Vol. 559 No. 1
65 Mr. Rabbitte asked the Minister for Finance the consideration he has given to closing off the tax loophole which allows those who sell off assets here to avoid tax by taking up residence in such countries as Portugal; if he has had discussions with the tax authorities in Portugal on this issue; and if he will make a statement on the matter. [25553/02]
As the Deputy will be aware, I announced changes in this area in last week's budget. Certain tax rules, which, until then, allowed individuals to avoid a capital gains tax charge by selling assets during a period of temporary residence abroad, were changed. In future, where an Irish domiciled individual ceases to be tax resident in the State for a tax year, then, subject to certain conditions, certain assets will be deemed, for capital gains tax purposes, to be disposed of and reacquired by that individual on the last day of the tax year immediately preceding the tax year when he or she ceased to be tax resident.
This disposal and reacquisition will be deemed to occur where: the individual again becomes Irish tax resident before the end of a continuous period consisting of five complete tax years commencing with the year of cessation; and during his or her temporary non-residence, the individual disposes of the assets concerned, which disposal does not result in an Irish tax charge under other existing rules; and the assets concerned are all or part of a significant interest in a company, whether in Ireland or abroad.
An individual will be regarded as having a significant interest in a company if he or she owns 5% or more by value of the share capital of the company, or owns an interest in the company, the value of which exceeds €500,000.
These changes take effect in respect of individuals who, on or after 4 December 2002, cease to be tax resident in the State.
66 Mr. Penrose asked the Minister for Finance the nature of the discussions taking place between the Revenue Commissioners and the authorities in the Cayman Islands regarding a possible agreement on tax matters; when it is expected that these discussions will conclude; and if he will make a statement on the matter. [25554/02]
The Revenue Commissioners have recently initiated discussions with the Cayman Islands for the negotiation of a tax information exchange agreement. First round negotiations have not yet taken place although it is hoped to finalise a date for such negotiations shortly.
TIEAs are based on the OECD model agreement on exchange of information in tax matters which was published in April 2002. The purpose of the model agreement is to promote international co-operation in tax matters through exchange of information. The model agreement grew out of the OECD project on harmful tax practices, sets out minimum standards for effective exchange of information between OECD member countries and committed jurisdictions and provides a template for the negotiation of TIEAs. Committed jurisdictions are those jurisdictions that have committed to the principles of transparency and effective exchange of information in response to the OECD project on harmful tax practices. As part of these commitments, these jurisdictions have agreed to enter into a TIEA with any OECD country which requests such an agreement.
Any TIEA based on the model agreement will require jurisdictions, on request, to exchange bank information as well as information regarding the beneficial ownership of companies, partnerships and trusts. Exchange of information will be required for information relevant to criminal tax matters from 1 January 2004 and from 1 January 2006 for civil tax matters.
The Revenue Commissioners are confident that discussions with the Cayman Islands will lead to the successful conclusion of a tax information exchange agreement although at this point in time it is not possible to predict when the agreement might be finalised.
67 Mr. R. Bruton asked the Minister for Finance his estimate of the annual cost to the Exchequer of the change from a tax system based on domicile to one based on residence. [25590/02]
There has been no general change in the basis of the tax system from domicile to residence. The income tax system is based on residence and there has been no change in the position. The capital gains tax system is largely based on residence with some domicile elements and this has been the case since its introduction. The question of domicile does not arise in the case of corporation tax.
It is presumed therefore that the Deputy is referring to the changes made in the 2000 budget and the Finance Act, 2000, in relation to capital acquisitions tax. These changes related to the basis on which gift tax and inheritance tax are charged on assets situated outside the State. Prior to 1 December 1999 the charge depended on the domicile of the disponer at the relevant date. This general domicile rule was replaced by a residence rule whereby the charge to tax on the foreign assets now arises where either the disponer or the beneficiary is resident or ordinarily resident in the State at the relevant date. Irish assets continue as before to be liable to gift tax or inheritance tax, irrespective of the residence or domicile of the disponer or beneficiary. The Revenue Commissioners do not maintain statistics per se of the tax yield coming from gifted or inherited foreign assets.
68 Mr. Connaughton asked the Minister for Finance the tax status of payments made which have been deemed corrupt by the Flood tribunal. [25610/02]
As I indicated in response to a similar question on Tuesday, 12 November – 21317/02 – the tax status of such payments depends on the circumstances of the payment. If the payment was in the nature of income, the payment would be subject to income tax. If the payment was a gift which falls within the definition of a taxable gift in capital tax law, tax under that heading would be payable.
Whether or not a payment is considered to be corrupt, as such, is of little or no importance in tax law. Section 58 of the Taxes Consolidation Act, 1997, provides for taxation of profits or gains which arise from an unlawful or unknown source of activity. All the payments referred to in the Flood tribunal report are the subject of continuing tax inquiries in the investigation branch of the Revenue Commissioners.
The Revenue Commissioners have advised me that the public proceedings of the tribunal are carefully monitored by their investigation branch staff and where it appears that taxation issues arise, these issues are noted for enquiry. Depending on the results of these inquiries, the cases are noted for full investigation.
A total of 62 cases related to the Flood tribunal are already under investigation and a further 41 cases are being prepared for investigation. A total of €16.6 million has been paid on account by a number of the cases under investigation.
