The Revenue Commissioners have approached the Department of Finance to express their worries about what the Opposition has labelled as a significant tax-free loophole, which allows individuals to channel up to €2 million into their pension funds without paying tax.
This alteration to the tax-law, implemented within the Finance Act 2022 by the then finance minister Paschal Donohoe, removed an existing charge on the employer’s contribution to an employee’s pension fund.
Last week, during a finance committee meeting at the Oireachtas, Niall Cody, Chairman of the Revenue Commissioners, when questioned about the implementation of this new rule, expressed his concerns. According to Cody, these concerns have been communicated to the Department of Finance.
Sinn Féin’s finance spokesman, Pearse Doherty, also expressed his concern at the committee meeting, identifying tax advisors as actively endorsing this measure. He referred to it as a significant tax system loophole which the society’s affluent people are exploiting while ordinary workers find it tough to save towards their pensions.
Under this measure, Doherty explained, company directors could funnel more than €2 million into a pension fund annually without tax implications, thus potentially reducing the company’s corporation tax bill.
Until the end of 2022, if an employer’s combined contributions to a Personal Retirement Savings Account (PRSA) exceeded a particular threshold – between 15% and 40% of net earnings, age-dependent – any amount over the threshold was subject to tax. The employer had a tax benefit deduction entitlement.
In adherence to a recommendation from the Interdepartmental Pensions Reform and Taxation Group, the Finance Act 2022 removed this charge. According to a Revenue spokeswoman, these suggestions were aimed at enhancing and simplifying Ireland’s pension environment, and would likely result in increased PRSA installments.
Post the implementation of these amendments, the Revenue Commissioners have been carefully observing trends and data related to this subject. The spokeswoman mentioned their identification of several cases for additional review, and presently, a comprehensive study is undergoing on the same.
Moreover, the Revenue has debated this issue with the Department of Finance, providing a high-level overview of the analysis accomplished by the Revenue to date.
A representative from the Finance Department claimed they are always receptive to feedback from Revenue, and continue to work collaboratively to address any problems that arise, ensuring that tax regulations are appropriately adhered to. She further mentioned that they are keeping a close eye on the application of these modifications and will investigate any signs of misuse, as is the case with all tax rules.
The existence of these measures is allowing aggressive tax planning and completely violates the principles of pension policy and tax fairness, according to Mr Doherty. He also highlighted that he brought this up with Mr Donohoe at the time, suggesting that Mr Donohoe either failed to comprehend his own law or chose to conceal its impact.
Records obtained under the Freedom of Information Act by Mr Doherty, revealed the Society of Chartered Actuaries voiced concerns to the department before the amendment was implemented. He claims their advice was disregarded when the Act was being formed. The TD from Donegal expressed his frustration at the Finance Minister, Michael McGrath, accusing him of continually dismissing his concerns.