Pearse Doherty (Donegal, Sinn Fein)
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220. To ask the Minister for Finance the benefit conferred on persons with respect to the expansion of the debt warehousing scheme for directors and employees with material interest, impacted by section 997A of the Taxes Consolidation Act 1997 through legislative changes to the Finance Bill 2021; the potential impact on such persons had these changes not been introduced; and if he will make a statement on the matter. [25549/22]

Paschal Donohoe (Dublin Central, Fine Gael)
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Section 997A of the Taxes Consolidation Act 1997 (TCA) is a long-standing anti-avoidance measure introduced in 2005. It applies to directors or employees who have a “material interest” in their employer company. This section denies such directors or employees a credit for tax deducted from their remuneration when filing their income tax return, until such time as the tax has been remitted to the Collector-General by their employer company.

Section 997A TCA has not been disapplied in debt warehousing cases, so employees and directors who are subject to section 997A cannot have a credit for tax deducted if their employers have warehoused the PAYE liabilities due on their salaries.

Finance Act 2021 made two changes to the debt warehousing scheme for individuals in this position.

The first change was an amendment to section 1080B TCA, which is the warehousing section for income tax liabilities. This change was to take account of the fact that some employees and directors to whom section 997A applies would not be able to warehouse their income tax liabilities in their own right, if their income in either 2020 or 2021 was not at least 25% lower than their income for 2019, the last full year before the Covid-19 pandemic.

The amendment permitted individuals in this position to warehouse the tax due on their own employment (Schedule E) income only, provided that their employer had also warehoused the PAYE (employment) liability for that employment. If this change had not been introduced, such individuals would have been liable to interest charges for late payment and might also have been in default of their preliminary tax obligations.

The second change was the introduction of a new section 1080C TCA. In cases where a taxpayer is subject to section 997A and the taxpayer’s employer has not remitted the tax due on the individual’s salary to Revenue, both the employer and the individual are liable to interest for late payment on the unpaid tax. Section 1080C provides that, in debt warehousing cases only, there will not be a “double interest” charge and only the employer will be liable for interest on the liabilities relating to the individual’s salary. However, if the employer fails to pay the interest (for example, if the employer company is liquidated) the individual will be liable for interest on late payment, as well as for the tax if that is also unpaid.

The purpose of the changes in Finance Act 2021 is to prevent directors and employees with a material interest in a company from being unfairly impacted by the interaction of the debt warehousing provisions, the section 997A anti-avoidance measure and their own tax obligations. The changes introduced are narrow in their scope and application.

As with all liabilities in the debt warehouse, no interest was charged during Period 1, which expired on 31 December 2021 in most cases; no interest is charged in Period 2, which ends for most cases on 31 December 2022; and interest will be charged at 3% per annum from 1 January 2023 until the liability is paid in full. For taxpayers who continued to avail of certain Covid-19 supports, Period 1 was extended to 30 April 2022 and the end date of Period 2 was pushed back to 30 April 2023, meaning the 3% interest rate is charged in those cases from 1 May 2023.

Pearse Doherty (Donegal, Sinn Fein)
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221. To ask the Minister for Finance the grounds on which differing criteria are used with respect to social-welfare entitlements and taxation, whereby cohabiting couples can be jointly-assessed for the former but not the latter; and if he will make a statement on the matter. [25580/22]

Paschal Donohoe (Dublin Central, Fine Gael)
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Where a couple is cohabiting, rather than married or in a civil partnership, they are treated as separate and unconnected individuals for the purposes of income tax. Each partner is a separate entity for tax purposes, therefore, cohabiting couples cannot file joint assessment tax returns or share their tax credits and tax bands in the same manner as married couples.

The basis for the current tax treatment of couples derives from the Supreme Court decision in Murphy vs. Attorney General (1980), which held that it was contrary to the Constitution for a married couple, both of whom are working, to pay more tax than two single people living together and having the same income.

The treatment of cohabiting couples for the purposes of social welfare is primarily a matter for the Minister for Social Protection. However, it is based on the principle that married couples should not be treated less favourably than cohabiting couples. This was given a constitutional underpinning following the Supreme Court decision in Hyland v Minister for Social Welfare (1989) which ruled that it was unconstitutional for the total income a married couple received in social welfare benefits to be less than the couple would have received if they were unmarried and cohabiting.

To the extent that there are differences in the tax treatment of the different categories of couples, such differences arise from the objective of dealing with different types of circumstances while at the same time respecting the constitutional requirements to protect the institution of marriage. Cohabitants do not have the same legal rights and obligations as a married couple or couple in a civil partnership which is why they are not accorded similar tax treatment to couples who have a civil status that is recognised in law. Any change in the tax treatment of cohabiting couples can only be addressed in the broader context of social and legal policy development in relation to such couples.