I propose to take Questions Nos. 52 and 53 together.
It is Revenue’s role to ensure compliance with tax legislation and to collect the correct tax due based on taxable income determined in accordance with tax legislation. This requires taxpayers to submit annual tax returns of their income and gains to Revenue.
The Deputy will be aware that the findings in the Annual Report by the Comptroller and Auditor General (C&AG) include references to the taxable income of high wealth individuals (HWIs) and the rate of income tax paid by these taxpayers. Both taxable income and income tax payable are determined in accordance with tax legislation which include the availability of reliefs and tax credits. Such credits and reliefs where applicable have, as stated by the C&AG in his report, the effect of reducing the tax liability of an individual for any given year of assessment. As also stated by the C&AG in his report, while high earners are well placed to utilise the wide variety of credits and reliefs available, they may also be liable to pay additional tax by virtue of their high income in the form of the domicile levy and the high income earners restriction.
I am advised by Revenue that it has had a particular focus on HWIs over a long period. HWIs have been managed by dedicated units with its Large Cases Division since it was established in 2003. Dedicated case managers are responsible for profiling, risk assessment and compliance activities for HWIs within their case base and Revenue’s Anti-Avoidance Unit operates within the HWI Units. Revenue has recently split its Large Cases Division into two divisions, one of which will now focus on HWIs, avoidance and pensions. This structural realignment is being supported by an expansion in the number of specialist and experienced staff assigned to the oversight of the new Division’s case base.
I am satisfied that the structural realignment being advanced by Revenue combined with the mandatory disclosure regime which applies to marketers, promoters and users of ‘disclosable’ transactions and the use by Revenue of the powers available to tackle tax avoidance and tackle schemes that involve contrived, artificial transactions that are designed purely to produce a tax advantage for the taxpayer will continue to deliver an outcome where HWIs pay the appropriate tax in accordance with the legislation. I am also assured by Revenue that in line with its comprehensive risk assessment programmes, there is appropriate examination and evaluation of the tax returns submitted by HWIs and where necessary compliance interventions are undertaken to verify the accuracy of the returns. Where under-declarations of income or gains are identified or where tax avoidance activity is identified, Revenue will be relentless in its action in such cases and take whatever action is necessary to recover all taxes legally due together with associated interest, penalties and surcharges where relevant.
Furthermore, the High Earners Restriction, which aims to limit the use of certain tax reliefs and exemptions by those on high incomes, is meeting its objective.
As detailed in the recently published Revenue report on the operation of the High Income Earners Restriction, in 2016 some 149 high-income individuals with an adjusted income of €400,000 or more (i.e. where the restriction fully applied) paid an average effective tax rate of 30.1% on the combination of adjusted income and ring-fenced income. The additional tax collected from these 149 taxpayers was €25.8 million, representing an increase of 175% on the tax that would otherwise have been paid if the restriction had not applied. An important outcome of the restriction is that 54 individuals with adjusted incomes of €400,000 or more, who would not otherwise have paid tax in 2016, were brought into the tax net for that year.
The 2016 report also shows that 372 high-income individuals with an adjusted income of up to €400,000 (i.e. where the restriction applied on a graduated basis) paid an average effective tax rate of 19.09% on the combination of adjusted income and ring-fenced income. When the USC is included, the average tax rate is 28.61%. The additional tax collected from these 451 taxpayers was €12.7 million, representing an increase of 242% on the tax that would otherwise have been paid if the restriction had not applied. Some 164 individuals with adjusted incomes of up to €400,000, who would not otherwise have paid tax in 2016, were brought into the tax net for that year, as a result of the restriction.
The performance of this measure is noted by the C&AG in the recent report. The report notes the relatively high effective tax rate on income earned by high wealth individuals (which in 2015 was 39.2% compared with an average tax rate of 16.3% for all taxpayers).