Deposit Interest Retention Tax
Encyclopedia
Deposit Interest Retention Tax (DIRT) is a form of tax
on interest
earned on bank accounts in Republic of Ireland
that was first introduced in the 1980s. In Ireland, income from any source is reckonable for taxation purposes. The Revenue Commissioners believed that the large majority of interest earners were declining to report it and that the most efficient method to collect at least the basic rate tax would be to deduct it at source. After PAYE
, it was Ireland's first experience of a withholding tax
.
DIRT is deducted at source by financial institutions. The rate of DIRT is 25%, except where interest cannot be calculated at least annually and cannot be determined until it is paid, in which case it is 28%.
Persons aged over 65 or incapacitated, whose income is less than the exemption limit (currently €20,000), may claim a refund of DIRT, or may submit an appropriate form to their banks or financial institutions to have interest paid free of DIRT.
It was controversial because taxpayers cannot withhold it in protest because it is taken at source. Some argued that it discourages saving among low-income families, who would not otherwise be liable for taxation, but who might also not understand the need to claim exemption.
, established the existence of a culture of encouraging tax evasion
within Irish banks, which had allowed wealthy customers to set up non-resident (off-shore, international) bank accounts into which money was transferred, enabling the account holder to avoid paying DIRT. (Such accounts in theory should only have been set up by foreign investors, who would of course pay any tax due to their local authorities.) Thousands of tax-evaders were prosecuted as were leading banks, producing hundreds of millions of Irish pounds of the Irish Exchequer
through financial settlements and fines. Several famous Irish people have been found evading the tax, including (former) Minister for Justice Pádraig Flynn
.
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...
on interest
Interest
Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....
earned on bank accounts in Republic of Ireland
Republic of Ireland
Ireland , described as the Republic of Ireland , is a sovereign state in Europe occupying approximately five-sixths of the island of the same name. Its capital is Dublin. Ireland, which had a population of 4.58 million in 2011, is a constitutional republic governed as a parliamentary democracy,...
that was first introduced in the 1980s. In Ireland, income from any source is reckonable for taxation purposes. The Revenue Commissioners believed that the large majority of interest earners were declining to report it and that the most efficient method to collect at least the basic rate tax would be to deduct it at source. After PAYE
PAYE
Pay as you earn or PAYE refers to a system of withholding of income tax from payments to employees. Amounts withheld are treated as advance payments of income tax due. They are refundable to the extent they exceed tax as determined on tax returns. PAYE may also refer to withholding of the...
, it was Ireland's first experience of a withholding tax
Withholding tax
Withholding tax, also called retention tax, is a government requirement for the payer of an item of income to withhold or deduct tax from the payment, and pay that tax to the government. In most jurisdictions, withholding tax applies to employment income. Many jurisdictions also require...
.
DIRT is deducted at source by financial institutions. The rate of DIRT is 25%, except where interest cannot be calculated at least annually and cannot be determined until it is paid, in which case it is 28%.
Persons aged over 65 or incapacitated, whose income is less than the exemption limit (currently €20,000), may claim a refund of DIRT, or may submit an appropriate form to their banks or financial institutions to have interest paid free of DIRT.
It was controversial because taxpayers cannot withhold it in protest because it is taken at source. Some argued that it discourages saving among low-income families, who would not otherwise be liable for taxation, but who might also not understand the need to claim exemption.
Evasion
In the late 1990s a parliamentary inquiry under Jim Mitchell, TDTeachta Dála
A Teachta Dála , usually abbreviated as TD in English, is a member of Dáil Éireann, the lower house of the Oireachtas . It is the equivalent of terms such as "Member of Parliament" or "deputy" used in other states. The official translation of the term is "Deputy to the Dáil", though a more literal...
, established the existence of a culture of encouraging tax evasion
Tax evasion
Tax evasion is the general term for efforts by individuals, corporations, trusts and other entities to evade taxes by illegal means. Tax evasion usually entails taxpayers deliberately misrepresenting or concealing the true state of their affairs to the tax authorities to reduce their tax liability,...
within Irish banks, which had allowed wealthy customers to set up non-resident (off-shore, international) bank accounts into which money was transferred, enabling the account holder to avoid paying DIRT. (Such accounts in theory should only have been set up by foreign investors, who would of course pay any tax due to their local authorities.) Thousands of tax-evaders were prosecuted as were leading banks, producing hundreds of millions of Irish pounds of the Irish Exchequer
Department of Finance (Ireland)
The Department of Finance is a department of the Government of Ireland. It is led by the Minister for Finance and is assisted by one Minister of State....
through financial settlements and fines. Several famous Irish people have been found evading the tax, including (former) Minister for Justice Pádraig Flynn
Padraig Flynn
Pádraig "Pee" Flynn is a former Irish politician. He was first elected to Dáil Éireann as a Fianna Fáil Teachta Dála in 1977. He was returned at each subsequent election until 1993...
.