Brian Cowen (Laois-Offaly, Fianna Fail)

I move amendment No. 20:

In page 15, before line 1, to insert the following:

"9.—Section 122 of the Principal Act is amended—

(a) in subsection (1)—

(i) by substituting the following for the definition of 'employee':

'"employee", in relation to an employer, means an individual employed by the employer in an employment—

(a) to which Chapter 3 of this Part applies, or

(b) the profits or gains of which are chargeable to tax under Case III of Schedule D,

including, in a case where the employer is a body corporate, a director (within the meaning of that Chapter) of the body corporate;',

and

(ii) in the definition of 'preferential loan' by substituting 'means, in relation to an individual, a loan, in respect of which no interest is payable or interest is payable at a preferential rate, made directly or indirectly to the individual' for 'means a loan, in respect of which no interest is payable or interest is payable at a preferential rate, made directly or indirectly to an individual',

and

(b) by substituting the following for subsection (2):

'(2) Where, for the whole or part of a year of assessment, there is outstanding, in relation to an individual, a preferential loan, the individual shall, subject to subsection (4), be treated for the purposes of section 112 or a charge to tax under Case III of Schedule D, as having received in that year of assessment, as a perquisite of the office or employment with the employer who made the loan, a sum equal to—

(a) if no interest is payable on the preferential loan or loans, the amount of interest which would have been payable in that year, if interest had been payable on the loan or loans at the specified rate, or

(b) if interest is paid or payable at a preferential rate or rates, the difference between the aggregate amount of interest paid or payable in that year and the amount of interest which would have been payable in that year, if interest had been payable on the loan or loans at the specified rate,

and the individual or, in the case of an individual who is a wife whose husband is chargeable to tax for the year of assessment in accordance with the provisions of section 1017, the spouse of the individual, shall be charged to tax accordingly.'.

This amendment seeks to amend section 122 of the Taxes Consolidation Act 1997 to confirm that the charge to tax under the section, in respect of the benefit-in-kind to an employee for an employer provided preferential loan, applies for each year in which there is a balance outstanding on the loan.

The issue arises as a result of an appeal commissioner hearing in which it was ruled that, as presently constructed, section 122 only imposes a tax charge for the first year in which a preferential loan is made and not for any subsequent year. The appeal commissioner based his determination on certain wording of the section that he maintains results in an ambiguity in the section.

However, the commissioner's determination is not accepted by the Revenue Commissioners, and Revenue intends to pursue the matter vigorously through the courts by way of a case stated. The charge was always intended, as has been operated since 1982, to apply to each year that a loan is outstanding.

Without prejudice to the proposed court action by the Revenue Commissioners, it seems appropriate to ensure that the intent of section 122 is copperfastened, and that a charge to tax under the section on an employee clearly applies for each year in which the employee has a preferential loan outstanding.

Therefore, I recommend the amendment to the House.

See this speech in context