Ciarán Lynch (Cork South Central, Labour)
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Question 90: To ask the Minister for Finance if it is his intention to alter the requirement whereby the tenant is required to satisfy the taxation obligations in regard to rental income of absentee landlords; and if he will make a statement on the matter. [10285/11]

Michael Noonan (Limerick City, Fine Gael)
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I am advised by the Revenue Commissioners that, under section 1041 of the Taxes Consolidation Act 1997, a tenant who pays rent on property located in the State directly to a person whose usual place of abode is outside the State and who has not appointed an agent in the State to collect the rent, is required to deduct tax from the gross rent at the standard rate of income tax, which is currently 20%. The tax deducted by the tenant is effectively a withholding tax at source. The property owner, however, is responsible for his/her own tax affairs and must prepare and submit rental accounts and pay any additional tax due where appropriate.

This provision, which governs the commercial rented sector as well as the residential rented sector, has a number of valid and important functions. Firstly, it is a control measure designed to promote greater compliance in this area, having regard to the obvious risk factors associated with non-resident taxpayers. Secondly, it also ensures that a minimum tax payment is made by non-resident landlords in respect of rental income arising here. In the absence of a withholding tax, it would be relatively easy for non-resident landlords to evade tax as Revenue would have no mechanism to recover the tax due as there is no way to force such non-residents to make an Irish tax return and to declare their income.

Following a commitment given during the Committee Stage debate on the 2008 Finance Bill, the legislation was reviewed with a view to establishing if alternative arrangements could be put in place that would minimise the risk of opening up opportunities for tax evasion. The conclusion was that a withholding tax remained the most effective approach and that an alternative arrangement that would minimise the risk of opening up such opportunities simply did not present itself. It is accepted, however, that the section 1041 provision could give rise to some practical difficulties in some cases. In recognition of this, where a tenant acts in good faith and is genuinely unaware of the obligation to deduct tax, or of the residence status of the landlord, Revenue will only seek to apply the legislation from a current date. This practical approach is reflected in Revenue's operational instructions in this area.