MINUTES OF THE MEETING OF THE TAXATION ADMINISTRATION
LIAISON COMMITTEE – “MAIN TALC” HELD ON TUESDAY, 29TH JULY
2003 AT THE INSTITUTE OF TAXATION, 19 SANDYMOUNT AVENUE,
DUBLIN 4
1.
Attendance:
CCAB -I
Marie Barr in the Chair
Enda Faughnan
Brian Purcell
Martin Scully
Institute of Tax
Brian Keegan
Mark Redmond
Law Society
Caroline Devlin
Revenue
Denis Graham
Liam Irwin
Marcel Jacques
Maura McCarthy
Brian McGrath
Eamonn O’Dea
Rosemary O’Rahilly
with
Apologies:
2.
Anne Sykes CCAB-I
There were no apologies received.
Meeting facilities
The committee thanked the Institute of Taxation for making a room available
at short notice.
3.
Agenda
The meeting noted that the principal responses were from the Institute of
Taxation and CCAB-I. The committee agreed to go through the IOT
submission first and discuss the points raised.
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4.
Introductions
Eamonn O’Dea (Revenue - Direct Taxes Policy and Legislation Division)
introduced Revenue colleagues who were there to discuss this topic. Denis
Graham from the Operations Policy and Evaluation Division (OPED), Brian
McGrath, PAYE Policy in OPED, Marcel Jacques and Maura McCarthy from
the Direct Taxes and Legislation Division, and Rosemary O’Rahilly of Direct
Taxes Interpretation Division.
5.
Employers Guide to the new arrangements for deducting PAYE and
PRSI from certain benefits
Revenue noted their appreciation of detailed responses especially in view of
the tight timetable. Revenue agreed that the guide should not disturb existing
general practices in relation to benefits-in-kind. Revenue added, however, that
where the FA 2003 changes impacted on the grounds for existing practices,
e.g. settlements on a “net” basis, those practices would have to change.
Revenue also agreed that they need input from those with practical interest in
this area.
Concerning the content of the Institute of Taxation response, Revenue
welcomed the expert input, including comments re shortcomings in the
technical area. Revenue did not agree with the Institute’s comment re fairness
but could discuss this.
The committee discussed the Institute of Taxation responses to this paper with
Revenue leading the comments on each of the bullet points:

Timing
Revenue will welcome additional comments in the next couple of weeks.

Composite approach
Revenue commented that perquisites and BIKs have been brought together, to
make the Guide a practical help to employers. While distinctions can be made
but they had decided to go for the simpler composite approach. They are
happy to look at particular instances, especially where it would change
existing practices. CCAB-I commented that this goes to the heart of the
valuation method. Revenue agreed with this comment but noted that the legal
differences between the charge under the two sections could have little, if any,
net effect on valuations due to the interaction of the two sections. Their aim
was to keep the Guide as practical as possible. Revenue acknowledged and
thanked the Institute of Taxation for identifying the issue in relation to Section
119(2) where goods have been in ownership of employer before being
transferred to an employee.

Shortfall (Page 5 bullet 4)
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Where employment has ceased there are two aspects: the employer will have
to discharge the liability where the individual was an employee, but it would
not be possible for the employer to collect the additional tax, in relation to the
deemed benefit in kind by reference to un-recouped tax, from the employee.
The employer is required to discharge the tax arising during the employment
but not in respect of the benefit in kind on tax remitted that cannot be
recouped.
IOT commented that the time limit at the end of the tax year could cause
problems. Revenue agreed that there could be difficulties with the 31st
December being a cut-off for recoupment, particularly in relation to benefits
provided late in the year. An employer would need to consider the likelihood
of recouping the tax and consider the timing of payments. There were choices
to be made on how to remunerate employees.
CCAB-I commented that the onus is on the Revenue to consider the impact of:


Leaving employer exposed
Have to consider when putting together new packages for employees also
the purpose of the legislation.
This seems to be encouraging employers to pay cash and not benefits.
The Revenue appreciated the comment regarding the 31st December cut-off.
There may be existing commitments but employers may want to reconsider
these. The law was to bring some new items within the PAYE code it was not
designed to change behaviour. Revenue also commented that there was also a
simplification objective. Revenue acknowledged that there is an issue in
relation to payments made late in the year and that this would require
employers to make choices in relation to the form of remuneration packages.
CCAB-I suggested that perhaps a special supplementary P35, e.g. six months
after the year-end, at least in the transition to cover these BIKs. The employer
can collect the tax from the employee over say six months and then submit it
to Revenue. Revenue responded that the employer has to account for the tax
in month when the benefit arises. The law requires the tax to be paid. If
employers choose to pay non-cash benefits in December they may have to
pick up the tab either in January or February. IOT commented that the
employer does not always have choices e.g. renewal of clubs subscriptions.
They need some sort of relaxation and some transitional arrangements.
Revenue responded that unrecouped tax at the end of the year could be a
difficult issue but that this was a feature of the legislation not of the guide.
The employers would need to consider planning, if necessary, rescheduling.
Employer must be aware of their liability and the possible difficulties.
CCAB-I commented that practitioners could include requests for changes to
legislation in the Pre-Budget Submissions:

€50 exemption (bullet point 2.3)
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Revenue queried as to why this was not considered to be sufficient to cover
token gifts. CCAB-I queried as to whether this was a 50 euro per annum per
employee or 50 euro a time. Revenue confirmed that it was intended to be 50
euro per annum per employee. The meeting commented that this was low,
Revenue agreed to consider this but was not committing to change.

Regulation 28.3 (page 5 bullet point 6)
Revenue's comment was that 28.4 deals with collusion between the two and
that 28.3 was more relevant. This gives assurance to employers that the
employee may be made liable where the employer acted in good faith.

3.1.2, 3.1.4
IOT commented that these paragraphs were a bit vague. Revenue will review
the text concerned.

3.1.5
Revenue commented that they do not accept that local services/assistance will
promote inconsistency. IOT responded that this was not a Revenue-bashing
comment but highlighting possibilities. The IOT are encountering
inconsistencies especially in new areas. Revenue commented that their
intention is to promote consistency and that staff would receive appropriate
training accordingly.

3.5.2 global settlements
Revenue commented that they were wary of providing guidelines which would
take no account of the circumstances of the case. CCAB-I commented that
where employers provide bonus bonds or vouchers at Christmas and settle the
tax in January, would these arrangements stay in place? Revenue responded
that they do not seek to change practices. However where there has been a
change in law affecting the basis for practices, e.g. settlements on a net basis,
the practices concerned will have to change.

3.5.4
Revenue agreed with this comment. The grossed-up figure will be allowable
for IT/CT purposes.

4.1 Valuation of Benefits
Revenue responded that this gets to the heart of the composite approach.
Section 119(2) is clearly relevant and Revenue is grateful for the example
provided by IOT. One starts with Section 112 perquisites, the case law gives
the market value of the perquisite. Section 118 catches items that would not
be otherwise chargeable.
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The Revenue view is that any balance that does not come under Section 112
will be caught under Section 118. This is not a change in approach. The
balance of the cost over market value comes under Section 118. This was
discussed in Tax Briefing Issue 40 June 2000. There will be circumstances
where the realisable value will not be available. Revenue illustrated with the
following example. An item is provided by the employer e.g. suit. The cost
of the suit is €15, the market value i.e. the second-hand value is €5. The
Revenue interpretation would be Section 112 would charge €5, Section 118
charged the additional €10.
CCAB-I queried as to whether this had been challenged and was it applied in
practice. Revenue responded ‘Yes it was’. Revenue agreed that they would
look at examples in the guide. IOT commented they have yet to come across
this. Revenue responded quoting Norman Judge’s book. IOT responded that
they need to look at this as it appears to be new; complex rules and complex
guide and this appeared to be a new development. Revenue responded that
they are not relying on the comments by Norman Judge but what was vital
from the TALC discussion and the Guide was practical guidance. The
common valuation rule for perquisites and benefits was still consistent with
Tax Briefing from the year 2000. CCAB-I commented that in their opinion
this was a change of practice.

4.4 Vouchers
IOT queried as to whether vouchers would be through Section 112 or 118.
Revenue responded they would be Section112. Revenue commented that this
comes back to what was set out previously in Tax Briefing 2000. Vouchers
would have a face value of €100 and €100 is chargeable. The assumption is
that this is the cost to the employer. The cost to the employer could be greater
and one might have to look at realisable value. IOT queried what would
happen if the cost were greater than face value. Revenue responded that they
could be assessed at cost but couldn’t see this arising. Additional expense
could be incurred. The UK instructions allude to that, but for most situations
we are talking about face value. Revenue commented that they were eager to
be made aware of any evidence that this was a change in approach.

4.6
(Table Section 1)
Revenue will take this into account and adjust the draft text as necessary.

4.6
(Table Section 3) - second-hand value
Revenue commented that Section 119 (2) deals with the situation where the
previous owner was employer. In other cases they will allow for depreciation.
The cost to the employer would be the second-hand cost and this would
generally be a reliable indication of market value.
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
4.3
CCAB-I commented that the first reference to medical insurance in this
paragraph should be changed to something else as medical insurance is treated
differently. Revenue noted this comment.

5. general
Revenue commented that they disagreed with the comments under this
heading. They would not accept the inevitability of over or under-payments.
This would primarily be a function of the legislation which had been debated
earlier in the year. Revenue felt that the ready reckoner would be useful. This
would assist with staying up to date with employees where mileage varies
throughout the year. They have tried to facilitate workings in respect of
benefits in kind on cars. It could occur, but was unlikely, that the year-end
week’s mileage would be very high and would make it difficult but generally
the ready reckoner should be useful for employers.
IOT responded that they were reassured to hear that the principal BIK’s were
annual charges. Pay intervals are outside the employee control. The value of
a car and approximate mileage is easy to administer. Weekly/monthly
adjustments are a serious administrative burden.
Revenue responded that the ready reckoner was provided to help employers.
These can be used at any time in the year to check what should have been
covered by the tax payments to date. It should be possible to do a periodic
check. The employee really needs to keep track of the mileage and they
should be doing that already. The purpose of this is to smooth out payments.
IOT responded that we are looking at guidelines that will form regulations.
Would this ready reckoner be compulsory? Will the employer be in breach if
they don’t use it? Revenue responded that it was an aid created to assist the
employer – it was not mandatory if the same objectives could be achieved by
different means.
Revenue commented that prudence dictates that employers use some check.

5.5.4 Discounts
Revenue commented that there is an extract from instructions, published in
1997, which includes the reference to 10% reduction that indicates that the
current guidance is staying with existing practice. IOT commented that the
market might have moved on. There is the feeling that smaller companies
may suffer if they can’t get bigger discounts. The CCAB-I responded that big
discounts are not allowed, these are excluded from BIK anyway. Revenue reemphasised that this is not changing existing treatment. CCAB-I responded
that in the past the employee had made his or her own return, there is a change
in the dynamic here. Revenue commented that the employer makes the best
estimate and acts in good faith. CCAB-I responded that the burden actually
falls on the employer now. Revenue responded that they accepted that there
was now a big change for the employer.
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
5.5.7 Mileage
Revenue noted this example and agreed to change the text. 5,000 miles is not
a statutory limitation and the text will change to reflect the words of the
legislation.

5.10
End of year adjustment.
Revenue commented that capital sums contributed by the employer are
covered on page 26 of the draft guidance. CCAB-I commented that it seems
unfair treatment to penalise the employee over the years. Revenue noted that
it was not immediately obvious where the balance of advantage would lie for
the taxpayer as between the reduction in the OMV and the reduction of the
cash equivalent. CCAB-I commented that the treatment might depend on who
owns the car going forward. The problem arises where the employees makes a
top-up payment towards the car and gets this back on sale. Revenue
commented that this seemed to be a legislation matter rather than a Guidance
matter. CCAB-I noted this for Pre-Budget Submission.

7.2.1 Employee required to live on premises.
Revenue would be grateful for any comments on this and would appreciate if
employers could provide a list. CCAB-I commented that examples would be
helpful, for example a live-in nanny. Revenue responded that they would be
happy to include examples.

7.1.3 Rule of thumb for calculating market rent.
Revenue commented the rule of thumb hasn’t changed, it is intended to be a
stable rule. It comes from existing practice and will encourage people to get a
vouched cost. IOT responded that they accepted the rule of thumb is optional.
Revenue agreed to consider this.
 8.1 Free use of assets.
Revenue noted that the IOT comment in Section 119 subsection 2 would be
acknowledged.

9.1 Preferential loans.
Revenue commented that there is only one question, is it a home loan? If it
isn’t a home loan then there is no reason to enquire any further. CCAB-I
agreed. IOT commented that confirmation from employee that it is a home
loan and no reason to suspect otherwise then there is no problem with this?
Revenue response Yes.

10.6 Home telephone provided by an employer.
Revenue explained that incidental was intended to mean infrequent and
exceptional, i.e. where the employee already has a home number.
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
10.8 Home computers provided by an employer.
Revenue noted the IOT reference to Section 119 subsection 2. Revenue
commented that the €3,000 will be changed.

10.9 ISDN line
ISDN lines are dedicated internet connection providers for employees.
Revenue noted the 80% rule refers to non-e-working individuals. The ISDN
line would therefore be remuneration not to assist part-time working from
home where work usage would be very incidental. CCAB-I commented the
people working from home were not necessarily working part-time from home
or e-workers. Revenue commented that this could be used as part of
remuneration planning packages. IOT commented that the ISDN will support
voice as well as data so why the different treatment? Revenue said they are
open to considering this. CCAB-I requested that Revenue does not make a
distinction between regular phone and ISDN.

10.11, 10.12 Sports and recreational facilities and other “en bloc”
payments e.g. medical facilities provided for employees.
Revenue queried the IOT comment and said that employer will need to know
the total cost and contribution by the employee and it is not apparent where
enquiries would be needed. In relation to medical facilities CCAB-I
commented that the cost of the cover does not equate to benefit enjoyed by the
employee. Revenue responded that the benefit is the cover whether or not the
employee is ill. CCAB-I commented that in the past these weren’t taxed
therefore this is a change in policy. CCAB-I queried as to whether this was a
good thing and would discourage employers from providing this sort of cover.
Law Society commented that this seems to be asserting that the employer is
providing a cover i.e. insurance and that is not permitted. The employer is not
an insurer so the benefit must be the value of the visits not the provision of the
cover. The Revenue agreed to consider this issue further.
CCAB-I commented on the issue of club subscriptions e.g. golf. The value to
the employee will depend on the number of use e.g. brings three clients every
week or brings one client a year. Revenue commented that it would be
difficult to assess on the basis of use where the benefit is available to
employees. CCAB-I responded that membership of a golf club may be purely
for business and that for recreational purposes the employee could be a
member of another club and play there.
Revenue agreed to consider this issue.

Annual health screening
Revenue commented that they would welcome evidence of existing practice.
IOT agreed to provide an example.
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
10.18 - Staff suggestion schemes
Revenue accepted that this was not a BIK issue as these are mostly cash
payments. This is not a change in the treatment of an existing BIK. CCAB-I
queried as to why this has come out here and can it be deferred. Revenue
noted the comments.

10.23 - Professional subscriptions
Revenue responded that where the professional subscription is linked to the
terms of employment e.g. a job description, a contract of employment it is not
a BIK. CCAB-I and IOT commented that this was not clear in the past,
particularly if the employer paid it was not treated as a BIK. CCAB-I queried
as to what would be the case if an employee acquires the qualifications
subsequent to contract, that he would have to revise the terms of the
employment contract continually. The Law Society commented this is
actually illegal. Revenue requested evidence of current practice. CCAB-I
commented that they have examples where subscriptions are allowed. This is
not consistent with 10.13 refunds of courses/exam fees. Revenue
acknowledged that this was an area that warranted review.

10.24 - In-house medical plans
Revenue commented that this is similar to the issue raised in 10.12.
Law Society commented that it is not unusual to provide medical/dental cover
(UK and US more than here). The employer cannot provide insurance cover
therefore cannot treat this as cover. They are not providing cover, they are
providing a benefit but only if you use it - therefore you cannot be taxed on the
cover. Revenue commented that one consequence of linking the benefit to use
would be to impose an additional burden on those who had been seriously ill.
CCAB-I commented that the cost of dental and medical treatment would
generally be deductible anyway, Revenue noted this comment.

11.11 - Records to be kept
Revenue noted that the records do not necessarily have to be kept separately.

11.1.2
Revenue noted that it is still a six-year rule.

11.2 - Completion of Forms P34, P45 and P60
Revenue commented that the P35 in 2005 will be revised to show notional pay
on an extra line. The P45 and P30 will not need revision.
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P11D will cover benefits not caught by these and not covered by other forms.
CCAB-I queried as to whether still needed the P11D. Revenue responded that
there are still some benefits that are not on payroll.

VHI cover
Revenue commented that there is a change in administration not a change in
treatment. Revenue made it clear that the employer has to reimburse Revenue
where benefit is paid to employee. Revenue commented that the VHI is not
on the tax credit system. CCAB-I example illustrated that the benefit of the
tax relief is being passed on to employee. Revenue responded that with the
introduction of the TRS the employer picked up the benefit so the Revenue is
taking this back.
CCAB-I are to revert to Revenue with an example of where this treatment
existed in practice.
Consultation
IOT queried as to whether this document had been circulated widely for
comment. Revenue explained that their preference was not for general release
at this stage: they would rely on TALC’s representative capacity. They would
be concerned about drafts getting wide circulation. Revenue commented that
ICTU, IBEC, Software Association, ISME, FSIA had all received copies of
this draft. CCAB-I queried as to whether there had been any consultation so
far with the other bodies. Revenue responded that the Department of Finance
were organising these contacts.
Revenue acknowledged that time is tight. There is a balancing act between the
duration of the consultation period and getting employers and software ready
to handle the changes and other preparations. Revenue noted they are
particularly impressed at the speed of the IOT responses. They would like to
get a conclusion on this by the end of the Summer, they are concerned about
wide circulation of a draft Guide leading to confusion. The IOT commented
that a number of changes are proposed and requested that a marked-up
amended draft would be circulated. Revenue responded that some changes
will take longer but they would provide a copy of their comments discussed
today as soon as possible.
IOT recorded their thanks to the Revenue for their comments and the work
they had done on the IOT submission. IOT commented that they had
expressed concern about the time needed before, the timing is a little vague
and will need firm reassurance that this will move on. Revenue noted this and
agreed that they would make arrangements to move on as quickly as possible.
They are dealing with concerns of the software people as well. Revenue
requested that any further comments be sent to Maura McCarthy.
Revenue informed the committee that, as they are planning to do a road show,
it is in their interest to move quickly. With the code of practice they had
consultations etc. however they were concerned about having an interim
document widely circulated. Some issues discussed today can be dealt with
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quickly, others will need more consideration. IOT requested an e-mail noting
changes that will be made so they could “clear out” issues. Revenue agreed to
do this.
Revenue informed the committee that they have an instructional programme in
place, the first week of October is planned release date, there will be an
information seminar the 20th/24th October. IOT queried the date of publication
of the regulations. Revenue responded that this was likely to be in November,
but that it was not as important for employers as the guide was. The onus is
on the Revenue to make sure the guide and the regulations are consistent.
IOT commented that there are well-established procedures for appealing
regulations in legislation. These appeal procedures are not available for
guidelines. If the regulations are too sketchy the taxpayers will have limited
recourse. IOT queried what was happening with software providers and the
payroll association. Revenue responded that they have attended payroll
association meetings and dealt with questions. They have met with one large
association. The draft guide has been issued to 69 software providers and they
have been asked for comments.
The Chairman thanked everyone for their attendance at the meeting. The
meeting then ended.
pm/tcs/minutes/m300703july29talc
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