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Irish Revenue Explains Taxation Of Employee Benefit Schemes

Friday, September 20, 2013

The Irish Revenue has issued an explanatory brief, which sets out to explain the new employee benefit schemes tax avoidance provision within the Finance Act 2013.

It is said that the anti-avoidance measure is intended to counter employee benefits schemes that involve an employer placing funds in trusts or other arrangements (generally offshore) that provide payments, loans, benefits or assets to a director or employee, or an individual connected to a director or employee. Where loans are involved, they are generally rolled over and not repaid.

The measure imposes an individual income tax charge in the case of a current or former director or employee (or an individual who subsequently becomes a director or employee) on the amount of such payment or loan, the cost or value of providing such benefit, or the value of the asset.

The Finance Act provision also imposes a tax charge in the case of a current or former director or employee, on an amount calculated as if the benefit-in-kind provisions apply as regards a loan or use of an asset provided before 13 February 2013 (the date of the publication of the Finance Bill 2013), where such a loan remains outstanding or the director or employee continues to have the loan, or make use of, the asset.

The measure also contains, as a balancing provision, relief where a loan, which has been taxed by virtue of the measure, is repaid. The repayment of income tax due to the individual is then the difference between the original amount of tax paid and the amount of tax that would have been payable had the normal benefit-in-kind provisions applied.

The Revenue has emphasized that the anti-avoidance provision is not designed to be applied to bona fide commercial transactions which do not have as their main purpose, or one of their main purposes, the avoidance of tax. It only applies where an individual receives a payment, loan, benefit or asset which is not otherwise chargeable to income tax.