Poor AIB must feel they'll never get to sell their big building in the IFSC. First, Charlie McCreevy moved to close off a tax scheme under which the building was being marketed to investors, writes Cliff Taylor
Over the weekend it emerged that a bright tax adviser had thought of a way around the Minister's new rules, which would still give a big tax break to investors. Then yesterday the Minister moved to close this revised scheme down by changing the rules yet again.
Perhaps some day this merry-go-round will stop. But in the meantime there is a clear lesson for tax advisers - if you come up with a new scheme, keep it to yourself. Mr McCreevy only found out about the first tax scheme on the AIB building from The Irish Times and the Sunday Tribune tipped him off about the revised scheme. They are avid newspaper readers in Merrion Street.
As the tax loopholes are closed off, a number of tax advisers have put their head above the parapet, arguing that tax allowances and reliefs are designed to be used and to contribute to particular economic goals. Don't blame the investors or the tax practitioners for using them, they say.
In one respect, of course, the appropriate response is: "Come off it, lads." Take the AIB building, for example. The tax allowances attached to it were ones designed to benefit companies originally taking the risk of investing in IFSC buildings.
Without these allowances, the centre might never have developed. However, there was never an intention that the schemes would be used to allow private investors buying the buildings there 15 years later to shelter significant proportions of their income from tax. When tax advisers develop schemes to allow this to happen, can they be surprised if the Minister feels forced to act?
The money involved is not insignificant. The capital allowances attached to the AIB building are €55 million. These mean that, if available against normal income, the tax benefit to the investors involved would have been very tasty indeed.
Conceivably, the scheme, in its original form, could have removed much of the nasty obligation to pay income tax from many of those who invested. And under the revised scheme, a corporate structure was to be used, reportedly to benefit four investors.
It is one thing to get such a tax advantage for engaging in an entrepreneurial high-risk investment with a clear economic gain. It is quite another to get it for buying a building on a prime site with a guaranteed rent roll and wealthy corporate tenants.
However, while the tax advisers take much of the flak it was, of course, political decisions over many years that have led the tax system to build up into its extraordinarily higgledy-piggledy way, with numerous allowances and reliefs.
For years the system was characterised by high taxes, many complicated tax reliefs and weak enforcement. Slowly, the tax system lost its credibility; witness the tens of thousands of bogus non-resident accounts.
There has been progress in rebuilding confidence in the system. But data such as those published by the Revenue Commissioners after the Budget did not help. It showed that in the 1999/2000 tax year, 18 per cent of the top 400 earners in the State paid less than 15 per cent of their total income in tax. Almost 13 per cent - 51 individuals out of the 400 - paid less than 5 per cent , with 29 paying no tax at all. Property-related tax reliefs were the main reasons for the low tax bills, although restrictions in recent years will have closed off many of the opportunities to use these.
Tax rates are now relatively low. The time when the better-off faced marginal rates of 65 per cent are long gone and much has been done to simplify and reform the system.
The case for special reliefs and allowances is thus much reduced. If there is a profit to be made, then in most cases this should be enough to encourage the investor. A strong case must in future be needed to introduce fresh reliefs and they must be effectively ring-fenced for a clear purpose.
This may not be easy for our political masters. There is inevitably a temptation to tinker around and provide tax breaks that benefit a particular area, or even certain individuals, as was the case with the relief on hospital investment introduced late in the day by Mr McCreevy. Can he be sure that this can only be used to achieve the desired aim of encouraging investment in one specific area or are the tax advisers already examining this one for loopholes too?
The other requirement for a credible tax system is, of course, compliance. We learned this week that Mr Haughey had settled for €5 million, bringing his total payments to almost €6.3 million.
However, there are others who have featured prominently in the tribunals who have still to pay their dues - through tax or other punishment. And the Revenue is only starting to get grips with the extraordinary fall-out from Ansbacher and the bogus non-resident account holders.
Low rates, few reliefs and tough compliance must be the recipe - and we still have some way to go to get there.