We need to talk about the domicile levy. 

Introduced as a recession-time measure in 2009 by the late Brian Lenihan, the domicile levy sought to ensure some of the state’s wealthiest individuals paid some tax. The aim was to ensure that so-called tax exiles paid their fair share of tax.

The levy applies to anyone who owns Irish property valued at more than €5 million or has a global income of more than €1 million but pays less than €200,000 in tax.

It sounds like a splendid idea. In reality, however, it has failed – for a multitude of reasons. For a start, most of the people impacted by the legislation are living in Ireland.

Louis Fitzgerald, one of the country’s leading publicans and hoteliers and the proprietor of a host of well-known pubs such as Kehoes and the Stag’s Head in Dublin, had a well-publicised dispute with the tax authority here over whether he was due to pay the tax. 

And he is not alone, as we have outlined in a series of articles on the topic. 

The owners of the Westport Plaza Hotel and the Castlecourt Hotel in Mayo argued they were exempt from paying the €200,000 domicile levy due to wear and tear on their properties. Revenue, however, had a different idea, as Ian wrote about before. 

I could not help thinking about the levy following the donation by JP McManus of €32 million to 32 GAA county boards last week. McManus is based in Switzerland, and by his own admission, has paid the levy in the past.

We know this because of a dispute over $17.4 million in profits from a three-day backgammon match McManus won against American billionaire Alec Gores in California in 2012.

Gores handed over $5.2 million to the US tax authority on McManus’s winning, and the Limerick man went to court to get it back on the grounds he had paid the domicile levy in Ireland and that it amounted to double taxation. 

The Irish tax authority was less than impressed. During a court hearing in 2017, it was stated that Revenue had assisted the IRS with their defence. 

As Ian recalled last week, the billionaire’s lawyer stated that his client was “not the most favourite guy in their Revenue department” as he was “a very wealthy guy” and paid no Irish tax between 1995 and 2010.

Nonetheless, his case was based on paying the levy.

The McManus case prompted me to reach out to Revenue this week to get the updated numbers on the amount of people who were paying the levy, and the quantum of money it was generating for the state.

In both cases, the numbers were predictably down.

In the first year of its operation, 25 people filed returns for the domicile levy. By 2019 the number had fallen to 17. That year, the levy brought in €2.4 million in additional tax.

The following year, the amount paid stayed the same but the number of people paying fell to 15. 

In 2021, the number paying fell to 13 and the amount of tax paid dropped to €1.6 million. 

According to the Revenue, the numbers fell again last year. The filings were made in recent months so the final details may be subject to some changes. However, based on the preliminary numbers, just 10 paid people the levy in 2022, with the quantum paid to the state falling to €1.5 million.

So, just who pays the levy?

According to the Revenue:

“The amount of the levy, where it applies, is €200,000 per annum. Irish income tax paid by an individual for a tax year is allowed as a credit in calculating the amount of the domicile levy which is chargeable for that year and, in recognition of this income tax payment, the amount of the levy to be paid may be lower than €200,000. The levy is payable on a self-assessment basis on or before 31 October in the year following the valuation date, which is 31 December. For example, the due date in respect of 2022 was 31 October 2023.”

However, the actual returns from the levy have been described in the past by the Commission on Tax and Welfare as “negligible”. It has not worked. 

It was supposed to get income from high rollers who were based abroad.

Instead, it has targeted taxpayers at home. 

Clearly, we need equity and transparency in terms of the payment of tax but the legislation needs to underpin this ambition. Otherwise, we will have ill-fitting laws like the domicile levy lingering on.