Dáil Éireann debate -
Tuesday, 31 Jan 1995

Vol. 448 No. 3

Adjournment Debate. - Ireland/UK Taxation Agreement.

Dr. McDaid

I thank the Chair for allowing me to raise this matter. I wish to share my time with Deputy Coughlan. A number of other Deputies indicated they wished to contribute on this issue because it affects all Border Deputies — Deputies Brendan Smith, Leonard, O'Hanlon, Kirk and Dermot Ahern.

Successive Ministers for Finance have received representations from time to time on behalf of people living in the Republic but working in Northern Ireland. It is estimated that between 20,000 and 30,000 people are involved. Their argument is they are caught in a draconian double tax trap. They have noted remarks by the Taoiseach that he was confident that if this case was taken to the European Court of Human Rights it would be struck out on the basis of discrimination. I am sure the Taoiseach, now that he is no longer in Opposition, realises it is a complex issue.

I appeal to the Minister to look at the matter carefully in an effort to remedy any obvious injustice or discrimination. There are two areas which can be dealt with without too much difficulty. I understand the Revenue Commissioners look at the gross earnings of the individual in Northern Ireland, translate that into Irish pounds and assess the tax accordingly. I suggest that the Minister ensures that the appropriate sum is calculated as the gross amount less the charges deducted by the banks foreign exchange section which can be as high as 4 per cent of total salary when translated in simple terms. Similarly any of the moneys apart from tax deducted in Northern Ireland such as national insurance should be taken into account at that time. In other words, tax should be reckoned on the actual amount in Irish pounds credited to the receiver in the Republic.

The current agreement was signed in 1976 and Fianna Fáil returned to power in 1977. The then Minister for Finance, the late Mr. George Colley, accepted the argument that the extra burden of taxation was imposed rather suddenly on the people concerned. He agreed to refund 50 per cent of the first year's payment on a once-off basis. Part of the 1976 agreement ensured that natives of the UK working in Northern Ireland but living in the Republic were exempt from paying tax in the Republic provided they were employed and paid by the State. I am now told that some, such as teachers, have been brought into the tax net here on the grounds that they are paid by governing bodies and not by the State. I hope justice and fair play will ensure these people are given a similar deal and refund. The crux of the matter is that salaries in Northern Ireland can sometimes be as much as 30 per cent lower than salaries in the Republic yet they are taxed at the higher rate.

Miss Coughlan

I concur with everything my colleague said about this problem. Many of those who live in the Border areas travel to Northern Ireland to work due to economic necessity. Their wages are often much less than those of their counterparts in the Republic yet they are expected to pay at the Irish rates. The exemptions given under the 1976 double taxation agreement created inequality. There are now even greater inequities. I ask the Minister to change this draconian measure before the budget is brought in. It is a matter of extreme importance to those who live in the Border areas. Given the economic circumstances, even greater numbers of people will travel to Northern Ireland to work and they also will be caught in this trap.

Minister of State at the Department of Finance (Mr. Hogan)

I thank Deputies McDaid and Coughlan for raising this matter. I do not accept that there is discrimination against people living in the Republic of Ireland and working in Northern Ireland as a result of the double taxation agreement.

Dr. McDaid

The Taoiseach said so.

Mr. Hogan

Irish residents are taxed on their worldwide income wherever it arises. Irish residents who are cross-Border workers are, therefore, liable for tax on their income accruing in Northern Ireland. Under the 1976 Double Taxation Agreement with the UK, cross-Border workers are given credit on their tax liability here for tax paid in Northern Ireland. As some rates of taxation are higher in the Republic than in the UK, this in effect means that cross-Border workers, resident in the South, are liable for some Irish taxation in addition to UK taxation. This is in accordance with the general practice adopted by most member states of the European Union in regard to foreign income earned by residents and ensures that residents who earn all or some of their income in another State contribute, through the taxation system, to the services provided by the State of which they are resident.

Some member states of the European Union have included in their double taxation agreements provisions in regard to frontier workers and in the majority of these cases taxation is based only in the country of residence. If we decided to adopt this system of taxation of cross-Border workers — this could only be done with the agreement of the UK authorities — the net position of Irish resident cross-Border workers would be exactly the same as under the current system.

The position here is that, except where the PRSI allowance applies, a cross-Border worker pays exactly the same amount of income tax and levies as another Irish resident with the same income. The PRSI allowance of £286 is only available to taxpayers who pay the full rate of PRSI here.

Some cross-Border workers claim they are discriminated against on grounds of nationality. I do not accept this. With the exception of a small group of public servants, all residents in the State who work in Northern Ireland are subject to Irish taxation, with credit given for tax paid in the UK. Under Article 18 of the Ireland/UK Double Taxation Agreement, the exemption from Irish tax applies only to public servants working in Northern Ireland who meet the following criteria: that they are Government employees or employees of local government; that they are British nationals or have both Irish and British nationality; and that the service is rendered in the discharge of functions of a governmental nature.

It can be seen that the exemption from Irish taxation only applies to a very restricted group of public servants, that is to say, a person with British nationality, working for the Civil Service or a local authority in Northern Ireland and resident in the South. If this restricted exemption was to be extended, for example, to all cross-Border public servants, then the non-public service cross-Border worker could rightly claim that she or he was being discriminated against. If the exemption was given to all cross-Border workers it would mean that Ireland was out of line with the common practice adopted by our European partners. It must also be pointed out that the favourable treatment of certain cross-Border public servants derives from standard international practice based on the model OECD Double Taxation Convention.

There have been a number of court cases recently brought by cross-Border public servants. The courts have upheld the Revenue Commissioners position in these cases.

The Minister for Finance and the Taoiseach are aware of the concerns expressed by some cross-Border workers and are having the whole question examined. As Deputy McDaid said, it is a difficult and complex area. It may be impossible to find a solution which caters directly for the individuals affected which is fair to all the taxpayers involved, that is, both cross-Border workers and all other Irish resident taxpayers. It is important, therefore, that expectations of relief or some special arrangements should not be built up, particularly since successive Ministers for Finance have failed to resolved this issue.