Ireland Expands Double Tax Relief For High Earners
The Irish tax authority, the Revenue Commissioners, has released eBrief No. 75/14 on double tax relief for individuals subject to the High Earners Restriction, following changes in the Finance (No. 2) Act 2013.
The 2006 and 2007 Finance Acts introduced, with effect from January 1, 2007, measures to limit the use of certain tax reliefs and exemptions (known as Specified Reliefs) by high-income individuals. Changes introduced by the 2010 Finance Act extended the Restriction, with effect from the tax year 2010, to ensure that individuals who are fully subject to the Restriction pay an effective rate of income tax of approximately 30 percent.
The measure works by limiting the total amount of specified reliefs that can be used by a high-income individual to a maximum amount each year. Relief that is disallowed for a tax year is added back to the individual’s taxable income for the year to give a recalculated taxable income figure. The recalculated taxable income amount is then taxed in accordance with normal income tax rates and the individual is entitled to normal tax credits against the tax due.
The Restriction applies to an individual where all of the following three criteria apply:
- The Adjusted Income of an individual for the tax year is equal to or greater than an Income Threshold Amount which is, in general, EUR125,000 (USD161,700), but is less if the individual had ring-fenced income (deposit interest, for example);
- The aggregate of specified reliefs that are used by the individual for the tax year is equal to or greater than a Relief Threshold Amount, which is set at EUR80,000; and
- The aggregate of specified reliefs used by an individual for the tax year is greater than 20 percent of the individual’s adjusted income.
The Finance (No. 2) Act 2013 amended how double tax relief is calculated for individuals who are subject to the Restriction. Prior to the passing of the Act, the Irish effective tax rate used for determining the amount of foreign tax which was to be relieved by credit was calculated before the application of the Restriction. In some cases, this meant that the tax relief given for foreign tax was not in line with the tax relief provided for by the double tax treaty.
The Brief states that, in granting double taxation relief in situations where the Restriction applies, the effective rate which should be used when foreign income is being re-grossed is calculated as tax (after application of the high earners restriction) over adjusted income.
Before the amendment, the effective rate was calculated as tax (before application of high earners restriction) over total income. The change will grant additional relief in some cases, the Revenue said.
The change is retrospective and applies to claims to relief contained in tax returns submitted on or after January 1, 2008. A taxpayer who is entitled to a greater tax credit for double taxation under this provision than under the pre-Finance (No. 2) Act 2013 provisions, may make a claim for repayment of tax.
For 2012 and previous years of assessment, Revenue Online Service (ROS) will not calculate the correct double tax relief. Therefore, so that Revenue can assess if any such claim is a valid claim (under section 865), each claim should be supported by calculations showing how the revised claim to double taxation relief was arrived at, Revenue said.
Other changes to the regime in Finance (No. 2) Act 2013 included:
- The specifying of capital allowances on plant and machinery claimed by a passive trader when leasing the plant and machinery to a manufacturing trade, as a relief to which the Restriction applies; and
- Removing from the scope of the Restriction, investments in the Employment and Investment Incentive Scheme where the subscription for eligible shares was made after October 15, 2013, and before January 1, 2017.
