Revenue Commissioners’ Study
Effective Tax Rates for High Earning Individuals
Introduction
In
1997 the Revenue Commissioners undertook a study into the effective
tax rates of
high earners in 1993/94 and 1994/95. The study was initiated
because of concern over the ability of some high earning taxpayers
to reduce their actual tax payments to a very low level through
the use of the various tax reliefs and exemptions which exist in
the tax system. Provisions were subsequently introduced in
the 1998 Finance Act which placed a cap on the amount of capital
allowances a taxpayer could claim on investments outside their
own business.
The
purpose of this study is to again:
Ø examine
the effective tax rate of high earners in 1999/00,
Ø to
identify the reliefs and incentives giving rise to low effective
rates, and
Ø to
determine how effective the 1998 provisions were in preventing
high earners from reducing their tax to low levels.
Project
Case Base and Analysis
A
list of the top 400 earners on computer record for 1999/00, showing
their effective rate of income tax, was extracted by Statistics
Branch. Table 1 shows the distribution of these top 400 earners
over the ranges of effective rates.
The
income tax returns of a sample of 16 individuals from the top 400
earners with effective income tax rates of less than 7% were examined. The
low effective rates in these cases were attributable to availing
of mainly property based tax incentives. This review was
not conclusive in determining the application or otherwise of the
1998 provisions.
The
117 individuals in the top 400 earners list, with an effective
tax rate of 30% and under was extracted. Table 2 shows the
distribution of these 117 individuals over the ranges of effective
rates. Their income tax returns were examined and analysed
to
identify
the reliefs giving rise to the low effective rates. This
analysis indicated that a substantial number of the individuals
availing of the incentives were partners in a relatively small
number of partnerships set up to avail of specific incentives.
These
partnership returns were extracted and examined.
Conclusions
Effective Rate
of High Earners
As
Table 1 shows 18% of the top 400 earners had an effective rate
of less than 15%, 11% had an effective rate of between 15% and
29%, and 71% had an effective rate of 30% and higher. A comparison
with the 1994/95 study shows:
Effective
rate 1994/95 1999/00
Less
than 30% 123 117
30% – 44% 219 231
45%
and higher 33 52
This
indicates an increase in the effective rate of these high earners.
Reliefs/Incentives
giving rise to Low Effective Rates
The
main incentives giving rise to the low effective rates are the
property based capital allowance incentives. Of the partnerships
examined the loss relief generated can be analysed as follows:
Incentive Loss
generated
(a) Multi-storey
car parks (9,725,723)
(b) Hotels (€12,095,933)
(c) Misc.
property based capital allowances (€46,421,412)
The
other tax reliefs i.e. heritage homes; loan interest; film relief;
and miscellaneous reliefs, generated much lower loss relief claims
of (€4,105,355) (€846,863) (€152,368) and (€939,606)) respectively.
Effect of
1998 Provisions
In
general for incentives availed of, the 1998 restrictions are not
applicable as the expenditure was incurred in the qualifying period. It
does however appear that the effective rate of the top 400 high
earners reviewed has increased and this may be attributable to
the 1998 restrictions. A repeat of this study in 2 or 3 years
will give a better indication of what reliefs etc. are being used
to reduce the effective rate by the very wealthy. At that
time entitlement to relief in respect of expenditure incurred prior
to the relevant date for the 1998 restrictions will have expired.
TABLE 1
Distribution
of the top 400 earners in ranges of effective tax rates*
1999/00
Range of effective
tax rate* Numbers %
of total
% %
From To
Less than 5 51 12.75
5 9 12 3.00
10 14 10 2.50
15 19 12 3.00
20 24 19 4.75
25 29 13 3.25
30 34 34 8.50
35 39 76 19.00
40 44 121 30.25
45 45.9 52 13.00
All ranges 400 100
Summary over 3 ranges
Range of effective
tax rate Numbers %
of total
% % 0 14 73 18.25 15 29 44 11.00 30 45.9 283 70.75
Table 2 Distribution
of Effective Tax Rates 1999/00 of the top 117 Earners
| Effective
Rate |
No
Of Cases |
% of Total |
|
|
|
| 0% |
29 |
24.78 |
| < 5% |
22 |
18.80 |
| 5% to
9% |
12 |
10.26 |
| 10%
to 14% |
10 |
8.55 |
| 15%
to 19% |
12 |
10.26 |
| 20%
to 24% |
19 |
16.24 |
| 25%
to 30% |
13 |
11.11 |
|
|
|
| TOTAL |
117 |
100 |
|
