Tax Relief On Pensions Following A Corporate Reorganisation
Employers involved in a Corporate Reorganisation should note there are certain circumstances where tax relief can be applied to pension contributions in respect of workers who are not directly employed by you.
Common reasons for Corporate Reorganisation include the “de-merger” of group companies involving the transfer/sale of companies/businesses between related group companies. The creation of joint ventures may also give rise to a similar situation.
Multinational groups seeking to restructure their international operations and increase their group’s activities in Ireland is another example of Corporate Reorganisation and is on the rise due to the uncertainty surrounding Brexit.
Employer contributions to pension arrangements are fully deductible for corporation tax purposes (up to certain limits). Following a Corporate Reorganisation, there may be implications for pension schemes, depending on the type of arrangement you have.
In general, a Defined Benefit (DB) scheme will cause more issues than a Defined Contribution (DC) scheme (for example, funding and covenant concerns). The legal nature of the change (whether it’s a share or asset transfer) and reasons for the Corporate Reorganisation will also determine whether the employer has a legal obligation to continue to fund the pension scheme into the future.
An employer will need to know how TUPE [Transfer of Undertakings (Protection of Employment)] impacts on a proposed Corporate Reorganisation as it has implications for existing occupational pension schemes.
Tax relief is extended to employees who are not employed by you under certain conditions. These include a Corporate Reorganisation where scheme liabilities (identified at the time of the agreement) will be addressed. For example, an underfunded scheme or compensation for a reduction in benefits following reorganisation.
Tax relief can also be applied when the scheme members are current or former employees of parties to the agreement and the pension contributions are such that they would qualify for relief if the contributor was an employer of the scheme members.