Good idea - here are sample figures: Sorry in advance that this is so long...!
Husband German income: 80000
German tax paid: 22000
German effective rate: 27.5%
(Provisional) Irish Liability:
Husband income: 80000
Wife income: 50000
Total: 130000
Tax 72800@ 20% = 14,560. 57200 @ 41% = 23,452. Total tax = 38012. Minus married credit of 3,660 = 34,352. Effective Irish rate = 26.42%. Irish effective rate is lower, so German income must be regrossed at lower effective rate.
Regross foreign income: 100 x (Foreign Income Net/(100-26.4))
= 100 x (58000/73.6) = 78804 = regrossed foreign income.
So now do Irish Liability with new regrossed figure:
Husband income: 78804
Wife income: 50000
Total: 128804
Tax 72800@ 20% = 14,560. 56004 @ 41% = 22,961. Total tax = 37521. Calculate double taxation relief: (regrossed income x lower eff. rate)/100 = 20,830. Married credit of 3,660. Tax liability = 37521-3660-20,830 = 13042.
So now to compare, we take same figures but with a pension contribution of 26000 - 14000 for husband and 12000 for wife.
(Provisional) Irish Liability:
Husband income: 80000
Wife income: 50000
Total: 130000. Pension contribution: 26,000. Taxable income: 104,000.
Tax 72800@ 20% = 14,560. 31200 @ 41% = 12,792. Total tax = 27352. Minus married credit of 3,660 = 23,692. Effective Irish rate = 22.78%. Irish effective rate is lower, so German income must be regrossed at lower effective rate.
Regross foreign income: 100 x (Foreign Income Net/(100-22.78)
= 100 x (58000/77.22 = 75110 = regrossed foreign income.
So now do Irish Liability with new regrossed figure:
Husband income: 75110
Wife income: 50000
Total: 125110
Tax 72800@ 20% = 14,560. 26310 @ 41% = 10,787. Total tax = 25,347. Calculate double taxation relief: (regrossed income x lower eff. rate)/100 = 17110. Married credit of 3,660. Tax liability = 25347-3660-17110 = 4,577.
So we have a 13042 tax liability (having already paid 22000 in Germany) with no pension contributions or else a 4577 liability with 26000 in pension contributions. That is a saving of 8465. I would have thought the saving would be (26000 x .41) 10660.
I won't be surprised or upset if no one replies to this as it is so boring and difficult - well I think so anyway. But if there is some one who can see where our mistake is or who knows how come we are not coming out with the correct tax relief on pension contributions I would be very grateful!