ANALYSIS:THE LOBBYING behind the inclusion in the most recent Finance Bill of a special income tax scheme for foreign executives working here is worth consideration.

Ireland has been successful at attracting foreign direct investment. The idea of the scheme is to make it easier for multinationals to decide to send top foreign executives here.

An earlier scheme was abolished in 2006 as a reaction to the scandal over Turkish personnel working for Gama, and a new scheme introduced in 2008 involved tax relief for income paid by the foreign employer that was not remitted here. That scheme was never availed of by any foreign executive and was, therefore, a failure in its own terms.

While it is not surprising that global financial advice firms such as Deloitte and KPMG would lobby government on behalf of their multinational clients, it is a bit surprising that the contact is so close that the firms are involved in submitting draft legislation.

This engagement with government is important because the firms involved in the lobbying, and the clients for whom they are working, operate globally, while the governments being lobbied operate nationally and compete with one another for the multinationals’ favour.

The dynamic, therefore, pressurises governments to the advantage of multinationals and the firms that earn fees from them. The result raises a concern about balance.

This structure is nicely illustrated by the documents released by the Department of Finance in relation to the tax relief measure.

The Department of Finance received pre-budget submissions on the issue from: the American Chamber of Commerce; Citibank; the Consultative Committee of Accountancy Bodies Ireland; Deloitte; the Department of Jobs, Enterprise Innovation/Forfás; Ibec; a number of groups associated with the IFSC; KPMG; and PWC.

In March 2011 John Bradley, tax partner with KPMG in Dublin, sent an email to Gary Tobin, head of the business tax team in the department, that included drafts of how the law could be amended.

On the same day a number of civil servants in Finance and the Department of Enterprise, Trade and Innovation reviewed calculations relevant to the tax relief being sought. This took into account the income tax rates charged in the UK and the US, information that had been supplied by KPMG.

On April 21st, KPMG in the Netherlands announced it had negotiated an arrangement with the Dutch tax authorities that simplified the implementation there of the Dutch tax relief scheme for expatriate managers and executives.

The simplified arrangement involved KPMG in the Netherlands determining whether an employee was eligible for the scheme and then notifying the authorities, who would approve the firm’s decision in a matter of days.

This replaced an earlier system where the employee might have to wait for three to six weeks to hear of the tax authority’s decision.

On April 26th, Bradley forwarded a copy of the announcement to Tobin.

“This is a good example of the competition Ireland Inc. faces in this space,” he wrote. The Irish system, he said, “looks very clumsy when compared to the Dutch offering”.

Tobin forwarded Bradleys email to Seamus Milne, an assistant principal with the income tax policy section in the Department of Finance.

As governments are in competition with each other to attract foreign direct investment, each measure introduced in one country increases pressure on all the others. The chipping away is constant.

The day after the publication of the Finance Bill, Conor O’Brien from KPMG emailed Tobin and Kate Levey in the Department of Finance saying the Bill had been met with disappointment.

The €500,000 cap above which the 30 per cent relief from tax was not available was one of the matters cited.

“It is hard to understand the cap unless you believe that we want the important people to come here but not the really, really important people.”

The next day O’Brien’s colleague, Bradley, emailed Tobin saying he was pleased many of the issues they had discussed in relation to the scheme had been addressed in the Finance Bill “and well done for that.

“However I strongly believe that a few further amendments to the proposed legislation will be required to enable Sarp [the tax relief scheme] reach its full potential.

“I’m acutely aware of the political concerns surrounding this legislation but we need to make Sarp competitive and best in class among the countries that we compete with for FDI [foreign direct investment].

“I and some of my partners have had a fair amount of feedback from a number of multinational companies who are looking to Sarp to assist them in moving senior people and operations into Ireland. There is a fair amount of disappointment with what has emerged but I believe this can be addressed with a few Committee Stage amendments.”

He said he and two of his partners would be pleased to meet Tobin and assistant secretary Derek Moran to discuss the feedback they were getting and “to tease out how the proposed Sarp regime could be further enhanced to make it more competitive”.

Tobin forwarded the email to some of his colleagues and suggested that a meeting with KPMG the following week “might be a good idea?”