A confidential Revenue paper has exposed a major loophole in Ireland’s pensions legislation that enabled wealthy individuals to effectively eliminate their tax burdens through strategic pension contributions.
The internal report, prepared by a Revenue official in 2023, detailed how the 2022 Finance Act inadvertently created several tax avoidance opportunities by breaking the traditional link between salary and pension contributions.
According to the document, released following an appeal to the Information Commissioner under FOI laws, the loophole permitted “funding at an unlimited level” for family members or spouses artificially placed on payroll with minimal salaries and brief employment periods.
“In effect, some self-employed professionals could wipe out their own tax liability on their professional income by a sufficiently large tax deductible PRSA contribution for their employed spouse,” the report stated.
The paper illustrated how a family member could be employed at €10,000 annually for a limited period, incurring little to no tax liability, while receiving tax-free pension contributions of up to €2 million. Companies could then write off these massive contributions against profits and carry forward business losses to offset future earnings.
Revenue officials discovered businesses transferring more than €500,000 annually into funds for owners and family members during subsequent tax record reviews. The report also highlighted how individuals could accumulate substantial pension funds after minimal service periods—potentially as short as one month.
The Revenue Commissioners initially withheld the report but released it following an Information Commissioner appeal. A Revenue spokeswoman confirmed they had monitored these trends and shared concerns with the Department of Finance, leading to amendments in the Finance Act 2024 to address the issue.