May 2012        

Another hidden subsidy for transnationals

The special assignee relief programme was introduced in the 2009 budget and was sneakily amended by the Government in the Finance Act (2012). The scheme now gives relief to an employee of 30 per cent of their income over €75,000 and up to €500,000. It is meant for the senior management in foreign transnationals or now, from 2012, in Irish transnationals who come to Ireland to work for their company from the 1 January 2012. They must not have been resident in Ireland for five years. The relief will be reviewed in 2014.
     It was argued that this would increase jobs, but no cost-benefit analysis was done on the scheme.
     The following example will explain how it works. We will assume that the employee is married or similar relationship, with one spouse working, and that they are on €500,000. This is compared with the situation of an Irish employee.
 Irish employee SARP
 Annual salary €500,000 €500,000
 Deductions (USC, PRSI, income tax) €250,540.80 €250,540.80
 Tax credits (personal, PAYE)     €4,950     €4,950
 SARP relief   €52,275   —
 Net deductions €245,590.20 €193,315.20
       (percentage)     49%     39%
 Net pay €254,590.20 €306,684.20
     The SARP increases take-home pay by €52,275 if income was €500,000. For incomes between €75,000 and €500,000 the increases would be less.
     This is an extension of the idea of lower corporate rates for foreign employees’ incomes. Transnationals can use this to reduce the pay they offer to incoming executives, as the tax cuts offered by the SARP will compensate for the lower pay. The scheme is therefore a subsidy to transnationals for employing foreign executives in preference to Irish executives. It will have the perverse effect of increasing the employment of foreign executives at the expense of Irish executives.
     Is this the job creating-effect announced in the Finance Bill?

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