Ireland risks deterring high- calibre foreign executives from moving here because of its relatively high tax rates, the Irish Tax Institute has warned.

In a pre-budget submission, the institute said Ireland’s marginal tax rate of 52 per cent was the ninth highest among the 34 OECD countries last year, and six percentage points above the average.

At the same time, the entry point to paying the top rate here, currently set at €32,800, was among the lowest in the OECD, eclipsed only by Poland, Estonia and Hungary.

In last year’s budget, the marginal rate was cut from 52 per cent to 51 per cent, but only on earnings of less than €70,000. For earnings above this level, an increase in the universal social charge (USC) rate clawed back the benefits.

The Government has pledged, however, to again reduce the marginal tax rate, this time to 50 per cent.

Tax burden

In its submission, the institute assessed the effective tax rate paid by workers here compared with their peers in eight competitor countries, including the US,

Germany

,

Spain

and Britain.

Employees earning a salary of €18,000 a year paid tax of just 3.92 per cent or €705, the lowest in all eight countries.

However, as incomes rose the tax burden here, relative to competitor countries, also increased.

At an income level of €75,000, the effective tax rate was 36.5 per cent or €27,384; at incomes of €150,000, the effective rate was over 44 per cent or €66,384. At both these income levels Ireland ranks third among its peers.

Global rules

The institute noted that impending changes to global tax rules following the OECD’s Beps (base erosion and profit shifting) project will make taxation of profit more closely aligned with substance.

“This will lead to greater competition between countries to attract the senior executives who drive investment decisions and the location of the new operations,” it said.

The institute welcomed recent changes to the special tax incentive scheme to attract foreign executives, known as the special assignee relief programme (Sarp), but claimed Ireland was still challenged in the “war for talent” by more competitive offerings abroad.

It highlighted that at a salary of €150,000, Ireland ranked third behind both Netherlands and Sweden in terms of tax payable per person before considering Sarp.

However, when the tax reduction available under the three assignee programmes in Ireland, Netherlands and Sweden is applied, “international talent coming to Ireland suffers the highest rate of effective tax”, the institute said.

In its submission, the institute points out that last year €25.32 billion was collected between income tax, PRSI and USC from 2.4 million income earners, up more than €2 billion on the previous year.

Top earners

In its assessment of the progressive nature of the tax code, the institute noted the top 9 per cent of earners, who earn on average over €80,000 a year, pay 54 per cent in income tax and USC.

In contrast, the bottom 76 per cent of earners, on average on less than €50,000 a year, pay 21 per cent of income tax and USC.

The institute said it appears likely the budget adjustment will be close to the upper limit of €1.5 billion signalled by Mr Noonan in his spring statement. It predicted the Government would implement tax cuts worth €600 million- €750 million.