Business groups have called on Minister for Finance Brian Cowen to reconsider his proposed abolition of the remittance basis of taxation.
The American Chamber of Commerce in Ireland, which represents the interests of about 600 US companies with operations in the State, said its abolition "sends out a signal disproportionate to its intent", and warned that it would need careful consideration before it was implemented.
In addition, a survey by accountants KPMG indicated that more than twice as many people thought the Budget would have a negative rather than positive impact on Ireland's ability to attract and retain foreign investment.
Remittance is a system that allows executives working for overseas companies in Ireland to receive their salary outside the jurisdiction and pay tax only on the money they "remit" or bring into the State to support themselves.
The Minister, who says abolition of remittance is likely to boost Revenue by about €100 million from 2008, is likely to face intense lobbying from business interests on the issue between now and the publication of the Finance Bill in the New Year. Accountants said yesterday that isolated abuses of the scheme may have triggered the Minister to move to end it.
A spokeswoman for the American chamber said the remittance basis of taxation was "a key feature in the package of tax measures that have attracted overseas multinationals and their senior executives to Ireland".
Jim Ryan, tax partner at Ernst & Young, said the remittance system was a "major contributor in filling the roles in industry created by the Celtic tiger", and was used extensively by both IDA Ireland and the multinational sector. "Its abolition will increase costs for affected employers," he said. "We fear this change will have an adverse impact on Ireland's competitive position."
Mike Farrell, head of tax at KPMG, said yesterday: "While the Minister remains clear on the need to remain competitive with respect to corporation tax, the abolition of the remittance basis of taxation is extremely disappointing."
A post-Budget survey of senior Irish business people by KPMG found that 28 per cent believed the Budget would prove harmful to foreign direct investment, with 13 per cent indicating the budgetary measures would prove positive in this sector.
"Many respondents specifically indicated that the abolition of the remittance basis of taxation removes one of the most effective incentives in attracting people with skill levels which are not otherwise available in Ireland," said a spokesman.
He said it was "especially surprising" as the incentive had been reviewed by the European Commission and the Government had come under no pressure to abolish the provision.
