EBrief 9/2006
Budget 2006 Financial Resolution No. 2 provided that so much of the income of a foreign office or employment of an individual as is attributable to the performance in the State of the duties of that office or employment is, with effect from 1 January 2006, chargeable to income tax under Schedule E (instead of Case III of Schedule D). Tax is accordingly deductible under PAYE. eBrief No. 43 of 2005 notified practitioners that, subject to subsequent recoupment, the operation of PAYE could be postponed until 1 March 2006.

This eBrief addresses the position, on foot of these changes, in relation to 2005 Bonuses, Temporary Assignees, and Pension Contributions.

Revenue recognises that the new regime in relation to the employments concerned may involve significant adjustments for the employers affected. Revenue will not seek to penalize any employer making best efforts to implement the new regime where, despite those best endeavours, there is delay in implementing the new regime.

1. Bonuses earned in 2005 but paid in 2006

Where –

1. the income of a foreign employment is within the charge to tax here (either on the full amount earned or, under the remittance basis, on the amount remitted to the State); and
2. a bonus in respect of that employment that was earned in 2005 is paid on or after 1 January 2006,

such bonus is not within the scope of the PAYE system (as it is not within the charge to tax under Schedule E – having been earned prior to 1 January 2006).

2. Temporary assignees

Under the terms of the Employments article of Double Taxation Agreements (DTAs) between Ireland and other countries, the income attributable to the performance in the State of the duties of an employment may be relieved from the charge to Irish tax and tax deducted under PAYE must be repaid.

Revenue will not require an employer to operate PAYE where the following criteria will be satisfied –

1. the individual is resident in a country with which the State has a Double Taxation Agreement and is not resident in the State for tax purposes for the relevant tax year;
2. there is a genuine foreign office or employment;
3. the individual is not paid by, or on behalf of, an employer resident in the State;
4. the cost of the office or employment is not borne, directly or indirectly, by a permanent establishment in the State of the foreign employer; and
5. the duties of that office or employment are performed in the State for not more than 60 working days in total in a year of assessment and, in any event, for a continuous period of not more than 60 working days.

3. Pension Contributions

With effect from 1 January 2006, the liability of certain foreign employment income to tax under Schedule E means that, for the employees concerned, the contributions made by their employer into a foreign pension scheme is a taxable emolument. However, in bona fide cases, where

1. the employee –
   1. has been seconded by a foreign company to work in the State for that company or for a company which is connected to the foreign company;
   2. was, prior to coming to work in the State, employed outside the State for a period of not less than 18 months by the foreign company (or a foreign company connected to that company);
   3. is either not Irish domiciled or, being an Irish citizen, is not ordinarily resident in the State at the time the pension contributions are made;
   4. had, prior to coming to work in the State, been making contributions to the foreign pension scheme referred to in (c) below for a period of not less than 18 months; and
   5. is not resident in the State for a period of more than 5 years (but see Note below);
2. the foreign employer –
   1. is resident for tax purposes in an EU member state or in a country with which the State has a Double Taxation Agreement;
   2. has, prior to the individual coming to work in the State, been making contributions to a foreign pension scheme on behalf of the employee for a period of not less than 18 months;
3. the foreign pension scheme is a statutory scheme in a state or country mentioned in (b) above, other than a state social security scheme, or is a scheme in respect of which tax relief is available in such a state or country; and
4. both the employer and employee contributions comply with the rules of that foreign pension scheme, then Revenue will –

• treat contributions made by the employer to the pension scheme, for the benefit of the employee, as not being taxable; and
• allow relief for the pension contributions made directly by the employee (subject to the normal income percentage limits).

Note – Where an individual is resident in the State for a period of more than 5 years, ignoring any periods prior to 1 January 2003, written permission of the local Revenue office will be required for the continuation of the above treatment of pension contributions beyond a period of five years.