The Department of Finance was concerned that a special arrangement for highly-paid executives was being used as part of aggressive "advanced tax planning" by employees of multinational companies.
The department also feared that the "special assignee relief programme" (Sarp), which offers generous tax relief to high earners moving to Ireland, could present "equity issues" because of the enormous tax write-offs some people were getting.
Eighteen people earning between €1 million and €10 million a year had benefitted from the scheme in 2016, with four of those people on salaries in excess of €3 million, Revenue figures showed.
A detailed breakdown of costs involved showed how a person on €3 million a year would pay €351,000 less in tax under the scheme while someone on €9 million would get a €1.07 million write-off.
A submission for Minister for Finance Paschal Donohoe said a cap of €1 million should be reintroduced for the scheme having been removed by his predecessor Michael Noonan in 2014.
An email from Revenue to the department in July of last year highlighted the escalating costs involved saying there had been a 90 per cent rise in the space of 12 months.
One official wrote: “The increase in cost is due to increases in numbers but mainly increases in salary, particularly at the higher end.
“As far as I know this is the second full year in which there was no upper cap on earnings, and probably the first year that people would have deliberately chosen to come to Ireland because of the lack of an earnings cap.”
An early briefing for Mr Donohoe said that the proportion of high earners involved in the scheme “could account (in part at least) for the very marked cost increase”.
It also said that employers were reporting fewer jobs were being supported by the tax incentive scheme, which was the rationale for its existence.
The document explained: “This represents a cost of some €16,700 per . . . job supported in 2016 as opposed to some €8,000 [in] 2015.”
Cap on earnings
A later submission said the department should reintroduce the cap on earnings of €1 million saying the rising costs involved in the scheme were “not anticipated”.
“The amounts of relief being claimed at very high income levels raise equity issues,” it said, “albeit that these must be balanced against the potential benefits of the incentive and the fact that the relevant individuals pay substantial amounts of tax.”
The submission said some of the rise was believed to relate to significant moves of intellectual property to Ireland by some of the world’s largest multinationals.
The submission also said there was a “possibility” that the scheme was used for “advanced tax planning . . . having regard to the scale of some incomes benefitting from the scheme”.
“It is suggested that the reintroduced cap should only apply to new entrants from the commencement date. Existing beneficiaries will wash out of the system over the next five years or so,” the submission explained.
They said the dramatic rise in costs “warrant[s] a quick response” and said that a further review of the scheme was already planned for 2019.
Part of the scheme also allows for tax relief on private school fees of up to €5,000 per child.
According to the internal records, €600,000 worth of private tuition had been claimed for in 2016, the last year for which full figures are available.
The Department of Finance said they did not have any specific comment on the submissions, which were released under a freedom of information request.
They said Mr Donohoe had explained to the Dáil that the cap had been introduced so that the scheme was not “open to over-exploitation”.
In a statement, Revenue said: “Matters of tax policy are not within Revenue’s remit. Revenue’s responsibility is for the fair and efficient administration of the tax legislation that is in place.
“While the Department of Finance may consult with Revenue concerning policy options that might be considered, decisions around tax policy are a matter for the Minister for Finance and the government.”
