In the latest development on the debate in the UK over the 50 percent income tax rate, on September 8th the Shadow Chancellor of the Exchequer Ed Balls said that cutting the tax should not be a priority for the government, and that supporters of such a move are not being realistic. The Shadow Chancellor maintained that the government should not look to a reduction of the tax. He added that instead, the country would be better served by a significant cut rate of the value added tax.

According to current estimates, the 50 percent top income tax rate will raise GBP 12.6 billion over the next five years. The Shadow Chancellor said that the tax should be left to continue to “make billions of pounds”, while the government pursues means to ease the everyday tax burdens of low and middle income families.

Ed Balls’ comments came as a response to an open letter to the government from a group of 20 high ranking experts in economics. The letter, which was published on September 7th, called for the government to remove the 50 percent tax rate at the first possible opportunity. The authors claimed that slashing the tax would draw a greater number of investors and skilled workers to the country, and increase the UK’s international competitiveness.

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In an open letter publicised on August 23rd some of France’s wealthiest taxpayers claimed that they would rather pay an extra one time tax than see the country undergo extensive austerity measures and spending cuts. It was explained that such a tax would also be preferable to seeing permanent cut being instated to tax exemptions enjoyed by high income earners.

The letter was accompanied by a petition signed by 16 of the wealthiest people in France. Amongst the signatories was L’Oréal heiress Liliane Bettencourt, along with some of the country’s most prominent corporate executives.

According to local taxation experts, the signatories of the letter are hoping that a one-off tax could potentially raise enough revenues to deter the French government from making any further changes to the tax system, which would target taxpayers with assets held in overseas banks and financial institutions.

The call for the extra tax comes as President Nicolas Sarkozy looks for means to lower the nation’s budget deficit, and make nearly EUR 4 billion of spending cuts this year. Throughout his election campaign the President repeatedly promised not to raise income taxes on personal incomes, significantly limiting his room for manoeuvrability when forming the country’s economic plan. The president is expected to announce some national austerity measures during this week.

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In a press interview to the local media made on August 19th in Paris the Minister of the Budget of France Valérie Pécresse said that new tax measures will be implemented for individual taxpayers, with a raised rate for the country’s highest earners.

The Minister revealed that a working group has already been created to study the potential effects and to estimate realizable revenues from an extra tax to be instated on individuals’ earning in excess of EUR 1 million. It is currently being decided whether the new tax will be charged directly on the individuals’ earnings, or as a levy on the company that is paying their salary. Valérie Pécresse added that there are approximately 30 000 taxpayers in France who would be affected the proposed tax.

Alongside the extra tax obligations for the highest income earners, the government is also planning to roll back a number of currently available tax exemptions, primarily affecting middle and high income earners.

The combined tax changes are aimed at complementing the country’s current deficit reduction efforts, which also include government spending cuts. France has already vowed to slash its budget deficit to 5.7 percent of GDP in 2011. The deficit is projected to be cut to 4.6 percent of GDP in 2012.

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Figures released by Ireland’s Department of Finance show that the country’s economy and tax revenues are still reeling from last year’s financial crisis, though the situation is experiencing marginal improvements. According to the Exchequer Statement released on January 5th, tax collections for the 12 month ending in December were 3.9 percent lower than the Department’s targets, and down by 19 percent compared to 2008. Although the Exchequer deficit for the year was lower than expected, at €24.6 billion.

In 2009 only Corporate Tax and Excise duty collections exceeded government projections, rising by 4.3 and 1.4 percent, respectively, though in comparison to 2008 the figures dropped by 23 and 13.6 percent. Net government expenditure reached €47 billion, 50 basis points below expectations.

Value Added Taxes (VAT) experienced the largest difference between projections and collections, with a €750 million disparity, and a €2,760 million fall compared to 2008. Income Taxes were €640 million below the Department of Finance’s targets and €1,342 million below 2008 collections

Brian Lenihan, Ireland’s Minister for Finance, interpreting the figures in a generally positive light, said “…given the small improvement in the actual deficit over that anticipated in the December Budget we face into this year’s task with a greater sense of confidence. The challenges we face are great but the Government is committed to the targets set out in the recent Budget”. He went onto claim that economic growth will return to Ireland in 2010 and that this will lead to improved tax collections.

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Shareholders in offshore funds will be evaluated by whether they have holdings in equity based funds, or those heavily invested in interest bearing assets. Individuals with receiving distributions from equity based funds will now be entitled to dividend tax credits. Distributions from funds with over 60 percent of their assets being interest bearing, will be recognized as interest distributions and taxed accordingly.

The dividend tax credit has been extended to cover shareholders with 10 or more percent of the issued share capital in a foreign company. As long as the distributions are derived within a “qualifying territory”, are not from an “excluded” company and are not part of a tax avoidance scheme, the recipients will be entitled to dividend tax credits. Qualifying territories have been defined as a jurisdiction with which the UK holds a Double Taxation Agreement with a non-discrimination article.

The brief confirmed that there will be no changes to existing foreign tax credit relief in regards to foreign withholding tax, and that individuals can receive benefits of the existing scheme alongside the newly extended foreign dividend tax credit.

The changes detailed in the brief are scheduled to take effect retrospectively from April 22nd, 2009, but within the current fiscal end of year reporting.

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