Dáil Éireann debate -
Thursday, 30 Mar 2000

Vol. 517 No. 2

Written Answers. - Credit Unions.

Bernard J. Durkan

Question:

95 Mr. Durkan asked the Minister for Finance the new initiatives, if any, he proposes to alleviate the concerns expressed by the Irish League of Credit Unions, with particular reference to taxation; and if he will make a statement on the matter. [9428/00]

Minister for Finance (Mr. McCreevy)

The Irish League of Credit Unions is seeking the implementation of the recommendations of the chairman of the working group on the taxation of credit union savings. The chairman recommended a certain amount of tax-free savings for credit unions as follows: a continuation of the corporation tax exemption for credit unions; the first £375 of credit union members dividend income to be exempt from tax; any excess of dividends over £375 up to £750 to be subject to 20% tax; where dividends are over £750 the entire dividend to be taxed at 20%; all interest on deposits to be taxed at the 20% DIRT rate and no reporting of dividends or interest by credit unions to Revenue.

One cannot ignore the risk of tax evasion where there are non-reportable tax free accounts in certain institutions. This issue has come to light in recent times, most notably in the Committee of Public Accounts report into DIRT, and it has been shown that when a certain level of interest income was exempt from tax in the past, a serious problem of tax evasion arose through the use of multiple accounts in different banks and branches and/or in different names including those of relations and children. There is also general equity aspects which must be considered in relation to all financial institutions and any concessions given to credit union savers would inevitably lead to demands by corresponding savers with other financial institutions.

As the Deputy is aware, there is also the issue of the complaint which has been made to the EU Commission by the Irish Mortgage and Savings Association. This complaint relates to the current tax treatment of credit unions and their exemption from corporation tax and from DIRT. In 1998, the Commission previously dealt with a complaint regarding the corporation tax exemption enjoyed by credit unions. The EU Commission decided not to regard this exemption as a State aid. I believe, a key consideration, which influenced their decision, is the fact that, at present, the dividends paid out of such income are liable to income tax in the hands of the credit union members themselves. If both the credit union and its members were exempt from taxation, as the league are campaigning for, such a proposal would have to be referred to the Commission for clearance. The Commission is dealing with the existing tax position of credit unions. If the existing position has triggered a complaint, it would be reasonable to assume that further concessions, as sought by the credit union movement, would trigger further complaints which would have to be dealt with also.

The Taoiseach and the Tánaiste met with the league on 24 February last. At this meeting, the league accepted the Government's position that complaints on taxation made to the European Commission must be resolved before any further moves are made in regard to the taxation of credit union savings income. Any change in the law at this point, which would give special treatment to the credit unions, could aggravate the situation in regard to the investigation by the European Commission.