Frank Feighan (Roscommon-South Leitrim, Fine Gael)
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Question 61: To ask the Minister for Finance the reason the reduction in VAT rate to 9% on services does not extend to beautician services. [36819/11]

Michael Noonan (Limerick City, Fine Gael)
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VAT is charged on the supply of goods and services, and the rate applying is subject to the requirements of EU VAT law with which Irish VAT law must comply. While many tourist related services were made subject to a new temporary lower reduced VAT rate of 9% from 1 July, it is not possible to extend this treatment to the goods and services that remain subject to the 13.5% rate. While hairdressing services apply at the new temporary 9% rate, services consisting of the care of the human body, including beautician services, remain subject to the 13.5% rate.

This arises from the fact that many of goods and services to which Ireland applies a reduced rate of VAT, including services related to care of the human body, have their basis under an EU derogation that provides that as we applied a reduced rate to these items on 1 January 1991, we are entitled to continue applying that reduced rate to those items. However, this continuation of reduced rate application is conditional on the rate being no less than 12%. These are known as 'parked' items, and are provided for under Article 118 of the EU VAT Directive. As beautician services are part of these parked items, it is not possible for Ireland to apply the rate of 9% to them.

It is for this reason that the Finance (No. 2) Act 2011 introduced a 9% VAT rate in respect of tourist activities such as restaurant and hotel accommodation services, while other tourist activities such as tour guide services and the short-term hire of cars, boat, caravans and mobile homes remain liable to VAT at the 13.5%. However, it should be noted that in the majority of EU Member States services consisting of the care of the human body apply at their standard VAT rate of up to 25% in some cases, compared to 13.5% in Ireland.

Kevin Humphreys (Dublin South East, Labour)
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Question 62: To ask the Minister for Finance if he will reduce the number of days per year required for tax residency from 183, 50%, to at least below 100, and similarly reduce the two year figure of 280 to increase the tax take from high net worth persons; and if he will make a statement on the matter. [36822/11]

Kevin Humphreys (Dublin South East, Labour)
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Question 63: To ask the Minister for Finance if he will introduce a rule, as applies in the UK for tax residency, that if one comes to Ireland regularly each year and is in Ireland for an average of 91 days or more in a tax year, usually worked out over a maximum of four consecutive tax years, that one will be deemed to be resident for taxation purposes; and if he will make a statement on the matter. [36823/11]

Michael Noonan (Limerick City, Fine Gael)
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I propose to take Questions Nos. 62 and 63 together.

The taxation of individuals in the State is broadly in line with that prevailing in most other OECD jurisdictions. In general,

(a) individuals who are resident in the State for tax purposes are taxable here on their worldwide income and gains; and

(b) individuals who are not resident here for tax purposes pay tax here only on income arising in the State and income derived from working here; those who are neither resident nor ordinarily resident are only liable to Irish tax on gains from certain assets in the State.

The current residence rules are based on counting days of presence in the State. An individual is regarded as resident if s/he is present in the State for 183 days in the current year and 280 days between the current year and the previous year. These rules are in place since 1994. Prior to 1994, the Irish tax residence rules were derived from case law rather than statute law and were broadly similar to the UK tax residence rules, which are still derived from case law. The "91 days over four years" test, also called the "habitual residence" test, was abolished in Ireland in 1994 and replaced by the "280 day" test.

Finance (No. 2) Act 2008 introduced changes for 2009 and subsequent years whereby an individual is regarded as present in the State for a day if he or she is present in the State at any time during that day. Previous to this change an individual had to be present in the State at midnight on the day for that day to be counted.

The "183 day" residence test is common among OECD countries and is a feature of most tax treaties. The "280 day" test ensures that people with a consistent physical presence in the State are treated as being resident. As the Commission on Taxation pointed out, even if the number of days of presence to become tax resident was reduced, individuals could still manage their affairs so as not to be present in the State to avoid becoming resident.

A reduction in the number of days of presence to become resident would increase the possibility that individuals who were not trying to manipulate the day counting rules – for example, those working here on short term contracts – would be resident both in Ireland and their home country in a tax year. If certain income was taxable in both countries, they might be required to apply for relief under a Double Taxation Agreement. A change such as is suggested might therefore lead to additional administrative burdens for no extra tax yield, could deter individuals from moving to Ireland for work, and affect our ability to maintain and expand our tax treaty network.

For these reasons, I have no plans at this time to change the current day counting tests. As with all areas of taxation, the tax residence provisions are constantly kept under review and any changes will be determined in the context of Budget and Finance Bill.