Revenue Note for Guidance
The EU Directive (2003/41/EC of 3 June 20033) sets out a framework for the operation and supervision of occupational pension schemes in all EU Member States. It also allows occupational pension scheme providers located in one EU Member State to provide, subject to certain requirements, retirement benefits cross-border to undertakings located in another EU Member State. This section provides that where an institution for occupational retirement provision established in the State is authorised and approved by the “competent authority” in the State under the Directive, i.e. the Pensions Authority, to accept contributions from an undertaking located in another EU Member State in respect of a retirement benefits scheme established under irrevocable trusts, then certain tax exemptions will apply in relation to the scheme.
(1) Subsection (1) is concerned with the interpretation of terms used in the section. The definitions are generally self-explanatory but the following call for comment —
“Competent authority” is the national authority designated to carry out the duties provided for in the EU Pensions Directive – in Ireland’s case, the Pensions Authority acts in that capacity.
“Scheme” means an occupational pension scheme established in the State under irrevocable trusts, for the purposes of providing retirement benefits. The only pension structure that can be offered “cross-border” is, therefore, a trust based one.
“Undertaking” is defined broadly in the EU Pensions Directive and, consequently, in the section, and includes any undertaking or other body, which acts as an employer, or as an association of, or representative body for, members of a particular trade or profession. It can, therefore, constitute a company or collection of companies, a trade association or collection of trade associations (i.e. an industry-wide scheme for self-employed persons) or another body or bodies. The definition in the Directive and the section is intended to include not only employer/employee occupational pension schemes but also occupational schemes which provide for benefits to self-employed persons where the home state (i.e. the other EU Member State) permits this. Thus, industry wide schemes set up, for example, for electricians or doctors would be covered.
(2) Subsection (2) provides that the tax exemptions in subsections (3) and (4) will apply to any scheme (as defined) where the trustees of the scheme have received from the “competent authority” (i.e. the Pensions Authority) an authorisation and an approval to operate cross-border, so long as the authorisation has not been revoked.
(3) & (4) Income from a cross-border scheme’s investments (including dealings in financial futures and traded options) or deposits and from certain underwriting commissions are exempt from income tax so long as Revenue is satisfied that the investments or deposits are being held for and the underwriting commissions are applied for, the purposes of the scheme. The exemption for underwriting commissions applies only to those that would, but for the exemption, be chargeable to tax under Case IV of Schedule D, i.e. casual transactions. Accordingly, it does not apply to the profits of an organised trade of underwriting which would be chargeable under Case I of Schedule D.
(4) Further exemptions for cross-border schemes apply (as is the case for pension schemes generally) in respect of Dividend Withholding Tax (section 172A(1)), DIRT (section 256(1)), and exit tax in relation to an investment undertaking (section 739B(1)). (An exemption from CGT is provided for separately in section 608).
3 This Directive is repealed with effect from 13 January 2019 by EU Directive (2016/2341 of 14 December 2016) and the necessary amendments to this section are subject to a Ministerial Order.
Relevant Date: Finance Act 2021