In July 2015, the Department of Finance issued a consultation in respect of the Tax Treatment of Expenses of Travel and Subsistence for Employees and Office Holders.
The Institute of Directors in Ireland submitted a response which focuses on the tax treatment of expenses incurred by non-executive directors in travelling to attend board meetings, and seeks to emphasise that the definition of the normal place of work of a non-executive director needs to be updated to reflect the reality of the role.
We believe that the current tax treatment has potential negative consequences for a range of businesses from SMEs and high potential start-ups, to multinational corporations already based here, and those considering Ireland as a place to do business. As such, our submission is calling for the full reimbursement, without taxation liability, of vouched travel expenses incurred by non-executive directors in attending board meetings.
Non-executive directors’ “normal place of work”
We believe that the current taxation system represents an unfair additional cost on non-executive directors and we are calling for the definition of a non-executive director’s “normal place of work” to be redefined to adequately reflect the substantive duties which are undertaken by non-executive directors outside of the boardroom and to acknowledge that the “normal place of work” is the primary location where he or she operates in their professional capacity as a non-executive director, and not the location where board meetings take place.
Adverse consequences on businesses
We believe that the current taxation system raises a number of potential consequences for businesses including:
- Inflation of fees paid to non-executive directors as businesses seek to compensate for this measure. This may put the valuable services of a non-executive director beyond the reach of many businesses
- Non-executive directors providing their services on a pro-bono basis to emerging companies incur an unjust cost, as the reimbursement of expenses without taxation liability is currently limited to unpaid directorships of non-commercial and altruistic organisations only
- Internationally experienced non-executive directors are discouraged from serving on the boards of companies in Ireland and Irish companies may be deterred from seeking international expertise for their boards due to the cost implications of compensating non-executive directors who face taxation on international travel expenses
We believe that it is critically important to ensure that all businesses are actively encouraged to put in place the best infrastructure so as to ensure exemplary levels of governance and effective leadership. Fundamentally, companies need to be encouraged to appoint non-executive directors and, in tandem, suitably qualified and skilled people need to be encouraged to serve as non-executive directors on boards in Ireland.
Download the IoD’s response to the Department of Finance consultation on the Tax Treatment of Expenses of Travel and Subsistence for Employees and Office Holders below.