Eric Byrne (Dublin South Central, Labour)
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67. To ask the Minister for Finance the tax credits that would no longer exist if all tax credits were abolished; and if he will make a statement on the matter. [39822/15]

Michael Noonan (Limerick City, Fine Gael)
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I am advised by the Revenue Commissioners that the phrase 'tax credit' has a very specific meaning in the Taxes Acts.  For income tax, corporation tax and capital gains tax it means an amount "to be given or set against, or deducted from, the amount of tax chargeable on the person".  Therefore, it includes items which form part of the normal computation of a tax liability, (for example the set-off of PAYE deductions against total tax chargeable where a person has both PAYE and non-PAYE sources of income) as well as specific tax reliefs which are given in the form of a credit against tax. I assume that the Deputy is referring to tax reliefs in this question. 

The main relevant income tax reliefs given as a credit as of todays date is as follows:

- Basic Personal tax credit,

- Single Person tax credit (€1,650 for 2015 and subsequent years) and

- Married Person or Civil partner tax credit (€3,300  for 2015 and subsequent years);

- Widowed Person (no dependent children) tax credit (€2,190 for 2015 and subsequent years);

- Widowed Parent or Surviving Civil Partner tax credit (€3,600 if bereaved in 2014). This credit is available for the first five years after the year of bereavement;

- Age Credit,

- Single person, widowed or surviving civil partner (€245 for 2015 and subsequent years);

- Married person or in civil partnership (€490 for 2015 and subsequent yearas);

- Home Carer Tax Credit (€810 for 2015 and subsequent years);

- PAYE Tax Credit (€1,650 for 2015 and subsequent years);

- Incapacitated Child Tax Credit (€3,300 for 2015 and subsequent years);

- Dependent Relative Tax Credit (€70 for 2015 and subsequent years);

- Blind Person's Tax Credit (€1,650 for 2015 and subsequent years);

- Single Person Child Carer Credit (€1,650 for 2015 and subsequent years and claimants are also entitled to an additional €4,000 on their standard rate band);

- Medical Insurance;

- Relief for interest paid on home loans;

- Relief for Health Expenses (Medical Expenses). Relief for medical expenses is given at the standard tax rate with the exception of nursing home expenses which are allowable at the individual's marginal rate of tax; and

- Home renovation incentive. HRI provides a tax credit for property owners for qualifying expenditure incurred on repair, renovation or improvement work carried out on a property.

The main corporation tax credit is:

- Research & development tax credit.

Other items which are technically tax credits include:

Credit for certain taxes withheld:

DIRT, or deposit interest retention tax, is a final liability tax. Under s.261(c) TCA, the grossed up interest is taxable under Case IV of Schedule D and the rate of income tax to be applied is to be the same as the rate at which DIRT was deducted. Under s.59 TCA, individuals are then entitled to a credit in respect of the DIRT deducted. This procedure effectively ensures that DIRT deducted from interest on relevant deposits is a final liability tax. If the credit for DIRT suffered was abolished then a double charge to DIRT would apply without other consequential amendments also being made.

Professional Services Withholding Tax, PAYE and Dividend Withholding Tax operated by Irish companies, are all also treated as credits when calculating an Irish person's tax payable for a year.

Credit for Double Taxation:

Foreign tax credits ensure that a person or company is not taxed on the same income twice in as a result of the interaction between the tax rules of two separate jurisdictions.  In Ireland, the mechanics for determining the amount of the credit are set out in Schedule 24 of the Taxes Consolidation Act 1997.  Relief from the double tax charge is available by crediting foreign tax paid in the source country of the income against Irish tax payable on that income in the State; this is known as "double taxation relief".  Relief for foreign tax forms part of the benchmark tax system and Ireland follows the international norm in this regard as Double taxation relief is the essential feature of our international tax treaties.  This relief is particularly important for open economies like Ireland where cross-border trade and activity is particularly prevalent.  .

Other credit reliefs:

S267JCredit for foreign tax on interest or royalties received by a company from an associated company in Greece, Portugal or Spain in accordance with derogations given to those Member States under the Interest and Royalties Directive.

S634Credit for tax where an Irish resident company transfers a trading operation carried on by it in another Member State to a non-resident company in return for securities in the non-resident company. In order to get relief, the company making the disposal must produce to the Revenue Commissioners a relevant certificate given by the tax authorities of the Member State in which the trading operation is situated.

S831Credit from double taxation under the Parent Subsidiary Directive, which is concerned with relieving double taxation in the case of cross border dividend flows within the EU from a subsidiary to its parent company.

Eric Byrne (Dublin South Central, Labour)
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68. To ask the Minister for Finance if he is aware of any jurisdictions that have abolished all tax credits; if there is analysis available as to the economic and social impact of such a move; and if he will make a statement on the matter. [39823/15]

Eric Byrne (Dublin South Central, Labour)
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69. To ask the Minister for Finance if he is aware of any jurisdictions that have introduced a flat tax rate of 23%; if there is analysis available as to the economic and social impact of flat taxes; and if he will make a statement on the matter. [39824/15]

Michael Noonan (Limerick City, Fine Gael)
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I propose to take Questions Nos. 68 and 69 together.

I understand that Latvia has a flat income tax rate of 23% with effect from 2015 for certain types of income, while also having a State Social Insurance Mandatory Contributions system. I am not aware of any jurisdictions that have abolished all tax credits. Furthermore, I am not aware of any analysis of the economic and social impacts of these specific measures. However the Deputy may be interested in researching further the tax systems in Latvia, Estonia and Hungary, as these all involve a flat tax element.

It should however be noted that the abolition of tax credits, depending on what tax system remained, would be likely to have a negative impact for low-income earners.  Tax credits can be used to shelter tax liabilities from the first unit of taxable income and therefore, depending on their value, can allow low-income earners to significantly reduce their tax liabilities.

With regard to the impact of a move to a flat rate tax of 23%, my officials have estimated that, in the context of the Irish tax system this would have a negative impact on progressivity. 

A progressive income tax system means that those on higher incomes pay proportionately higher rates of tax on their income than those on lower incomes.  The European Commission compares progressivity of income tax by taking the OECD tax wedge for an individual earning 167% of the average wage and dividing it by the tax wedge for an individual earning 67% of the average wage.

My officials have estimated that the replacement of the Irish income tax and universal social charge systems with a flat income tax rate of 23%, would result in the OECD progressivity measure for Ireland falling from its 2014 calculation of 1.79 to 1.  In terms of Ireland's OECD ranking on this progressivity measure, Ireland would move from 2nd highest in the OECD in 2014 to the bottom of the rankings, to share that position jointly with Hungary.