Tenants of non-resident landlords are obliged to pay the landlords' tax liabilities of 20 per cent of rental income or else face penalties even though they may be completely unaware of the rule.
This unusual provision of the tax laws was confirmed by Minister for Finance Brian Cowen this week in a reply to a parliamentary question submitted by Labour TD CiaráLynch.
In his written reply, Mr Cowen acknowledged that those tenants who fail to deduct income tax from payments of rent to non-resident landlords can face penalties including the imposition of interest and penalties.
Mr Cowen goes on to acknowledge: "However, non-compliance by individual tenants can be innocent in some cases because they genuinely may not know the tax residence status of the landlord."
He said that the difficulty has been identified in the Ombudsman's Report for 1998. But the rule has not been revisited in the intervening 10 years.
Mr Lynch said yesterday that there was no possible justification for continuing the scheme whereby tenants who are paying rent to a landlord who lives outside the jurisdiction are required to withhold 20 per cent of their rent and to forward it to the Revenue Commissioners on the landlord's behalf.
"This system places far too onerous a responsibility on the tenant to record and pay tax owed by somebody else," said Mr Lynch.
"Tenants' liability for absentee landlords is a throwback to 19th century and Famine Ireland and has no place in today's modern Ireland. The law needs to be amended to end this unfair practice," he added.
The Cork South Central TD also pointed out that the Revenue Commissioners seem to have only sparse information about the scheme.
"Revenue don't know the amount of tax paid by tenants on behalf of non-resident landlords; the number of tenants who have collected tax on behalf of the landlords; the amount of income withheld; and don't know the number of tenants who have defaulted.
"It's quite clear that this scheme is completely unworkable, offers no benefit whatsoever to the exchequer, and should be scrapped," he argued.
In his reply, Mr Cowen said that the Revenue Commissioners were unable to provide information on the number of tenants who have defaulted on their obligations in this regard for the last five years.
Nor did Revenue have complete information on the amount of tax paid by tenants on behalf of non-resident landlords and the number of tenants who have collected tax on behalf of non-resident landlords. There is some information relating to non-PAYE taxpayers, which shows some 113 tenants paid a total of €1.1 million in rent in 2005.
