Seanad debates

Friday, 11 December 2020

Finance Bill 2020: Committee Stage

 

10:00 am

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail) | Oireachtas source

I am aware of the matters raised by the Senators and can advise that my officials have been in touch with their counterparts in Northern Ireland on the matter. I note that the relief applies not only to persons with a UK-based employment but also for employment in the EU and countries with which we have a double taxation agreement in compliance with Ireland's treaty obligations. While it is most acute on the island of Ireland, these arrangements are in place not only between the UK and the EU but in countries with which we have a double taxation agreement. It is a worldwide issue from an Irish taxation point of view and it affects a large number of countries with which we have a double taxation agreement.

I note there is no equivalent provision in UK domestic legislation to match what we have. In the case of a person who lives in Ireland but works in another jurisdiction, the general tax position is that as an Irish resident the person is subject to Irish tax on worldwide income from any source, including the employment exercised outside the State. At the same time, the employment may also be subject to tax in the country in which the person works. In accordance with general principles of international tax, where instances of double taxation arise on the same income, relief against Irish tax may be claimed by way of a credit for any foreign tax already paid subject to the terms of the applicable double taxation agreement. Unilateral relief may also be available in certain circumstances under domestic Irish legislation.

What if a person has taxable income on both sides or lives on one side and works on the other side? The essence of all these double taxation agreements is that the person only pays tax once. If the person pays tax in one jurisdiction under these arrangements the person gets relief in the other country, whether the home country or wherever the person is tax resident, against the tax already paid. There is never a question that the person will be doubly taxed. The double tax agreements are in place to prevent that from happening. A person is taxed once but not twice. That is why the revenue authorities in the various jurisdictions ensure taxpayer X who has paid X amount of tax gets relief in the country in which he is resident for the tax he paid in the country. That is the essence of the double taxation agreement.

In the case of a person who lives in the State but who works in Northern Ireland, the terms of the Ireland-UK double taxation agreement provide for relief by allowing the Irish resident to claim relief for the UK tax paid against the Irish tax that may be due on the same income. That is exactly the point I was making but it applies to more countries than the UK. That is the basic position of all taxation agreements.

The trans-border relief referred to by the Senators is in addition to the relief provided by the double taxation agreement and may apply, subject to certain conditions, where a person lives in Ireland but works wholly outside of the State. As set out in section 825A of the Taxes Consolidation Act 1997, to qualify for trans-border relief the individual must be tax resident in Ireland; must work in a country with which Ireland has a double taxation agreement in an employment held for a continuous period of 13 weeks in the year; must exercise the employment duties wholly outside of the State with none performed in the State, save for matters considered incidental to the foreign employment; must have paid tax in the other country and must not be due a refund of the tax; and must be present in Ireland for at least one day for every week the person works abroad.One could say it is almost customised for people in Northern Ireland and the UK. If one is working exclusively in the UK, one must be present in Ireland at least one day in every week. Where the trans-border relief applies in the case of an Irish resident who works in the UK, it operates in such a way that only UK tax is charged on the employment income and there is no charge to Irish tax on the same income. Any additional Irish tax that may be due is forgone under the Irish domestic legislation.

This tax relief is not normally available for Irish residents who work from home in Ireland. However, in light of the Covid-19 pandemic, Revenue has confirmed that if employees are required to work from home in the State due to Covid-19, such days spent working at home will not preclude the individual from being entitled to claim this relief, provided all other conditions of the relief are met. I have listed out the five conditions, one of which relates to being present in the State for one day per week. Due to Covid restrictions in travel, Revenue has made those flexible arrangements.

In the event that the existing arrangements were to be revised, specifically for Northern Ireland Border workers, a number of issues could arise, including: questions of equitable treatment of Irish residents in respect of employments carried out in Ireland; the competitive position of Irish employers vis-à-vis those in other countries; concerns regarding the potential for double non-taxation of such workers, which means there might be a case where they would end up not paying tax in either place, which would be a risk to our Exchequer; and questions around compliance with established principles of international tax.

Any such consideration would also need to be examined in the overall context of Ireland’s EU membership, noting that it would likely not be possible for Ireland to give preferential treatment to UK-based or Northern Ireland-based employments without also giving similar treatment to EU member states or other countries with which we have a double taxation agreement. When one is in the EU network, one cannot have separate arrangements for one country outside of the EU and not have it for other countries outside the EU. It would have to be a similar arrangement for all countries that have a double taxation agreement.

As is the case with all taxation matters, this position will be kept under review, especially in the context of Brexit. However, I assure Senators that in circumstances where this relief does not apply, relief for foreign tax may be applicable in the normal course under the double taxation agreement.

This was introduced in the context of Covid. That is why, even if I, as Minister of State, wished to accept this proposal, the six-month deadline would be an issue because we might have Covid here for longer than six months after passage of the Act. Revenue has made the required alterations on an administrative basis in its management. It is satisfied there is no great risk to the Exchequer as a result. Revenue has introduced this on an administrative arrangement basis, using its own powers of discretion to look after tax revenue but always to treat taxpayers fairly. It has done this and I expect that to continue as long as Covid continues to be an issue, which could be well beyond the six months we are talking about. There is no immediate prospect of this being withdrawn as long as Covid is, unfortunately, with us. It is only in the context of Covid that this is arising. After that, in terms of Brexit and so on, it is another day's work. In terms of seeking a report now, this matter may not have come to a conclusion in six months and people are satisfied with some of the arrangements currently in place, that the Revenue is taking a practical approach and that it is a good organisation. On that basis, I do not accept the recommendation relating to the six months issue.

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