Introduction

Over the past several years, we have seen in Ireland a progressive restructuring of our entire taxation system resulting in a broader tax base, and headline tax rates which by international standards are low. The effect of the restructuring of our tax system has been overwhelmingly positive.

• There is no doubt that the existence of the headline corporation tax rate which taxes profits at 12.5% is an incentive for indigenous industries to remain operating in Ireland, and for international business to settle in Ireland.
• The progressive nature of our income tax system, which results in an effective rate of income tax and PRSI of between 20–35% depending on personal circumstances on incomes below €100,000, is an incentive to work.
• The 20% rates of capital gains tax and inheritance taxes not only encourage the generation of capital, but also an ongoing turnover of the capital which contributes to wealth creation in the nation overall.

Against this backdrop however, the burden of administering of our tax system has been progressively shifted from the Office of the Revenue Commissioners to individual tax payers and the private sector generally. The single issue raised most frequently with the CCAB-I by its members is no longer the overall burden of tax payable or the complexity of the system. The main source of complaint and concern now is the day to day difficulty of administering the taxes.

CCAB-I believes that administrative complexities and outmoded rules may be hampering Ireland's competitiveness in terms of our capacity to innovate and to attract Inward Investment. Our competitiveness is also being damaged by the costs of tax compliance, rather than the outright tax charges levied by the Exchequer.

Identifying these complexities, and offering solutions to resolve them, is our main theme therefore in this year's pre-Budget submission.

CCAB-I, the Consultative Committee of Accountancy Bodies, comprises the Institute of Chartered Accountants in Ireland, the Association of Chartered Certified Accountants, the Institute of Certified Public Accountants, and the Chartered Institute of Management Accountants. With a combined membership of over 20,000 professionals working in every aspect of industry and tax practice, we are uniquely in a position to offer expert comment and analysis in the Budget process.

SECTION 1 – USING THE TAX SYSTEM TO HELP SUSTAIN OUR ENVIRONMENT

Renewable Energy

Recommendation – The expiry date for relief in investing in Renewable Energy should be extended by at least another two years to 31 December 2008.

TCA97 s486B provides relief for investment by companies in renewable energy projects involving:

• Solar power
• Windpower
• Hydropower, and
• Biomass

Take up of this relief has not been significant. This is mainly because the relief is confined to corporates, rather than to individuals.

As well as examining the termination date of this relief, CCAB-I also suggests that the relief be restructured, perhaps along the lines of the Business Expansion Scheme, to encourage investment by individuals in renewable energy.

Use of BioFuels

Recommendation – Apply the Zero rate for VAT purposes to crops which are only suitable for bio-mass projects

Finance Act 2006 introduced measures to encourage the development and use of alternative bio-fuels. In an environment when the cost of traditional fossil fuels is increasing, other existing tax measures to promote alternative energy use should be extended.

As a crop, Elephant Grass is becoming more widely grown as an alternative to fossil fuels. Also known as Miscanthus Cane, the Department of the Environment cites that twenty tonnes of elephant grass is equivalent to twelve tonnes of coal. Unlike some other biomass crops, Elephant Grass is not suitable for consumption either by humans or animals; it can only be commercially harvested as a fuel replacement. In turn, this means that sales of Elephant Grass will attract VAT at 21%.

CCAB-I feels that the potential for the exploitation of the crop is being hampered in Ireland because of the higher rate of VAT applying. We suggest that the crop be zero rated.

SECTION 2 – USING THE TAX SYSTEM TO HELP RETAIN INTERNATIONAL COMPETITIVENESS

Background

The future development of Irish society will be heavily influenced, and indeed driven, by new and innovative technologies. These new technologies are being developed worldwide, and the location of that development tends to be driven by two major factors:

1. necessity; and,
2. extremely talented individuals.

It is essential that Ireland is at the forefront of research and development, and that the intellectual capacity and driving necessity behind these technologies are captured and used for the benefit of Irish society.

Essential Innovation

Recommendation – Extend the R&D and Business Expansion Scheme reliefs to support both the development and exploitation of technology in Ireland

Budgetary policy can have a significant impact in identifying specific areas where innovation is essential for Irish society and the Irish economy. We have already highlighted in Section 1 the area of energy, where threats exist both from an environmental standpoint and in relation to the certainty of supply lines. Basic and applied research in these areas should be supported directly with massive exchequer funding, while actual development and commercial exploitation should be supported with extended tax reliefs such as a hugely expanded Business Expansion Scheme (“BES”).

The BES is a long established relief which has served developing industry well. It has been the subject of significant refinements over its years of existence, most recently in 2005. The qualification period for the relief in its present form expires in three months. In the context of the exploitation of technology which we believe is required, we would recommend not only that its timeframe be extended, but that the maximum amount which can be raised be increased to €10m.

CCAB-I acknowledges that a further extension would require EU approval under the State Aid rules.

The effectiveness of the R&D credit regime would be significantly enhanced by permitting the retention of 2003 as optional base year for claimants. The introduction of a regime similar to that in the UK which allows a deduction for amounts incurred in acquiring intangible property would also act as a useful incentive.

Attract the Brightest and Best

Recommendation – Refine a series of aspects of our tax code to make Ireland an even more attractive locale for innovators

The tax code can also be essential in attracting the intellectual firepower to locate in Ireland to carry out this work, and ensuring that home grown talent remains working in Ireland. This will be helped by any of the initiatives as already suggested, but needs to be supported by a friendly tax regime especially for non-Irish researchers, scientists, etc. It is imperative that these people are attracted to live and work in Ireland, and for the successful ones the tax regime is a sizable impediment. A number of changes could be introduced in order to make this more attractive, including the following:

• The rules regarding the territoriality of the taxation of the income of such individuals could be considered to ensure that any source of income they may have outside of Ireland could be excluded from the calculation of their taxable income for Irish tax purposes. This could include the exclusion of foreign income from lectures, publications, previous inventions/patents, etc
• The exclusion of income earned outside Ireland to last much longer than the period of non-ordinary residence for Irish tax purposes. Such qualified individuals should remain non-ordinarily resident for the full period during which they are working on qualifying research and development projects in Ireland.
• The Capital Acquisitions Tax five year residence/ domicile rule needs to be looked at very carefully. It is unlikely that it actually results in very much tax being collected in Ireland, and it simply acts as a disincentive for people to move to Ireland for an extended period, during which, if anything unfortunate was to happen, their estates could be subject to double taxation, as there is very little relief available in respect of inheritance or gift tax payable in different jurisdictions.
• A strong reinforcement of the patent income exemption, to allow such individuals to participate in the fruits of their innovations.

SECTION 3 – UPDATING TAX RELIEFS TOWARDS EQUITY AND FAIRNESS

Background

Finance Act 2006 saw the introduction of substantial changes to the various capital incentive schemes. The Government is to be complimented on not effecting the immediate termination of many of the schemes, and for retaining certain other schemes. One of the consequences of this phased approach is that the effect of the scheme closures has not resulted in immediate disruption to the property investment market.

However a number of anomalies have emerged as a consequence of the new property market environment. We wish to highlight three of these. We also believe that some other schemes could be refined or extended to promote equitable treatment.

Tax Relief for Holiday Cottages

Recommendation – Permit longer term lettings of holiday accommodation during the off-season without prejudice to the tax relief available

The point at issue relates to the terms of approval for tax purposes which may apply from time to time to tourism accommodation and other related projects.

The relevant legislation is TCA97 ss 268(3) 352, 353 being buildings or structures which are holiday cottages, holiday apartments or other self-catering accommodation, usually registered under provisions of the Tourist Traffic Acts. The combined effect of these provisions is that such accommodation may not be let long term if the tax relief is not to be denied. Longer winter or other off season lettings are thus impossible in practice. As a consequence:

• Property that is not occupied for long periods particularly when weather conditions are hostile is easily subject to deterioration through lack of ventilation, damp interior conditions and so on. This can lead to derelict and unsightly residential property in resort areas, making them unattractive and thus defeating the object of the legislation in the first place.
• There is an increasing demand for short term letting within certain construction developments, a demand occasioned by increasing levels of flexible and mobile immigrant workers. The shortage of rental accommodation in turn increases inflationary pressures on the housing market.

We suggest that the rules governing the letting of holiday accommodation be relaxed for the off-season, while retaining the conditions regarding short term summer season letting. This would deal with the problems of deterioration and will also have the advantage of increasing the availability of rented accommodation, so reducing localised inflationary effects on rents.

In order to preserve the intention of the restrictions set out in the legislation, we would propose that rental income from “non-holiday” rentals would not be sheltered by capital allowances, but would not of itself prejudice the availability of capital allowances for holiday lettings.

We would see this as having minimal if any negative budgetary impact and indeed by releasing more property on to the markets would increase the income and thus the tax take to the Exchequer while existing reliefs would work themselves out as already budgeted for.

Contemporary Developments Involving Duality of Purpose

Recommendation – Permit tax relief on “dual use” premises which would otherwise be eligible for capital incentive reliefs

A relatively recent trend in the property market is the development of dual function premises, intended for use both for residential purposes and to provide home office or workshop or studio facilities. Because such units are not residential units in the customary sense, they may fail some of the tests for eligibility for relief, in particular under TCA97 s372AM which require premises to be used “solely as a dwelling”.

We have discussed this issue with officers from the Revenue Commissioners, who confirmed our belief that such premises would indeed fail the “solely as a dwelling” test. We would ask that a legislative change be considered to allow such dual function units qualify for the various capital incentives that remain.

Hotel Projects

Where a hotel project whose planning application met the December 2004 deadline under TCA97 s268 now requires a new planning application, the entire tax relief is lost. This is logical in the context of a change to the structure of the building. However, a planning application may also be required where the use of part of the building and not its structure, will change. This situation also entails the loss of tax relief.

Situations can arise where permission is sought, for example, to allow part of the restaurant to be used by members of the public who are not residents of the hotel but no structural changes or additional expenditure are envisaged.

Medical Expenses – Relief for Treatment of Dyslexia

Recommendation – Extend the existing relief provisions to cover written language, as well as spoken language therapies.

The 2003 Finance Act extended TCA97 s469 to provide for relief for the costs of speech therapy. We suggest the section should now be extended to cover fees for tuition for children with dyslexia where the tuition is recommended by a psychologist. The psychological assessment is already allowable but not the tuition. Dyslexia tuition is provided for children who have a written language difficulty.

Tax Relief on Donations

Recommendation – Reduce the minimum contribution level attracting tax relief while simplifying the administrative requirements associated with the CHY2 procedure

The unified system of relief for charitable donations introduced in FA01 (now TCA97 s848A) has recognised the ethos of charitable giving in our population, and realised significant benefit to the charities sector. One of the key benefits of the relief has been to encourage donations to worthy causes, on the promise of the tax relief. However, our members advise that in very many cases, the relief is not in actual fact claimed. In particular, donations made by employees are not always followed up with the tax certification required under the CHY2 procedure.

The relief granted under TCA97 s848A is not being used as a tax planning device. Further, because of the stringent controls exercised by Revenue in determining the “approved bodies” for the purposes of the relief, and the transparent manner in which these bodies are publicly identified, there can be little or no abuse of the scheme.

In our view, it would be both positive and progressive to now re-evaluate the arrangements with a view to:

• Reducing the minimum contribution level
• Simplifying the administrative requirements associated with the CHY2 procedure

With regard to the latter, we suggest that a lower level of certification might be operated. For example, where donations are made by an employee to a charity by way of standing order which tends to be renewed from year to year, a note from the charity concerned to Revenue confirming the arrangement should be sufficient. It should not be necessary to operate the CHY2 procedure every year. For one-off donations, a written assertion by the donor of employee status should be sufficient to allow the charity to reclaim the tax credit under the principles of self assessment.

CGT Rules

Recommendation – there should be an option to determine market value for assets held long term by reference to 5 April 1974 or 31 December 1991, the latter date being the commencement date for CAT aggregation purposes.

There are enormous administrative difficulties, both for Revenue and for taxpayers, in determining 30 year old values as well as addressing the significant inflation problem in taxing gains derived from the disposal of such assets. The need to re-base becomes more acute with every passing year.

Further, the CGT return applicable to the CGT payable in respect of the initial period of a year of assessment should be made at the payment date. Conversely, the payment and return for the secondary period (October to December) should be both be made at the following payment date. CCAB-I recognises that there could be concerns as to exchequer cash-flows arising from this amendment. We suggest that the balance between cash-flow considerations and administrative simplification could be met through making the simplified arrangement available where the aggregate consideration from disposals in the three month period does not exceed €1,000,000.

Exemptions – Stallion Fees & Greyhound Fees

Recommendation – Publicise the details of the proposed replacement schemes at the earliest possible date.

CCAB-I refers to the comment in the Finance Bill 2006 List of Items – “The Bill confirms the Budget day announcement abolishing the stallion and greyhound tax exemptions from 31 July 2008. Discussions will take place with the industry and the EU Commission on a replacement scheme.

We believe it is important for the industries concerned to know the nature of the proposed incentives at the earliest opportunity, so that proper planning for a transition between the regimes can be achieved.

SECTION 4 – STREAMLINING PROCESSES FOR ALL TAX PAYERS

Background

It is in everyone's interests to ensure that compliance with Revenue law and practice can be achieved at a reasonable cost to all tax payers. Otherwise the fairness of the overall tax take will be as distorted. As over 90% of all mainstream direct tax returns – Forms 11 and CT1-are completed with the assistance of accountants, the cost of tax collection to the Exchequer would rise significantly if this proportion were to reduce.

Self assessment has been in place for almost twenty years. It has its advantages. One of the downsides however of self assessment for taxpayers and their agents is that it has permitted the introduction of limits, restrictions and deadlines which could never have been countenanced if Revenue were still fully responsible for the assessment of tax.

CCAB-I has already identified particular areas of difficulty to Revenue through the TALC process. We have suggested that some practical administrative changes be made and we do not propose to revisit them in detail here – a list of our proposals is set out in Appendix I. Some of these, which are based on our experience of the tax system, could require legislative change to implement, and these are as follows.

Income Tax Assessments

Recommendation – Move to a true self assessment regime by eliminating the requirement for assessments to issue

Despite the fact that we are operating a “self assessment” regime the assessment remains a fundamental component of the tax compliance system both for income tax and corporation tax.

It is generally accepted that ROS has impacted very positively on the ratio of correct assessments issuing. However, there remains a block of returns (for the filing date October 2005, some 135,000) which are prepared on paper. Difficulties with incorrect assessments generate high volumes of Revenue contact between tax payers and their agents.

There will always remain a role for the assessment in instances of failure to file returns or other tax default. However, where a compliant taxpayer files a timely return, computing and paying the tax by ROS or otherwise, the issue of an assessment is a needless additional administrative link in the compliance chain.

This proposal will require amendments to be made principally to TCA97 ss954 and 955.

Technical Adjustments – Corrections Without Penalty

Recommendation – Permit tax settlements to be made without interest or penalty in defined circumstances where a technical mistake was made.

A range of circumstances must be identified and defined to permit transactions to proceed without exposure to interest or penalties where it subsequently transpires that the tax interpretation applied might have been incorrect.

Many issues that arise are time sensitive, and CCAB-I recognises that no system can turn around all technical queries within the requisite time. In the United States, in certain circumstances, recognition is given where a tax payer has obtained independent professional advice on a technical point. In such circumstances, if it transpires that a transaction has not been correctly handled from the technical standpoint, the tax arising can be paid over without either interest or penalty. It should be noted that the Code of Practice for Revenue audits recognises the concept of “technical adjustments” whereby tax items can be corrected without penalty (though not without interest).

We have in mind here transactions where there is a defined and available tax relief – for example:

• capital gains tax retirement relief – TCA97 s598
• company buy back of shares – TCA 1997 PART 6 Ch9
• eligibility for the participation exemption reliefs – TCA97 s626B

We would see such a procedure as complimentary to, rather than displacing, the existing “expression of doubt” rules. This is the reason we would envisage it applying to a limited number of defined reliefs.

We also suggest that consideration might be given to re-instating the old system of tax certificates; effectively a form of pre-purchased savings bond which could be used to discharge tax without interest or penalty, and which could be of considerable benefit both to the Exchequer and to the taxpayer in the management of cases involving technical difficulty.

Surcharge on the Undistributed Income of Professional Services Close Companies

Recommendation – The surcharges in respect of undistributed professional services income should be abolished.

CCAB-I has consistently argued that the regime applicable to professional services and investment companies is discriminatory. A private professional indigenous business trading through a company is at a tax disadvantage to a similar business operating as a trading subsidiary of a multinational. There is a tax penalty attaching to the retention of profits in the indigenous business.

The surcharge now serves as little more than a disincentive for companies to accumulate revenue reserves to contain their levels of borrowing or for future reinvestment in capital expenditure.

Since we moved from the imputation system of tax credits on dividends, there is no correlation between the tax suffered on dividends and the underlying results of a company. It is highly discriminatory to promote a system which mitigates one form of taxation (the surcharge) by attracting another form of taxation (Dividend Withholding Tax) which have no direct relationship.

The effective rate of tax on deposit interest income for companies (25%) is higher than that which applies to individuals, thereby making redundant an anti-avoidance measure for most types of investment income earned through companies.

A company's after tax profits are taxed on their ultimate extraction to the shareholder normally under standard income tax rules. By obliging the payment of a dividend to avoid the surcharge, the only result is to accelerate the payment of tax. The tax context in which the surcharge was introduced some thirty years ago is now very different. The introduction of self assessment for companies, the introduction of dividend withholding tax, and the bringing forward of preliminary Corporation Tax payments has achieved the acceleration of payment of tax on the profits of companies generally. These events have reduced the effectiveness, and therefore the necessity of a surcharge.

From a commercial standpoint, many professionals are obliged to operate through a corporate structure. This can be for insurance or professional indemnity reasons, for example engineers and financial consultants. It can also reflect industry practice – we understand that many of the major software multinationals will only hire contractors through an operating company, rather than engage individuals directly. There should be no particular tax penalty attaching to following best commercial practice.

It should also be noted that the surcharge affects those indigenous businesses most which are involved in high skill, high value added professional businesses – the types of industry which Ireland is attempting to foster.

CCAB-I believes that the surcharges in respect of undistributed professional services income should be abolished. The cost to the Exchequer of such a change would be marginal. The Statistical Report of the Office of the Revenue Commissioners for 2004 (the most recent to hand at time of writing) identifies total surcharges applied on companies during 2003 at €21.6m¹. It would appear that this figure also includes surcharges in respect of late filing of returns. We can comment therefore, on the basis of the most recent figures available, that the cost of this recommendation will be less that €21.4m.

Registration with the Private Residential Tenancies Board

Recommendation – Remove the tax penalty now associated with failure to register with the PRTB

FA06 s11 introduced a significant additional administrative burden on taxpayers, concerning rental income deductions and the operation of evidential requirements of registration with the PRTB.

The requirement for landlords to register residential tenancies is governed by Part 7 of the Residential Tenancies Act 2004, and has been in force for some time. There are sanctions for failing to comply with Part 7. Section 11 adds to these sanctions. It will be appreciated that the loss of interest relief on borrowings to acquire residential accommodation for letting will in many cases be very severe.

In administering the registration process, the Private Residential Tenancies Board requires landlords to furnish, among other things, the PPS numbers of their tenants. We understand that in practice, applications without this information are rejected. Part 7 of the Residential Tenancies Act provides for the information to be sought, though only on reasonable enquiry. For very good reasons, some tenants may not have a PPS number (for example students, non nationals). This leads to the landlord having difficulties in securing registration. It could conceivably lead to landlords rejecting perhaps vulnerable tenants where a PPS is not forthcoming.

There will also be instances, because of administrative delays, when confirmation of registration might not be received until after the end of the year of assessment to which the letting relates. Further, in situations of successive short lettings to various tenants, unless full and prompt cooperation is received by the landlord from his tenants, and corresponding prompt handling of registrations by the Private Residential Tenancies Board, it will be difficult for the taxpayer to show that the requirements have been complied with “in respect of all tenancies which existed in relation to that premises in that chargeable period”.

CCAB-I has no difficulty with the registration requirements of the Private Residential Tenancies Board, or with the concept that failure to register should be penalised. The Residential Tenancies Act 2004 has its own set of penalties which can be applied.

However the tax sanction is severe, and could apply because of circumstances outside the control of the taxpayer, and have knock on effects on tenants. CCAB-I therefore requests that FA06 s11 be repealed.

Refunds of PRSI to Self Employed Persons on Foot of Pension Contributions

Recommendation – Self employed taxpayers should have the same right of PRSI recovery arising from pension contributions as employed taxpayers

CCAB-I wishes to highlight a significant anomaly in the treatment of self employed persons as against employed persons in the matter of pension contributions.

Where a payment is made either to a Personal Retirement Savings Account, an occupational scheme or a qualifying premium under an annuity contract approved by the Revenue Commissioners, a refund of PRSI is generally available to taxpayers. The legislation governing the repayment mechanism, ss18 and 29C of the Social Welfare Act operate as to prevent a PRSI refund in respect of “reckonable income” (trading income) as opposed to earnings which are subject to PAYE under Schedule E.

In short, an employed taxpayer can claim a PRSI refund where he or she makes a pension contribution, but a self employed person can not. This is inequitable and counterproductive in an environment where all citizens are being asked to make proper provision for their retirement.

We would ask that this PRSI treatment for the self employed be brought into line with the treatment for employed persons.

Residential Property Tax

Recommendation – Abolish the RPT Clearance procedure on cost/benefit grounds

Residential Property Tax was abolished with effect from 5 April 1997. A Clearance Certificate procedure continues to operate where the sale price of a Residential Property, which could have attracted the charge to tax in the years RPT operated, exceeds €1,389,000.

As we approach the tenth anniversary of the abolition of RPT, it is becoming increasingly clear that the Clearance Certificate procedure is becoming redundant, and as such, a needless administrative burden both to Revenue and to taxpayers alike. The yields from RPT have been decreasing annually as arrears of tax wash out of the system.

Year	Residential Property Tax
2002	827,139
2003	403,871
2004	381,641
2005	360,520

2006 figures are not available at the time of writing. Given this decline, it is entirely possible that any yield in 2007 will not merit the administrative cost of collecting the tax. We propose that the RPT Clearance Procedure be abolished with effect from 5 April 2007.

Payment of Preliminary Corporation Tax

Recommendation – Permit companies to base their preliminary tax payments on the tax due for the preceding accounting period.

The 2002 Finance Act introduced for the first time a payment of preliminary Corporation Tax in respect of an accounting period which had not ended at the time of payment. This arrangement has operated on a phased basis involving three payment dates in all. The finalised system involving two Corporation Tax payment dates operates in respect of accounting periods ending on or after 1 January 2006. CCAB-I thus believes that it is now timely to review the operation of Preliminary Tax payments in the light of experiences during the phasing in basis.

A computation of preliminary tax due, based on an estimation of the final tax liability in advance of the year end poses particular difficulties for all taxpayers. This issue is satisfactorily addressed for income tax purposes because of the rule which permits a preliminary tax payment to be based on the liability for the preceding years of assessment. This option is not available for companies whose Corporation Tax for the previous period exceeds €50,000. Several practical difficulties arise for compliant taxpayers in estimating Preliminary Corporation Tax due. Among these are:

• Given the timing of payments and the fact that the payment is due by the 21st of the month, in reality, the estimate has to be based on management accounts for the first ten months of the year.
• The 2005 Finance Act introduced the production of accounts to GAAP standards for corporation tax purposes. The majority of small and medium size businesses would not necessarily follow GAAP in the preparation of their management accounts. It is on the management accounts that estimates before the end of an accounting period must be based – there is no other information to hand. The 2005 legislation in practice therefore adds additional complexity and uncertainty.
• Exchange Gains and Losses arising on cross border transactions will impact on a company's results. No company can know, or precisely anticipate, what the impact of exchange differences will be forty days in advance of the period end.

The Preliminary Tax regime impacts very seriously on compliant taxpayers who may have made mistakes with their estimates. Any default on the amount due to be paid on the preliminary tax payment date results in the full amount of the liability falling due on that payment date which leads to a severe interest sanction. It seems disproportionate that a company which files on time, and has settled its full liability, can be exposed to such interest charges because of an imbalance in the proportion of tax paid before and after the end of its accounting period.

CCAB-I strongly urges, as a real and immediate move both towards tax simplification and a reduction in compliance costs, that the use of the prior year's final liability be available as the basis for reckoning preliminary tax for all companies. Close comparisons can be drawn between income taxes collected under self assessment, and corporation tax. The prior year system works well for preliminary income tax, and will work as well for corporation tax.

At the very least, the threshold at which the previous year's liability may be used in satisfaction of preliminary tax should be increased significantly, and we consider a figure of €500,000 should be the minimum amount involved. We would add that this proposal was favourably considered in the Report of the Small Business Forum established by the Minister for Trade, Enterprise and Employment, which reported in Summer 2006.

Concerns that the removal of the €50,000 threshold could adversely affect Exchequer cash flows might be addressed by computing the preliminary tax payment relative to the average of results, perhaps over the preceding three years of account.

Relief for Fees Paid for Third Level Education

Recommendation – Remove the condition that approved courses be provided by approved colleges for the purposes of granting tax relief on fees

TCA97 s473A provides for a generous form of tax relief for individuals on fees paid for undertaking third level education. It is entirely appropriate to provide for such reliefs given the emphasis on developing skills in our economy.

The key criteria for the relief are that:

• Fees be paid for an approved course
• The course must be conducted in an approved college

In most instances, these criteria do not give rise to difficulty. Course accreditation is usually granted by the Higher Education and Training Awards Council, and its work in this area is well respected both at home and abroad. However, a separate approval process is required in respect of the course provider. It seems anomalous that one taxpayer attending a HETAC accredited course can obtain tax relief, while another attending a similarly accredited course but at a different educational establishment would be denied it.

As the tax legislation pre-dates the significant reform and advances in the third level sector since the formation of HETAC in 2001, it may be appropriate to review the requirement that the college, as well as the course, be approved.

Professional Services Withholding Tax

Recommendation – To reduce administration burden for non-residents, introduce a clearance mechanism so that they can apply for a clearance that payments need not be subject to PSWT where there is an automatic refund.

At present, certain foreign professional services providers can claim a refund of PSWT provided they are resident in either an EU country or in a country with which Ireland has a DTA and are not operating as a branch). The administrative process would be greatly simplified if foreign based service providers could avail of an exemption from the withholding tax on provision of appropriate declarations. A procedure with close analogies already operates for Dividend Withholding Tax.

There would be significant commercial advantages for Semi State companies if such a procedure were to be adopted, as there is evidence that the cash-flow and administrative costs of the tax are passed on by foreign providers in the overall cost of contracts.

Interest on Late Payment of Tax

Recommendation – Adopt the proposal of the Revenue Powers Review Group in full by reducing the 12% rate of interest on late payments to 10% to all taxheads.

The reduction of the rate of interest on overdue tax to 10% per annum, introduced in Finance Act 2005 was welcome, but confined to late payments of the direct taxes. The lower interest rate does not apply to indirect taxes such as excise duties and VAT and taxes such as PAYE, relevant contracts tax, professional fees withholding tax, DIRT and other withholding and exit taxes which are collected by employers and others on a fiduciary basis. The 12% rate operating here should now be reduced to 10% also, to ensure equality of treatment for taxpayers.

Conversely, we suggest that the rate of interest payable on overpaid tax, currently fixed at approximately 4% per annum, should be reviewed in the light of increasing European interest rates, to reflect more accurately the cost of funds to the taxpayer. Ideally the rate should be tracked to the European Central Bank rate plus a margin, as applies for all commercial borrowings.

APPENDIX I

Summary of CCAB-I Recommendations to Revenue to simplify administration and reduce the burden of compliance

• Extend the Revenue On-Line Service (ROS) functionality to cater for more Income Tax cases.
• Reward companies which elect to use ROS to file their returns
• Fast track the repair of Income Tax assessments
• The processes for handling requests for tax registrations must be improved as a matter of urgency
• Recognise existing taxpayer compliance records when handling registration requests for other tax heads, notably VAT
• Fast track requests for tax registrations from reputable sources
• Where technical material is published on the Revenue website, it should be time stamped. Obsolete content should be removed.
• Restore the Revenue Precedents service
• Develop the concept of technical adjustments which can be made without penalty in certain circumstances.
• Acknowledge queries made by taxpayers where a response cannot immediately be made
• Determinations of the Appeal Commissioners should be published as a matter of routine
• Taxpayers should be empowered to list cases for appeal to the Appeal Commissioners
• Relevant tax related content and details already submitted to Revenue and other Government Agencies should be used to the full
• Provide a single point of contact to deal with proposed collection interventions by the Collector General's office
• Revenue should publish details of their telephone usage policies.
• Using their care and management powers, Revenue should postpone the implementation of new compliance obligations until progress has been made in resolving the current difficulties.

1. Table CTS3. The year on year growth of this figure was approximately €200,000.