Credit Union Fiscal Farce

A Credit Union Fiscal Farce

The Irish tax authorities are to insist credit unions return the names of people who have been paid dividends (interest) on non interest taxable accounts. Like many tax regimes, the Irish government taxes interest earned by Irish residents on their savings accounts. It’s called DIRT (Deposit Interest Retention Tax).

The current DIRT rate is 20%. Once paid, the taxpayer has no further liability. But where a person has a non-taxable account, interest earned is subject to their marginal tax rate which is between 0% and 41% depending on their income.

In 2000, in the run up to a general election, Irish Prime Minister Bertie Ahern forced the Minister for Finance, Charlie McCreevy (now EC Commissioner), to shelve his plans to tax credit union dividend payments – he did so as, the ILCU and credit union activists threatened to run candidates in the election. Irish coalition governments at the time were highly vulnerable to independent single ticket candidates being elected and holding the balance of power. http://www.tribune.ie/article.tvt?_scope=TribuneFTF&id=34925&SUBCAT=&SUBCATNAME=&DT=20/02/2000%2000:00:00&keywords=credit%20union&FC=

The solution cobbled together allowed credit unions to continue offering non-taxable accounts. This politically captive “solution” created a new Irish phenomena of the “credit union mattress” in which new Tiger wealth would be subsequently squirreled away from the prying eyes of the taxman.
Then Minister for Finance appears to have anticipated subsequent events: http://www.ireland.com/newspaper/frontpage/2000/0309/00030900003.html

Today it is reckoned that billions sit un-taxed in these accounts. Most of this money is not held by the over 65’s and certainly not by the under 18’s. Indeed a lot of it is probably undeclared income of varying legitimate and illegitimate origins.

Why would anyone want to deposit in a non-DIRT account when they could face income tax at their marginal rate? Well the answer is more than likely that the typical self employed credit union member who did very well in the Tiger years continued to use their local credit union to stash the cash.

Of course the ILCU is now quite exercised and publically stating that it doesn’t condone tax evasion – well it could hardly say anything else could it? But its statement comes with a typical ILCU rider – it says that retrospective application of Irish Revenue demand for names back to 2005 wouldn’t be fair on the elderly saver and would lead to an administration nightmare.

So on the one hand the ILCU is implicitly acknowledging that tax evasion has probably occurred but on the other hand, is once again pleading special status based on “elderly savers” and “IT system” problems.

Such a position could be seen as unwittingly providing cover for those who used credit unions to evade the taxman. Many consider it to be a regressive and poorly thought through position and one which the ILCU should immediately stand down.

Whatever the outcome of such regressive activism, it flies in the face of public expectation that financial institutions do not provide safe havens for tax evasion. This is all the more acute as credit unions have enjoyed two significant state fiscal subsidies – credit union profits are not taxed and DIRT free savers accounts.

As the cosy comfort of the non-DIRT mattress is removed, many may well shift savings out their credit unions. Many more may be very angry indeed if their credit union did not explain the taxation implications of non-DIRT accounts.

Could this be what is exercising the minds of leading credit unionists? One could ask another interesting question - have credit union directors availed of non-DIRT accounts?