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In this article: 1 Revenue publishes its annual report for 2011. 2 Consultation launched on tax residence. 3 The ESRI presents proposals for a property tax. 4 The employment tax burden continues to rise in OECD.

This article was first published in the June 2012 Irish edition of Accounting and Business magazine.

01 Revenue annual report

Revenue published its annual report for 2011 at the end of April. The report gives an insight into the results of Revenue's activities in 2011 and also highlights its areas of focus for audit. Revenue carried out 11,000 audits and 546,000 assurance checks in 2011, which, between them, yielded more than €520m. Particular focus was placed on activity in sectors such as construction, bars and restaurants, the property rental market and professions, including the legal profession, accountants, doctors and dentists.

Use of technology

Revenue is increasingly using technology to carry out its assurance activity, the aim being to focus on selecting cases for intervention based on the presence of various risk indicators and other information. As part of this process, e-audit training was integrated into the mainstream audit training programme for Revenue staff in 2011. A real-time risk model for PAYE was also introduced in 2011. The aim of this initiative is to prevent and detect under-declaration of income or incorrect claims in real time, as opposed to after the event has occurred. Revenue is planning to introduce a similar model for VAT this year. Taxpayers are also using technology more and more to engage with Revenue. By the end of 2011, over 640,000 taxpayers had registered for the online PAYE Anytime service, an increase of over 27% on 2010. Almost 380,000 transactions were processed by the service during the year. The number of payment transactions made via Revenue's Online Service (ROS) increased by 35% to over 975,000, while the value of those payments totalled €32bn.

Collection and recovery

Revenue has reiterated its willingness to engage with viable businesses that are experiencing payment difficulties due to difficult trading conditions. Approximately 16,000 cases (covering €113m in tax debt) have agreed a phased payment plan with Revenue. This represents an increase of about 10% on the number of such arrangements in place at the end of 2010. Finance Act 2011 gave Revenue the power to issue 'attachment orders' whereby outstanding tax debts would be withheld directly from wages/salary. To date, there are three such attachments in place.

Other Revenue activity

Revenue received 110 Protective Notifications under Section 811A of the Taxes Consolidation Act 1997 during 2011, and the number of 'avoidance schemes challenged' by Revenue stood at 50 at the end of 2011.

Tax residence

The Department of Finance has launched a public consultation on the tax residence rules for individuals. Readers may be aware that individuals who are tax resident in Ireland are taxable here on their worldwide income and gains. Tax residence is currently determined by reference to the number of days an individual spends in this country each year. Broadly, an individual is tax resident in Ireland for a particular year if he/she spends 183 days or more here in that year, or 280 days between the year in question and the preceding year. The following are the issues on which the Department is seeking views:

  • Whether, and how, the current 'day counting' rules should be amended;
  • Whether, and how, the 'day counting' rules should be supplemented with other rules. These could include tests relating to the location of the person's permanent home and their 'centre of vital interests' as suggested by the Commission on Taxation in 2009;
  •  Whether citizenship would be an appropriate basis for taxation;
  • Whether the provisions surrounding the Domicile Levy should be changed; and,
  • Whether or not the Domicile Levy should continue in place if the rules for determining tax residence are changed.
  • Interested parties are asked to submit their responses to the Department by 1 August 2012.

Property tax

Readers will be aware that work is underway at government level on the design of a full property tax, which will replace the Household Charge. The ESRI has contributed to the debate surrounding the new property tax, with its report Property Tax in Ireland: Key Choices. In the report, the ESRI proposed an annual property tax in the region of €2.50 to €3.00 per €1,000 of house value. It is estimated that such a tax would raise €500m each year. Other proposals made by the ESRI included the following:

  • An income exemption limit could be put in place, below which the tax would not be payable. This could be complemented by an option to defer the tax and pay it when the property is eventually sold;
  • Despite the current issues with mortgage distress, the design of the tax should not be overly influenced by these temporary, albeit severe, issues if it is to be sustainable over the long term; and,
  • Consideration could be given to offering relief for stamp duty paid, by reference to when it was paid and how much was paid.

Employment tax burden

The Organisation for Economic Co-Operation and Development (OECD) has reported that the tax and social security burdens on employment income in its member countries are continuing to rise. A study carried out on 34 countries found that the burden increased between 2010 and 2011 in 26 of the countries, with the biggest increases occurring in Ireland, Luxembourg, Portugal and the Slovak Republic. The OECD measured the 'tax wedge' i.e., the total employment taxes and social security contributions paid by employees and employers, less family benefits received. It found that, of the 26 countries where the overall tax wedge rose for those on the average wage, in 18 the personal income tax wedge also rose - most notably in Ireland, by 3.8 percentage points.

However, Ireland has one of the lowest tax wedges for one-earner families (on the average wage) with two children. Between 2000 and 2011, the tax wedge declined by more than 23 percentage points for single parents with low earnings. Their tax wedge was the lowest among the OECD countries in 2011.

Cora O'Brien is director of technical services, Irish Taxation Institute.

Last updated: 12 Dec 2014