in that year, or 280 days in aggregate in that tax year and the preceding tax year. This aggregation rule does not apply if he or she is in the country for less than 30 days in the tax year being looked at. A person is regarded as having spent the day in the State if he or she is there at midnight.

The 183-day rule that contributes to determining residency in Ireland is also a core element of a number of other countries including Australia, Canada, the Czech Republic, Denmark, Finland, Germany, Italy, New Zealand, Norway, Portugal and Sweden. There seems to be a mistaken belief in some quarters that non-residents escape Irish tax totally if they are non-resident. Even if non-resident in Ireland, there is a liability to Irish income tax on Irish income, for example, income from directorships, rented properties, etc. Also, where individuals are resident in countries with which Ireland does not have a double taxation agreement they continue to be subject to a 20% withholding tax on dividends paid to them by Irish companies. Non-resident individuals are also liable to Irish capital gains tax on gains from land, buildings, business assets, minerals and exploration rights in the State or from unquoted shares which derive the greater part of their value from assets in these categories.

Since 2002, income tax returns require data from self-assessed taxpayers in relation to their residence and domicile status. This is not captured electronically at present but will be in the future. This will make it practicable to derive overall statistics as regards claims to non-residence status. There is no statutory obligation on non-resident individuals to return details to Revenue of income or gains arising anywhere else in the world as these are not liable to tax in Ireland. Therefore, it is not possible to provide the information in the manner the Senator desires. There is nothing untoward in this. Tax authorities are usually not concerned with income over which they have no taxing rights. However, I believe that, in the context of the Senator's concerns, we may be dealing with a fairly well defined group of individuals.

It is not correct to regard residency rules as a specific tax relief scheme as such, for the reasons explained at the outset. They are therefore not included in the review of tax relief schemes that I announced in last year's budget. However, as already outlined to the Dáil on 1 June last, I have asked the Chairman of the Revenue Commissioners to monitor the application of the current non-resident rules, through examination of cases handled in the Revenue large cases division, and to provide me with a report once this is completed. The Chairman has confirmed to me that this work is under way and that he will report to me as soon as possible. I am also informed by the Revenue Commissioners that a number of audits are under way in their large cases division into claims to non-residence as part of their risk based programmes.