Tax Code

Dáil Éireann Debate, Wednesday - 21 April 2021

Wednesday, 21 April 2021

Questions (503, 505, 508, 509)

Fergus O'Dowd

Question:

503. Deputy Fergus O'Dowd asked the Minister for Finance if he will address a matter (details supplied); and if he will make a statement on the matter. [19337/21]

Brendan Griffin

Question:

505. Deputy Brendan Griffin asked the Minister for Finance if he will address a matter in relation to directors' salaries and tax warehousing (details supplied); and if he will make a statement on the matter. [19481/21]

Gerald Nash

Question:

508. Deputy Ged Nash asked the Minister for Finance his views on matters raised in correspondence by a person (details supplied) in relation to changes introduced by the Revenue Commissioners regarding credit in respect of tax deducted from emoluments of certain directors and employees; his further views on whether this is a departure from the established practice; his views on this new initiative by the Revenue Commissioners; and if he will make a statement on the matter. [19529/21]

Gerald Nash

Question:

509. Deputy Ged Nash asked the Minister for Finance his views on matters raised by a person (details supplied) in relation to recent changes by the Revenue Commissioners regarding credit in respect of tax deducted from emoluments of certain directors and employees; his views on this new initiative by the Revenue Commissioners; and if he will make a statement on the matter. [19560/21]

Written answers

Minister for Finance

I propose to take Questions Nos. 503, 505, 508 and 509 together.

Section 997A of the Taxes Consolidation Act (TCA) 1997 - ‘Credit in respect of tax deducted from the emoluments of certain directors’ - was introduced by way of section 13 of the Finance Act 2005.

The section applies to directors or employees who have a material interest in a company that pays emoluments to the director or employee. A director or employee has a material interest where he or she is the beneficial owner of, or is able to control directly or indirectly, more than 15% of the ordinary share capital of the company paying the emoluments. While section 997A applies equally to directors and employees who have a material interest in a company, in practice, it is more likely to affect directors.

In determining whether a director or employee owns more than 15% of the ordinary share capital of a company, in addition to the amount of share capital owned in their own right by the director or employee, shareholdings in the company held by any person connected with the director or employee are also taken into consideration. A person is considered connected if that person is the individual’s husband, wife or civil partner, or is a relative, or the husband, wife or civil partner of a relative, of the individual or of the individual’s husband, wife or civil partner. A person may also be connected to another person through a partnership or a company. This definition is set out in section 10 TCA 1997.

The purpose of section 997A is to ensure that such directors and employees do not get a credit for income tax (including the Universal Social Charge (USC) and PRSI) deducted from their remuneration until such tax, USC and PRSI has actually been paid over to the Collector General. In that way, it protects the integrity of the Pay As You Earn (PAYE) system of tax deduction.

The provision also ensures that payments of payroll taxes made by companies are first allocated against the tax liability of its ordinary employees. The legislation, therefore, seeks to protect ordinary employees by giving priority to the payment of their payroll taxes above those who control more than 15% of the ordinary share capital of the company.

I can confirm that this is not a new initiative. Revenue has also advised me that there is no change in practice in relation to section 997A and the arrangements, including the conditions around persons connected with a relevant director or employee, have been operational for over 15 years since the legislation came into effect in 2005.

Revenue recently updated its Tax and Duty Manual (TDM 42-04-59) to deal with the interaction of section 997A with the ‘debt warehousing’ arrangements that were initially introduced in the Financial Measures (Covid-19) (No. 2) Act 2020. The updated information contained in TDM 42-04-59 was previously published in November 2020 in the ROS Pay and File Tax and Duty Manual (TDM 38-06-01a).

The Financial Measures (Covid-19) (No. 2) Act 2020 legislated for “warehousing” of PAYE (Employer) liabilities beginning with the February 2020 income tax month. Similar measures were introduced in Finance Act 2020 to provide for warehousing of certain self-assessed income tax liabilities. For both PAYE and income tax warehousing, the liabilities that may be warehoused are those from what is called “Period 1”. In the case of PAYE (Employer) liabilities, Period 1 refers to the period when a business has been unable to trade due to the Covid-19 related restrictions and includes the first two months after the business resumes trading. For self-assessed income tax liabilities, Period 1 refers to the return filing date in 2020. In certain circumstances, Period 1 for income tax warehousing can be extended by twelve months to the return filing date in 2021.

Warehoused liabilities are subject to no interest during Period 2, which is twelve months beginning at the end of Period 1. In Period 3, the final period of the warehousing scheme, the warehoused liabilities are subject to interest at c. 3% per annum until the debt is discharged.

In circumstances where an employer warehouses PAYE (Employer) liabilities, including liabilities relating to a director or employee who has a material interest in her/his employer company and who is also a self-assessed income tax payer, that director or employee will not, on filing her/his income tax return, be entitled to credit for PAYE deducted from her/his salary. This is because that amount has not been paid over to the Collector-General by the employer but instead has been warehoused.

However, if the director or employee meets the conditions for income tax warehousing (because they are also subject to self-assessment), she or he can warehouse all liabilities, including any liabilities relating to her/his employment income. A key condition of eligibility is that the individual’s total income for 2020 is expected to be at least 25% less than their total income for 2019. The general terms of the scheme as they apply to income tax can be found in section 3.2 of the information booklet on Debt Warehousing which can be found on the Revenue website.

I am further advised that if the conditions legislated for in section 997A were not in place, an individual who is in a position to exercise significant control over a business through his/her shareholding, and can decide whether and when tax debts of the business are paid, could conceivably make additional tax credit and relief claims in the normal course of events and receive refunds of tax even though none of the tax in question had been remitted to Revenue by the business.

Revenue has been to the forefront during the past year in administering the various support schemes that have been introduced to provide much needed assistance to businesses affected by the Covid-19 pandemic. Revenue has also taken a very pragmatic approach during these unprecedented times of delivering on its primary mandate to collect taxes and duties, while adhering to the legislative framework within which it operates. The fact that PAYE (Employer) liabilities have been warehoused is not a reason to disregard the provisions of section 997A and as already outlined, eligible owners of businesses, including those in the SME sector, can avail of the debt warehousing arrangements in the relation to their own personal tax liabilities.