The Revenue Commissioners are following up on their guidance on the taxation of directors’ fees (as reported in the February issue of Legal News). Some companies are being required to rectify past errors and ensure future arrangements are satisfactory to Revenue. Compliance costs and Revenue penalties can be reduced by taking a proactive approach.
The basic rule is that a director (including a non-executive and/or non-resident director) of an Irish company is liable to income tax and the Universal Social Charge (deducted at source through the PAYE system) on the remuneration received for his directorship. There may also be Irish PRSI implications. The director may have personal tax filing obligations with the Irish Revenue, even if the director is non Irish-resident.
The Revenue position is that arrangements whereby the director provides his services via a company or other third party will not relieve the obligations to operate PAYE at source, although they are willing to permit fees to be paid gross to professional firms in certain cases. Advance approval is required. The fact that VAT may have been charged on the fees does not eliminate the liability to account for PAYE. Indeed, VAT returns referring to directors’ fees have prompted Revenue to follow up on the PAYE issue in some cases.
Companies, particularly in the financial services and funds industry, should review their treatment of payments made to directors. It may be beneficial to approach Revenue to rectify any mistakes. However, it is important to assess the particular facts of the legal relationship between the company and the third party to determine the correct treatment of any payments made. For example, a director might be paid for his duties as director as well as an executive function, which would be taxed differently. Companies should deal with this issue on a case by case basis and ensure that proper tax arrangements are in place with directors in light of the specific circumstances.
Contributed by Niamh Keogh.
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