Tuesday, June 27, 2006

Tax Dodgers in Paradise

The Revenue Commissioner’s analysis for 2002 shows that the top 400 earners in the state, who each earned in excess of €1m, paid an average tax rate of 24.4% and that 43 of these paid less than 5% in tax.

This will not come as any great surprise to ordinary PAYE taxpayers and the data merely confirms the need to cap the use of tax avoidance schemes as proposed in the last budget. However, the extended phasing of this change means that it will be several years before the target of a minimum 20% tax take from these high-rollers is actually achieved.

What is missing entirely from these Revenue Commissioner statistics is that group of Ireland’s wealthiest and most prominent businessmen who have declared themselves to be non-resident for tax purposes. Notwithstanding their non-resident status, these worthies appear regularly in the media as they conduct their business here, sitting on boards of directors, appearing before tribunals of inquiry, attending race meetings, social functions etc etc..

The inconvenience of being non-resident for tax purposes is not great as you can actually be in the country every day of the tax year, provided you remove yourself across our border at midnight on 50% of those days. You don’t even have to stay away for the night, you can slip back after midnight to sleep in your own bed. In the absence of electronic tagging and passport controls, who’s to say whether or not you even made the token effort of removing yourself temporarily from the jurisdiction?

Of tax evasion, tax avoidance and tax non-residency, only the former is deemed to be a crime but all three have the same effect. Each reduces the funds in the community chest which are required to pay for public services and essential infrastructure. This shortfall must either be made up by the compliant taxpayers or else public spending must be reduced, which invariably impacts most on those in greatest need - the elderly, the infirm, the handicapped and the poor. This is not a victimless activity, whether legal or not.

Irish citizenship carries rights but it also comes with obligations. Something along the lines of “from each according to his means, to each according to his needs” seems fair. Clearly those who engage in aggressive tax avoidance are within their rights but are actively seeking to avoid meeting their obligations. The same applies to those who effectively live and operate in Ireland but claim non-residency when it comes to their tax affairs.

The Revenue Commissioners regularly “name and shame” those caught evading tax, above a €12.7k threshold. They should also publish lists of those who benefit from tax avoidance schemes, quantifying the amount, subject to the same threshold. As for the tax non-residents, the law should be changed so that even if just one of your feet momentarily touches Irish soil, you are deemed to have been in Ireland for the day for tax purposes.

Such measures would, at least, be a start and should send a message both to the high fliers and to the ordinary tax payer.

Footnote: Published as a letter in the Irish Times & the Irish Examiner. I'm curiously waiting to see in the Irish Independent publishes, as Sir Anthony is one of our most prominent tax "exiles".

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