06 Jul 2022

Republic cross-border tax legislation could deprive Derry businesses of Donegal talent

In an exclusive interview with The Derry News, new Derry Chamber of Commerce President, Aidan O'Kane, warns that the North West may suffer potential skills drain as workers from the South may seek alternative employment in 26 counties to avoid double-tax bill whammy

Republic cross-border tax legislation could deprive Derry businesses of Donegal talent

The new President of The Derry Chamber of Commerce, Aidan O'Kane: "The Irish Government exercises zero flexibility for Donegal employees of firms in Derry or anywhere else in the North"

Derry businesses could be facing a skills and talent drain if the Government of the Irish Republic in Dublin does not amend, or do away with, cross-border tax legislation.

That is the opinion of the new President of the Derry Chamber of Commerce, Aidan O'Kane, in an exclusive interview with The Derry News.

Mr O'Kane, who is a director of Derry-based IT firm, AllState, said firms such as his and others in the city could well have their potential talent pool reduced come the New Year.

Since the mid-1990s, the Republic of Ireland has had cross-border tax legislation that states that while a resident of the Republic can work for a firm in Northern Ireland, all work for that company must be done within Northern Ireland.

Any work-related phone calls or emails read or sent that are done when within the Republic of Ireland would see that person liable to pay tax to the Irish Revenue along with what they are already paying to the British Treasury having been employed by a Northern Ireland-based firm.

Because of the Covid pandemic leading many the world over having to work from home, Dublin relaxed this rule.

However, this 'amnesty' is due to expire on New Year's Eve 2021 and pre-pandemic rules on cross-border tax will return – something that Mr O'Kane says could affect firms in Derry and everywhere else on the Northern side of the border.

“The Fine Gael Northern Ireland Engagement Group visited the region last November and they requested a meeting with ourselves.

“As I also hold the position as co-chair of the Cross Border Workers Coalition and I gave them an update of some of the challenges that we're facing now with regards to people who work for Northern Ireland companies and their inability to work from home in Donegal without being liable for double taxation.

“This really perked their interest. It was a new thing for them in terms of them not being aware of this particular challenge.

“The Irish Government had put a temporary waiver of this rule in place for the duration of the pandemic which was due to expire at the end of this month.

“With cross border taxation going the other way – living in Derry but working for a firm in Donegal – the HMRC shows a lot more flexibility with regards to that scenario.

“The Irish Government exercises zero flexibility for Donegal employees of firms in Derry or anywhere else in the North. If you are at home in Donegal, you cannot answer a work-related phone call in normal (pre-pandemic) times.

“If you're an Irish resident working for a Northern Irish-based company, you can't even check emails. There is zero tolerance and zero flexibility.

“My gut instinct, having engaged with a lot of employees affected by this as well as a lot of employers who also have a liability, is that a blind eye is turned on this.

“There are also some people who are living in blissful ignorance of this over the last 10 or 15 years. But there just isn't an understanding of it.

“To give you an idea, there are 25,000 cross border workers right across the border regions. We have estimated that there are 12,500 Republic of Ireland residents working for Northern Ireland-based companies that could potentially fall foul of this rule.

“The Revenue actually get tax returns from about little over a thousand people from that. So there is a massive number of people that have kept their heads below the (cross border tax) parapet.

“It's different for Northern Ireland residents working for Republic of Ireland-based firms. There is a degree of flexibility from the HMRC with a visitor's exemption which allows up to 60 (taxable) days in a year but there isn't a reciprocal thing the other way.”

Mr O'Kane also expressed a concern that the Dublin Government might be more proactive in reclaiming the cross border tax once the amnesty ended as it will back companies such as AllState NI into a corner on who they could employ and also see talented workers in Donegal being a loss to Derry's economy by seeking work elsewhere in the south of Ireland.

He added: “From a Chamber perspective, we are very concerned about this. We want to see a permanent solution to this – not just a temporary 'stay of execution' that is currently in place for the pandemic.

“We want a permanent solution because – guess what – working from home is here to stay. Employees expect that and employers want to offer that.

“But if this tax restriction reverts back to the way it was pre-pandemic, then we'll find that Northern-based companies will start making decisions about who they employ based on their residency because some roles require 24/7 (hours and days) – that's just the nature of it.

“And then what you may also find – which will be a double-whammy – will be where prospective employees from Donegal start making decisions about where they bring their skills and talents to.

“From that, what you will have will be a people/skills border starting to be created purely because of this tax.”

The Northern Ireland Protocol has been grabbing all the headlines about freedom of movement and trade within the island of Ireland. However, something such as the cross-border tax is a much more realistic prospect of affecting the local economy of Derry and the North West.

So much so that it could even affect any potential investment from foreign companies in Derry if they see a restricted skills and talent pool and decide to set up in the Republic of Ireland instead.

Mr O'Kane continues: “This is something that pre-dates Brexit and certainly pre-dates anything in relation to the Protocol. This is a piece of Irish Government tax legislation that goes back as far as just more than two decades ago.

“This is firmly written in the Irish tax system that goes back to what's called the Trans-border Workers Relief. This relief is to allow individuals who reside in the Republic of Ireland to work for a 'foreign' employer – such as a company in Derry and all of their tax is at source and they don't have to pay any other tax to the State.

“But there is a condition there – namely that all duties for their employer must be carried out outside of the State (the Republic of Ireland).

“For example, if the company you work for is in Derry, you must carry out all work-related duties for that firm in Northern Ireland. If you're on the phone from Strabane to Lifford and you're over that bridge (the border), you hang up that phonecall. You can't also check your emails without paying tax to the Irish Government.

“All of this cuts off any decision or ability to work from home – such as someone wanting to buy a cheaper house in Donegal than they could get in Derry but have the cross border tax hanging over them with regard to working from home.

“To show the reality of it. I am a director for AllState NI. We've got 900 people based between Derry and Strabane and I'm involved in selection processes for candidates.

“We look to Donegal for our talent pool as Derry, despite being the second-largest city in Northern Ireland and the fourth largest on the island of Ireland, still doesn't have the footfall in population that will sustain or attract foreign direct investors (FDIs).

“We look across the border which is pretty much an invisible, seamless border. But FDIs take a look and suddenly that 100,000 population is a 350,000 population.

“I'm asked by candidates, 'what are the working conditions?' and 'what is the work-life balance?'. And we have to be upfront and say 'if you live in Donegal, you cannot work from home for us'. We're very black and white on that – we will not contravene any other international tax liabilities. And that's really unfortunate.

“It also affects firms from abroad who are considering investing in Ireland but may be deterred from doing so in Derry. It has the potential to affect the economy of Northern Ireland.

“FDIs do their homework. They take a good look at it – they don't accidentally set up in a place like Derry. They take a look at what their access to the talent pool would be like. They also look at talent pipelines – namely talent that is coming out of the universities and colleges – and if they like what they see, they'll set up, they'll stay and they'll grow.

“I know this from my own company and from talking to other investors in my role with the Chamber. They do ask those questions like 'what are the skills within this area?' and 'is there an active cluster (of skills)?'.

“If we suddenly have to be faced with the prospect of having to not actually being able to draw upon skills from Donegal for example, then those decisions of FDIs and inward investment are suddenly going to be curtailed.”

Mr O'Kane has said the Derry Chamber of Commerce has actively engaged Dublin in talks on how to deal with this issue of cross-border tax legislation. However, he admits that progress on change has not advanced as quickly as both he and the Chamber would have liked.

He said: “We've met with the Republic's Minister of Finance, Paschal Donohoe (Fine Gael), three times – which is unheard of for a lobby group – and he has given our suggestions on how to amend this law a lot of consideration.

“We've given him a lot of advice, we've had a 'tax strategy' group paper that was dedicated to our issue but yet, we are still not seeing permanent change.

“We're instead seeing a little bit of protectionism creeping in as well. We're finding that it's easier to land something on the moon than change the tax law.

“The Irish Revenue has recognised there's very little financial impact from this. The two things they are concerned about is equity and competitiveness.

“With equity, there is the possibility of two people in the same household, say in Letterkenny, be on two completely different tax systems with one of them being at a greater (financial) advantage than the other.

“Minister Donohoe has said to us directly that that is against one of the fundamental pillars of the Irish tax system.

“But things have changed and you have to adapt tax legislation with changes in society. For example, working from home being such a fundamental shift.

“With competitiveness, which was a big concern for Minister Donohoe, there is not enough data to make a decision that suddenly any changes in tax law that would result in Northern Ireland-based companies being not only more competitive but being at a more competitive advantage than their southern-based business counterparts.”

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