Tax and Pensions update |
Summary
This update summarises some of the recent changes on key Irish tax and pension issues affecting companies at the current time and provides commentary on the changes and how they may impact on your business.
Changes to the Taxation of PRSAs
The taxation treatment of an Employer contribution to a PRSA is that it is treated as Benefit-in-Kind for the Employee. However, when PRSAs were introduced, this treatment of employer PRSA contributions did not generally disadvantage employees, as an employee could claim relief provided total contributions were within the individual’s tax allowable limit (15% to 40% depending on their age). This changed with the introduction of the Income Levy and subsequently the Universal Social Charge.
Employer PRSA contributions are subject to Income Tax and the USC.
- The individual employee can immediately receive relief on Income Tax within limits as if they had paid the contribution themselves. The net effect is that in most cases the employee will be in the same net position for Income Tax as if BIK did not apply
- In a recent clarification by Revenue, Employer PRSA contributions are no longer subject to PRSI
- However, no relief is currently available for employer PRSA contributions in respect of the USC. This leaves employees of employer sponsored PRSA’s at a disadvantage to employees who are members of occupational defined contribution(DC) schemes. Many employers are now reviewing their options for providing company pension contributions for their employees
Please click here for the Revenue e-brief in relation to the above. If you have any queries in relation to these changes and the impact on your business please do not hesitate to contact a member of our Pensions Team.
Pensions levy
The Finance (No.2) Act was signed into law on 22 June 2011 and introduced the controversial four year annual levy of 0.6% on the value of private sector pension funds. The Finance (No.2) Act was signed into law on 22 June 2011 and introduced the controversial four year annual levy of 0.6% on the value of private sector pension funds.
It applies to occupational defined benefit (DB) (excluding any contingent assets) and defined contribution(DC)pension funds, Retirement Annuity Contracts and Personal Retirement Savings Accounts (except where a lump sum payment has already been taken and the purchase of a pension annuity is simply deferred).
The levy will cause issues for employers and trustees of occupational pension schemes, particularly those who are trying to manage the current funding challenges facing defined benefit plans. Please click here for details.
Defined Contribution (DC) Pension Scheme Sponsor Survey
In April this year, Deloitte launched our inaugural survey to help Irish employers who sponsor Irish DC plans gain insight as to how their DC plans compare and identify areas for improvement. The market continues to operate against a backdrop of ongoing volatility particularly in the equity markets. Recent pension tax relief changes and the introduction of the new pension levy are all having a direct impact on the environment.
Following a positive response to the survey, the results were announced in September.
View further details and find out how to benchmark your scheme.
Share-based remuneration
With the introduction of employer withholding obligations for most share based remuneration and more comprehensive employer reporting requirements, organisations need to be fully up to speed with their obligations. The impact on employees, including the introduction of employee PRSI, needs to be carefully communicated to all participants.
Deloitte has been involved in meetings with the Department of Finance, Revenue and the Department of Social Protection in relation to the key issues surrounding share based remuneration and continue to liaise with these representative bodies on areas of concern for clients. Deloitte has also issued guidance to clients in order to explain the recent changes. Please click here for further details and for access to recent articles written by Daryl Hanberry of Deloitte and contained in the Irish Tax Review which provide an overview of the changes.
Transfer pricing
With the introduction of transfer pricing in Ireland with effect from 1 January 2011 and the rising volume and complexity of inter-company transactions and transfer pricing regimes, companies need to ensure that their transfer pricing policies are addressed as a fundamental part of their global tax management. Deloitte Ireland is part of a global network of tax professionals that specialise in the provision of transfer pricing services.
Deloitte Ireland’s Transfer Pricing team can help you to deal with:
- Operations: through the design, implementation and monitoring of robust transfer pricing policies and procedures
- Planning: by aligning business structure with tax attributes to optimise the effective tax rate
- Dispute Resolution: by dealing with tax authority audits and disputes
For further details on recent developments in the area of transfer pricing, please click here.
