Phil Hogan (Carlow-Kilkenny, Fine Gael)
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Question 147: To ask the Minister for Finance if his attention has been drawn to a loophole in the tax law or schemes that allow for the withdrawal of moneys from limited companies by directors to their personal accounts and nil rates of tax; the consequent loss of revenue to the State; the consequences for the suppliers of services to those companies; and if he will make a statement on the matter. [41275/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The position is that where a company transfers funds into a director's personal bank account, whether such bank account is located inside or outside the State, for the purpose of tax treatment it is necessary to determine firstly the character of the funds transferred. Where the funds transferred represent directors' remuneration, the company must make the appropriate deductions of tax, PRSI, Health Levy and the Income Levy under the PAYE system before making any transfer and account for such deductions to the Collector-General. Where the funds transferred represent dividend payments in respect of shares held in the company by the director, Dividend Withholding Tax must be deducted and accounted for by the company and the director must include such income in his or her income tax return under the self-assessment system.

Where the funds transferred represent a loan extended to the director at a rate of interest below the specified rate (currently 12.5%), there is a benefit in kind charge on the director from which the company must make and account for the appropriate deductions under the PAYE system. If the company subsequently 'writes off' the loan in favour of the director, then, in addition to the benefit in kind charge, the amount of the loan written off is taxable as normal remuneration on which tax, etc. is to be paid under the PAYE system. If the loan has been extended by what is known as a 'close company' (broadly one which is under the control of five or fewer shareholders or under the control of the directors), then the company is deemed to have made, in the tax year in which the loan was made, an annual payment which after the deduction of income tax at the standard rate for that year is equal to the amount of the loan. However, this income tax is repayable when the director repays the loan to the company. This provision does not apply when the loan does not exceed €19,050, the director works full-time for the company or any of its associated companies and the director does not have a material interest in the company.

Where the Revenue Commissioners are aware that a company has not applied the correct tax treatment to any funds transferred into a director's bank account, they will take whatever steps are necessary to recover the tax, PRSI, Health Levy and the Income Levy due (and interest and penalties, as appropriate).