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19 1972

FINANCE ACT, 1972

Chapter II

Occupational Pension Schemes

Interpretation and supplemental.

13. —(1) In this Chapter, except where the context otherwise requires—

administrator” in relation to a retirement benefits scheme means the person or persons having the management of the scheme, and references to the administrator of a scheme shall be deemed to include the person mentioned in section 15 (2) (c);

approved scheme” means a retirement benefits scheme for the time being approved by the Commissioners for the purposes of this Chapter;

the Commissioners” means the Revenue Commissioners;

company” includes any body corporate or unincorporated body of persons other than a partnership;

director”, in relation to a company, includes—

(a) in the case of a company the affairs whereof are managed by a board of directors or similar body, a member of that board or similar body,

(b) in the case of a company the affairs whereof are managed by a single director or similar person, that director or person,

(c) in the case of a company the affairs whereof are managed by the members themselves, a member of that company,

and includes a person who is to be or has been a director;

employee”—

(a) in relation to a company, includes any officer of the company, any director of the company and any other person taking part in the management of the affairs of the company, and

(b) in relation to any employer, includes a person who is to be or has been an employee,

and “employer” and other cognate expressions shall be construed accordingly;

exempt approved scheme” has the meaning assigned to it by section 16;

final remuneration” means the average annual remuneration of the last three years' service;

ordinary share capital”, in relation to a company, means all the issued share capital (by whatever name called) of the company, other than capital the holders whereof have a right to a dividend at a fixed rate or a rate fluctuating in accordance with the rate of income tax, but have no other right to share in the profits of the company;

pension” includes annuity;

proprietary director” means a director of a company who is the beneficial owner of, or able, either directly or through the medium of other companies or by any other indirect means, to control, more than 15 per cent. of the ordinary share capital of the company;

proprietary employee” means, in relation to a company, an employee who is the beneficial owner of, or able, either directly or through the medium of other companies or by any other indirect means, to control more than 15 per cent. of the ordinary share capital of the company;

relevant benefits” means any pension, lump sum, gratuity or other like benefit given or to be given on retirement or on death, or in anticipation of retirement, or, in connection with past service, after retirement or death, or to be given on or in anticipation of or in connection with any change in the nature of the service of the employee in question, except that it does not include any benefit which is to be afforded solely by reason of the death or disability of a person resulting from an accident arising out of or in the course of his office or employment and for no other reason;

service” means service as an employee of the employer in question and other expressions, including “retirement”, shall be construed accordingly;

statutory scheme” means a retirement benefits scheme established by or under any enactment.

(2) Any reference in this Chapter to the provision of relevant benefits, or of a pension, for employees of an employer includes a reference to the provision thereof by means of a contract between the administrator or the employer and a third person.

(3) For the purposes of the definitions in subsection (1) of “proprietary director” and “proprietary employee”, ordinary share capital which is owned or controlled as referred to in the definitions by a person being a spouse or an infant child of a director or of an employee, or by the trustee of a trust for the benefit of a person or persons being or including any such person or such director or employee, shall be deemed to be owned or controlled by such director or employee and not by any other person.

(4) The First Schedule shall have effect for supplementing this Chapter and that Schedule shall be construed as one with this Chapter.

Definition of retirement benefits scheme.

14. —(1) In this Chapter “retirement benefits scheme” means, subject to the provisions of this section, a scheme for the provision of benefits consisting of or including relevant benefits, but does not include any scheme under the Social Welfare Acts, 1952 to 1971, providing such benefits.

(2) References in this Chapter to a scheme include references to a deed, agreement, series of agreements, or other arrangements providing for relevant benefits notwithstanding that it or they relates or relate only to—

(a) a small number of employees, or to a single employee, or

(b) the payment of a pension starting immediately on the making of the arrangements.

(3) The Commissioners may, if they think fit, treat a retirement benefits scheme relating to employees of two or more different classes or descriptions as being for the purposes of this Chapter two or more separate retirement benefits schemes relating respectively to such one or more of those classes or descriptions of those employees as the Commissioners think fit.

(4) For the purposes of this section, and of any other provision of this Chapter—

(a) employees may be regarded as belonging to different classes or descriptions if they are employed by different employers, and

(b) a particular class or description of employee may consist of a single employee, or any number of employees, however small.

Conditions for approval of schemes and discretionary approval.

15. —(1) Subject as hereinafter provided, the Commissioners shall approve any retirement benefits scheme for the purposes of this Chapter if it satisfies all of the prescribed conditions, that is to say the conditions set out in subsection (2), and the conditions as respects benefits set out in subsection (3).

(2) The said conditions are—

(a) that the scheme is bona fide established for the sole purpose of providing relevant benefits in respect of service as an employee, being benefits payable to, or to the widow, children or dependants or personal representatives of, the employee,

(b) that the scheme is recognised by the employer and employees to whom it relates, and that every employee who is, or has a right to be, a member of the scheme has been given written particulars of all essential features of the scheme which concern him,

(c) that there is a person resident in the State who will be responsible for the discharge of all duties imposed on the administrator of the scheme under this Chapter,

(d) that the employer is a contributor to the scheme,

(e) that the scheme is established in connection with some trade or undertaking carried on in the State by a person resident in the State,

(f) that, where the employer is a company, no service of a person, in whatever capacity, rendered by him while he is a proprietary director or a proprietary employee of the company is taken into account for any of the purposes of the scheme,

(g) that no amount can be paid, whether during the subsistence of the scheme or later, by way of repayment of an employee's contributions under the scheme.

(3) The said conditions as respects benefits are—

(a) that any benefit for an employee is a pension on retirement at a specified age not earlier than 60 (or, if the employee is a woman, 55) and not later than 70, or on earlier retirement through incapacity, which does not exceed one-sixtieth of the employee's final remuneration for each year of service up to a maximum of 40,

(b) that any pension for any widow of an employee who dies before retirement shall be a pension payable on his death of an amount that does not exceed two-thirds of any pension or pensions which, consonant with the condition in paragraph (a), could have been provided for the employee on retirement on attaining the specified age, if he had continued to serve until he attained that age at an annual rate of remuneration equal to his final remuneration,

(c) that any lump sums provided for any widow, children, dependants or personal representatives of an employee who dies before retirement shall not exceed, in the aggregate, four times the employee's final remuneration,

(d) that any benefit for any widow of an employee payable on his death after retirement is a pension such that the amount payable to the widow does not exceed two-thirds of any pension or pensions payable to the employee,

(e) that any pensions for the children or dependants of an employee who dies before retirement or on his death after retirement shall not exceed, in the aggregate, one-half of the pension specified in paragraph (b) or (d) as the case may be,

(f) that no pension is capable in whole or in part of surrender, commutation or assignment except so far as the scheme allows an employee on retirement to obtain, by commutation of his pension, a lump sum or sums not exceeding in all three-eightieths of his final remuneration for each year of service up to a maximum of 40,

(g) that no other benefits are payable under the scheme.

(4) The Commissioners may, if they think fit, having regard to the facts of a particular case, and subject to such conditions, if any, as they think proper to attach to the approval, approve a retirement benefits scheme for the purposes of this Chapter notwithstanding that it does not satisfy one or more of the prescribed conditions. The Commissioners may in particular approve by virtue of this subsection a scheme—

(a) which exceeds the limits imposed by the prescribed conditions as respects benefits for less than forty years' service, or

(b) which allows benefits to be payable on retirement within ten years of the specified age or on earlier incapacity, or

(c) which provides for the return in certain contingencies of employees' contributions and payment of interest (if any) on the contributions, or

(d) which relates to a trade or undertaking carried on only partly in the State and by a person not resident in the State.

In applying this subsection to an existing scheme the Commissioners shall exercise their discretion, in such cases as appear to them appropriate, so as—

(i) to preserve benefits earned or rights arising out of service before approval under this Chapter or before the commencement of section 18, whichever is the earlier, and

(ii) to preserve any rights to death-in-service benefits conferred by rules of the scheme in force on the 19th day of April, 1972.

(5) If in the opinion of the Commissioners the facts concerning any scheme or its administration cease to warrant the continuance of their approval of the scheme, they may at any time by notice in writing to the administrator withdraw their approval on such grounds, and from such date, as may be specified in the notice.

(6) Where an alteration has been made in a retirement benefits scheme, no approval given as regards the scheme before the alteration shall apply after the date of the alteration unless the alteration has been approved by the Commissioners.

(7) For the purpose of determining whether a retirement benefits scheme, so far as it relates to a particular class or description of employees, satisfies or continues to satisfy the prescribed conditions, that scheme shall be considered in conjunction with any other retirement benefits scheme or schemes relating to employees of that class or description, and, if those conditions are satisfied in the case of both or all of those schemes taken together, they shall be taken to be satisfied in the case of each of them but otherwise those conditions shall be taken to be satisfied in the case of none of them.

(8) No approval shall be given as respects any period before the 6th day of April, 1972.

Certain approved schemes: exemptions and reliefs.

16. —(1) This section has effect as respects—

(a) any approved scheme which is shown to the satisfaction of the Commissioners to be established under irrevocable trusts, or

(b) any other approved scheme as respects which the Commissioners, having regard to any special circumstances, direct that this section shall apply,

and any scheme which is for the time being within paragraph (a) or (b) is in this Chapter referred to as an “exempt approved scheme”.

(2) Exemption from income tax shall, on a claim being made in that behalf, be allowed in respect of income derived from investments or deposits of a scheme if, or to such extent as the Commissioners are satisfied that, it is income from investments or deposits held for the purposes of the scheme.

(3) Exemption from income tax shall, on a claim being made in that behalf, be allowed in respect of underwriting commissions if, or to such extent as the Commissioners are satisfied that, the underwriting commissions are applied for the purposes of the scheme, and in respect of which the trustees of the scheme would, but for this subsection, be chargeable to tax under Case IV of Schedule D.

(4) Any sum paid by an employer by way of contribution under the scheme shall, for the purposes of Case I or II of Schedule D and of the provisions of section 214 of the Income Tax Act, 1967 , relating to expenses of management, be allowed to be deducted as an expense or expense of management incurred in the year in which the sum is paid:

Provided that—

(a) the amount of an employer's contributions which may be so deducted shall not exceed the amount contributed by him under the scheme in respect of employees in a trade or undertaking in respect of the profits of which the employer is assessable to income tax,

(b) a sum not paid by way of an ordinary annual contribution shall for the purposes of this subsection be treated, as the Commissioners may direct, either as an expense incurred in the year in which the sum is paid, or as an expense to be spread over such period of years as the Commissioners think proper.,

(5) (a) Any ordinary annual contribution paid under the scheme by an employee shall, in assessing tax under Schedule E, be allowed to be deducted as an expense incurred in the year in which the contribution is paid.

(b) Any contribution, which is not an ordinary annual contribution, paid or borne by an employee under the scheme may, as the Commissioners think proper—

(i) be treated, as respects the year in which it is paid, as an ordinary annual contribution paid in that year, or

(ii) be apportioned among such years as the Commissioners direct and the amount of the contribution attributed thereby to any year shall be treated as an ordinary annual contribution paid in that year.

(c) The aggregate amount of any contributions (whether ordinary annual contributions or contributions treated as ordinary annual contributions) allowed to be deducted in any year shall not exceed 15 per cent. of the remuneration for that year of the office or employment in respect of which the contributions are paid.

(6) Relief shall not be given under section 143 or 151 of the Income Tax Act, 1967 , in respect of any payment in respect of which an allowance can be made under subsection (5).

(7) This section has effect only as respects income arising or contributions paid at a time when the scheme is an exempt approved scheme.

Certain statutory schemes: exemptions and reliefs.

17. —(1) This section has effect as respects any statutory scheme established under a public statute.

(2) (a) Any ordinary annual contribution paid under the scheme by any officer or employee shall, in assessing tax under Schedule E, be allowed to be deducted as an expense incurred in the year in which the contribution is paid.

(b) Any contribution, which is not an ordinary annual contribution, paid or borne by any officer or employee under the scheme may, as the Commissioners think proper—

(i) be treated, as respects the year in which it is paid, as an ordinary annual contribution paid in that year, or

(ii) be apportioned among such years as the Commissioners direct and the amount of the contribution attributed thereby to any year shall be treated as an ordinary annual contribution paid in that year.

(c) The aggregate amount of any contributions (whether ordinary annual contributions or contributions treated as ordinary annual contributions) allowed to be deducted in any year shall not exceed 15 per cent, of the remuneration for that year of the office or employment in respect of which the contributions are paid.

(3) Relief shall not be given under section 143 or 151 of the Income Tax Act, 1967 , in respect of any payment in respect of which an allowance can be made under subsection (2).

(4) This section shall come into operation on the 6th day of April, 1973.

Charge to tax in respect of certain relevant benefits provided for employees.

18. —(1) Subject to the provisions of this Chapter, where pursuant to a retirement benefits scheme, the employer in any year of assessment pays a sum with a view to the provision of any relevant benefits for any employee of that employer, then (whether or not the accrual of the benefits is dependent on any contingency)—

(a) the sum paid, if not otherwise chargeable to income tax as income of the employee, shall be deemed for all the purposes of the Income Tax Acts to be income of that employee for that year of assessment and assessable to tax under Schedule E, and

(b) where the payment is made under such an insurance or contract as is mentioned in section 143 or 151 of the Income Tax Act, 1967 , relief, if not otherwise allowable, shall be given to that employee under the said section 143 or 151 in respect of the payment to the extent, if any, to which such relief would have been allowable to him if the payment had been made by him and the insurance or contract under which the payment is made had been made with him.

(2) Subject to the provisions of this Chapter, where—

(a) the circumstances in which any relevant benefits under a retirement benefits scheme are to accrue are not such as will render the benefits assessable to income tax as emoluments of the employee in respect of whom the benefits are paid, and

(b) the provision of those benefits is not, or is not fully, secured by the payment of sums by the employer with a view to the provision of those benefits,

then, (whether or not the accrual of the benefits is dependent on any contingency) an amount equal to the cost, estimated in accordance with subsection (3), of securing the provision by a third person of the benefits or, as the case may be, of the benefits so far as not already secured by the payment of such sums as are mentioned in subsection (1), shall be deemed for all purposes of the Income Tax Acts to be income of the employee for the year or years of assessment specified in the said subsection (3) and assessable to income tax under Schedule E.

(3) The cost referred to in subsection (2) shall be estimated either—

(a) as an annual sum payable in each year of assessment in which the scheme in question is in force or the employee is serving, up to and including the year of assessment in which the benefits accrue or there ceases to be any possibility of the accrual thereof, or

(b) as a single sum payable in the year of assessment in which falls the date when the employee acquired the right to the relevant benefits, or the date when he acquired the right to any increase in the relevant benefits,

as may be more appropriate in the circumstances of the case.

(4) Where the employer pays any sum as mentioned in subsection (1) in relation to more than one employee the sum so paid shall, for the purpose of that subsection, be apportioned among those employees by reference to the separate sums which would have had to be paid to secure the separate benefits to be provided for them respectively, and the part of the sum apportioned to each of them shall be deemed for that purpose to have been paid separately in relation to that one of them.

(5) Any reference in this section to the provision for an employee of relevant benefits includes a reference to the provision of benefits payable to that employee's wife or widow, children, dependants or personal representatives.

(6) Section 2 (2) of the Income Tax Act, 1967 , is hereby amended by the insertion, after paragraph (c), of the following paragraph:

“(cc) any payment which is chargeable to tax under Schedule E by virtue of section 18 of the Finance Act, 1972;”.

(7) This section shall come into force—

(a) as respects a scheme which comes into being at a time on or after the 6th day of April, 1974, but before the 6th day of April, 1980, or which comes or came into being before the said 6th day of April, 1974, and is made the subject of an alteration (other than an alteration which, in the opinion of the Revenue Commissioners, is immaterial) at a time after that date but before the said 6th day of April, 1980, at that time, and

(b) as respects any other scheme, on the said 6th day of April, 1980.

Exceptions from charge to tax under section 18.

19. —(1) Neither subsection (1) nor subsection (2) of section 18 shall apply where the retirement benefits scheme in question is—

(a) an approved scheme, or

(b) a statutory scheme, or

(c) a scheme set up by a Government outside the State for the benefit, or primarily for the benefit, of its employees.

(2) Neither subsection (1) nor subsection (2) of section 18 shall apply for any year of assessment where, apart from those subsections, the employee is, under the provisions of the Income Tax Acts, either not assessable to income tax in respect of the emoluments of his employment or is so assessable in respect thereof on the basis of the amount received in the State.

(3) Where, in respect of the provision for an employee of any relevant benefits, a sum has been deemed to be income of his by virtue either of subsection (1) or subsection (2) of section 18, and subsequently the employee proves to the satisfaction of the Commissioners that no payment in respect of, or in substitution for, the benefits has been made and that some event has occurred by reason of which no such payment will be made, and makes application for relief under this subsection within six years from the time when that event occurred, the Commissioners shall give relief in respect of tax on that sum by repayment or otherwise as may be appropriate; and if the employee satisfies the Commissioners as aforesaid in relation to some particular part of the benefits but not the whole thereof, the Commissioners may give such relief as may seem to them just and reasonable.

Charge to tax of pensions under Schedule E.

20. —(1) Subject to subsection (2), all pensions paid under any scheme which is approved or is being considered for approval under this Chapter shall be charged to tax under Schedule E, and Chapter IV of Part V of the Income Tax Act, 1967 , shall apply accordingly.

(2) In respect of any scheme which is approved or is being considered for approval under this Chapter, the Commissioners may direct that, until such date as they may specify, pensions under the scheme shall be charged to tax as annual payments under Case III of Schedule D, and tax shall be deductible under Part XXVII of the Income Tax Act, 1967 , accordingly.

Charge to tax on repayment of employee's contributions.

21. —(1) Subject to the provisions of this section, tax shall be charged under this section on any repayment to an employee during his lifetime of any contributions (including interest on contributions, if any) if the payment is made under—

(a) a scheme which is or has at any time been an exempt approved scheme, or

(b) a statutory scheme established under a public statute.

(2) Where any payment is chargeable to tax under this section, the administrator of the scheme shall be charged to income tax under Case IV of Schedule D, and subject to subsection (3), the rate of the tax shall be 10 per cent.

(3) (a) The Minister for Finance may by order from time to time increase or decrease the rate of tax under subsection (2).

(b) Every order under paragraph (a) shall be laid before Dáil Éireann as soon as may be after it is made and, if a resolution annulling the order is passed by Dáil Éireann within the next twenty-one days on which Dáil Éireann has sat after the order is laid before it, the order shall be annulled accordingly, but without prejudice to the validity of anything previously done thereunder.

(4) The tax shall be charged on the amount paid or, if the rules of the relevant scheme permit its administrator to deduct the tax before payment, on the amount before deduction of tax, and the amount so charged to tax shall not be treated as income for any other purpose of the Income Tax Acts.

(5) (a) Subsection (1) (a) shall not apply in relation to a contribution made after the scheme ceases to be an exempt approved scheme (unless it again becomes an exempt approved scheme).

(b) Subsection (1) (b) shall not apply to any payment made before the 6th day of April, 1973.

(6) This section shall not apply where the employee's employment was carried on outside the State.

(7) In this section and in section 22, “employee”, in relation to a statutory scheme, includes an officer.

Charge to tax: commutation of entire pension in special circumstances.

22. —(1) Where—

(a) a scheme which is or has at any time been an approved scheme, or

(b) a statutory scheme established under a public statute,

contains a rule allowing, in special circumstances, a payment in commutation of an employee's entire pension, and any pension is commuted, whether wholly or not, under the rule, tax shall be charged on the amount by which the sum receivable exceeds—

(i) the largest sum which would have been receivable in commutation of any part of the pension if the scheme had contained a rule providing that the aggregate value of the relevant benefits payable to an employee on or after retirement, excluding any pension which was not commutable, should not exceed three-eightieths of his final remuneration for each year of service up to a maximum of 40, or

(ii) the largest sum which would have been receivable in commutation of any part of the pension under any rule of the scheme authorising the commutation of part (but not the whole) of the pension, or which would have been so receivable but for the said circumstances,

whichever gives the lesser amount chargeable to tax.

(2) Where any amount is chargeable to tax under this section the administrator of the scheme shall be charged to income tax under Case IV of Schedule D on that amount, and subsections (2), (3) and (4) of section 21 shall apply as they apply to tax chargeable under that section.

(3) This section shall not apply where the employee's employment was carried on outside the State.

(4) In applying subparagraph (i) or (ii) of subsection (1)—

(a) the same considerations shall be taken into account, including the provisions of any other relevant scheme, as would have been taken into account by the Commissioners in applying section 15, and

(b) where the scheme has ceased to be an approved scheme, account shall only be taken of the rules of the scheme at the date of the cesser.

(5) Subsection (1) (b) shall not apply to any payment made before the 6th day of April, 1973.

Charge to tax: repayments to employer.

23 .—(1) Where any payment is made or becomes due to an employer out of funds which are or have been held for the purposes of a scheme which is or has at any time been an exempt approved scheme, then—

(a) if the scheme relates to a trade or profession carried on by the employer, the payment shall be treated for the purposes of the Income Tax Acts as a receipt of that trade or profession receivable when the payment falls due or on the last day on which the trade or profession is carried on by the employer, whichever is the earlier,

(b) if the scheme does not relate to such a trade or profession, the employer shall be charged to tax on the amount of the payment under Case IV of Schedule D, but only in proportion to the extent that the payment represents contributions by the employer under the scheme which were allowable as deductions for tax purposes.

(2) This section shall not apply to a payment which fell due before the scheme became an exempt approved scheme.

(3) References in this section to any payment include references to any transfer of assets or other transfer of money's worth.

Amendments of schemes.

24 .—(1) This section applies to any amendment of a retirement benefits scheme proposed in connection with an application for the approval of the Commissioners for the purposes of this Chapter which is needed in order to ensure that approval is so given, or designed to enhance the benefits under the scheme up to the limits suitable in a scheme for which approval is sought.

(2) A provision, however expressed, designed to preclude any amendment of a scheme which would prejudice its approval under section 222 or 229 of the Income Tax Act, 1967 , shall not prevent any amendment to which this section applies.

(3) In the case of a scheme which contains no power of amendment, the administrator of the scheme may, with the consent of all the members of the scheme and of the employer (or of each of the employers), make in the scheme any amendment to which this section applies.

Relief for certain payments.

25 .—(1) Section 223 of the Income Tax Act, 1967 , is hereby amended, with effect from the 6th day of April, 1968, by the substitution in subsection (1) of “, on their death, to their legal personal representatives, widows, children or dependants” for “to their legal representatives on their death.”

(2) Where, on or after the 6th day of April, 1968, a contribution which is not an ordinary annual contribution was or is paid under any scheme with respect to which section 223 of the Income Tax Act, 1967 , as amended by subsection (1), has effect, relief may be given in respect of the payment in accordance with the provisions of section 17 (2).

(3) Where, on or after the 6th day of April, 1968, a contribution which is not an ordinary annual contribution was or is paid to a fund or scheme approved under section 222 or 229 of the Income Tax Act, 1967 , relief may be given in respect of the payment in accordance with the provisions of section 16 (5).