Directors Of Irish Companies - Charge To Tax

Author:Mr Sean Murray
Profession:Dillon Eustace

On 23rd December 2011 the Revenue Commissioners issued a tax briefing (the "Briefing") setting out their position on the tax treatment of the remuneration arising from the having or exercising by an individual of the office of director of an Irish incorporated company.

Regardless of historic practices (e.g. where invoices issued by professional services companies to financial institutions for the provision of directors were issued with VAT thus not going through the income tax (PAYE) process) the Briefing re-affirms Revenue's strict interpretation of the law by providing that a director (including a non-executive director and / or a non-resident director) of an Irish incorporated company holds, for taxation purposes, an Irish public office the remuneration (including remuneration by way of benefits-in-kind) arising from which is chargeable to income tax in Ireland irrespective of where the holder of the public office is tax resident or where the duties of that public office are exercised. Such income is therefore within the scope of deduction at source of income tax under the Pay As You Earn (PAYE) system and deduction at source of the Universal Social Charge under the USC system. The obligation to apply PAYE lies with the party making the payment ("Payer") and in the event that PAYE is not deducted, it is the Payer who will be held liable for any amounts of PAYE due but not deducted. The only time PAYE/USC may not apply is where a PAYE Exclusion Order is in place (see below).

The Briefing further provides that the mandating, allocating, directing, routing, etc. to a "third party" (e.g. to a firm or company), by written contract or otherwise, of remuneration arising from the "having or exercising" by an individual of an office or employment does not bring the taxation of such remuneration outside the scope of that individual's charge to Irish income tax nor does it take such remuneration outside the scope of deductions at source under the PAYE and USC systems. The Briefing also confirms that simply labelling payments as "expenses" does not mean that the Revenue Commissioners accept that all such payments may be paid free of tax and referenced their Statement of Practice on the "Tax treatment of the reimbursement of Expenses of Travel and Subsistence to Office Holders and Employees".

For the avoidance of doubt, the fact that VAT (which may not be recoverable) may have been charged on directors' fees does not remove the liability to account...

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