Highly-paid executives relocating to Ireland were missing out on a generous tax-relief scheme because the rules governing it were too rigid, the Department of Enterprise has warned.
Departmental records show senior executives were missing out on the Special Assignee Relief Programme (Sarp) if paperwork was not completed within a strict deadline.
The Department said this was an “unusually harsh” outcome and warned that otherwise eligible executives were being disqualified.
Sarp is one of Ireland’s main selling points to attract foreign direct investment and cost around €48 million in 2022, the last year for which figures are available. It provides significant tax benefits, including relief on private schooling fees, up to €5,000. It also provides relief on the cost of a return trip home once a year, if paid for by an employer.
The internal briefing papers raised concerns that the rigid operation of the scheme was undermining its main purpose. Under the existing rules, employers were required to certify an employee’s eligibility for Sarp within 90 days of their arrival in the State.
If that deadline was missed, however, the employee lost access to the relief entirely, regardless of whether they met all other qualifying conditions.
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The briefing said: “This is an unusually harsh penalty for missing a filing deadline and there would be merit in instead treating the 90-day deadline as an administrative matter rather than a qualifying condition.”
The Department explained this would mean a fixed monetary penalty for late notification instead of the executive losing access to the relief entirely.
Officials suggested penalties of between €3,000 and €4,000, similar to what applied for other administrative breaches. IDA Ireland had also raised concerns about the operation of the rule, warning that it was working against the intention of the incentive.
The briefing documents said Sarp was playing an increasingly important role in attracting senior decision-makers to Ireland. They added there was growing competition from other European countries offering targeted tax incentives to mobile executives.
The documents argued that Ireland’s personal tax regime could act as a deterrent if reliefs such as Sarp were perceived as unpredictable or overly punitive.
“The lack of competitiveness of our personal tax regime, in the face of competing talent-attraction schemes such as those offered by France, Spain, the Netherlands and Luxembourg, underscores the need for [Sarp],” the briefing explained.
Asked about the discussions, the Department of Enterprise said Sarp had been extended in last year’s budget for a further five years.
A spokesperson said: “[Our] inflation-based proposal sought to maintain consistency in considering any inflationary impacts on the Sarp scheme to both the lower and the upper limit of the basic salary.“
[Our] proposals related to the 90-day requirement and a change of responsibility from employer to employee were intended to address concerns related to the hard cut-off point.”
The spokesperson said the penalty for missing the deadline was “misaligned” with what would happen in similar scenarios for other tax measures.