The Finance Bill 2015 which was published on 22 October 2015 contains a welcome measure in relation to the tax treatment of certain travel and subsistence expenses of non-Irish resident directors (NEDs) of Irish companies.
In July 2014, in their eBrief 61/14, the Irish Revenue Commissioners issued guidance in relation to the tax treatment of travel and related expenses paid to non-executive directors for attendance at board meetings. The Revenue’s stated view was that the reimbursement of such expenses gave rise to a taxable benefit and that such payments must therefore be subject to deduction of tax through the PAYE system.
Generally speaking, NEDs are not allowed deductions in respect of such expenses in their personal tax returns and where such expenses are met by a company on their behalf or are reimbursed to them, PAYE and universal social charge (USC) should be deducted.
Directors were entitled to make a claim for a deduction under section 114 of the Taxes Consolidation Act 1997 in respect of expenses of travelling, as well as in respect of other expenses wholly, exclusively and necessarily incurred in the performance of the duties of the office of directors.
This rule however, was very narrow; for instance, travel expenses had to be incurred for the purposes of the duties of the office itself rather than personal circumstances of directors or where they lived. Therefore, the cost of travel by a non-executive director from home to board meetings did not qualify for a deduction under section 114. That position applied even where, as was the case for many directors, they were required by the relevant statutory authority to attend meetings in Ireland.
Irish income tax
The Bill proposes an exemption from Irish income tax and USC from tax on the reimbursement of vouched travel and subsistence expenses incurred by certain non-resident NED attending “relevant meetings” convened for the conduct of the affairs of the company (e.g. board and committee meetings).
The exemption encompasses travel by car, motorcycle, taxi, bus, rail, boat or aircraft. The proposal is included as a new section 195B of the Taxes Consolidation Act 1997. The Bill is expected to be signed into law by the Irish President in early December 2015, with the proposed exemption expected to take effect from 1 January 2016.
The new provision is welcome and will remove the disincentive that existed for individuals to travel to Ireland which may have had adverse implications for inward investment into and establishing trading operations in Ireland. It does, however, impose a form of discrimination in favour of non-resident directors compared to their Irish counterparts.