20TACD2026: Employee working in Ireland under an A1 certificate cannot access tax-free redundancy payments
The Tax Appeals Commission (“TAC”) decision in case 20TACD2026 considered an appeal against a Revenue tax assessment on a termination payment. The appellant submitted that the payment was, in substance, a lump sum redundancy payment and should be exempt from income tax under section 203 of the Taxes Consolidation Act 1997 (“TCA“).
Section 203 TCA exempts from income tax lump sum payments made under sections 19, 32 or 32A of the Redundancy Payments Act 1967 (“RPA“). Section 7(1)(b) RPA provides for a general right to a redundancy payment where an employee is dismissed by reason of redundancy provided that the employee was, amongst other requirements, “an employed contributor in employment which was insurable for all benefits under the Social Welfare Acts” immediately before termination.
In this case, the appellant’s employment was exempt from Irish PRSI because the employee was making corresponding social security contributions in another jurisdiction pursuant to an A1 certificate of coverage. As he was not “insurable for all benefits under the Irish Social Welfare Acts” immediately before termination, the Commissioner found he could not meet the requirement in section 7(1)(b) RPA to qualify for a redundancy payment and so could not rely on the RPA as a basis to exempt any part of his termination payment from tax.
The appellant also argued that under Article 4 of EU Regulation 883/2004 on the coordination of social security systems, that, despite not making PRSI payments in Ireland, he should be treated equally and social security contributions in his home country of residence should be treated as if they had been made in Ireland. In other words, the appellant asserted he should be entitled to the benefit of the Irish exemption for redundancy payments irrespective of which jurisdiction he paid his social security contributions in. The Commissioner rejected this proposition noting that Article 3 of the EU Regulation provided which benefits were covered by Article 4 of the EU Regulation and that statutory redundancy payments are not “branches of social security” covered by the EU Regulation. As such, this finding meant that the appellant was not a person “to whom this Regulation applies” and could not rely on the EU Regulation.
For completeness, the Commissioner also addressed questions of whether the termination payment was exempt from tax pursuant to the exemptions in sections 192A (Exemption in respect of certain payments under employment law) and section 201 TCA (Exemptions and reliefs in respect of tax under section 123). The Commissioner found neither of these two exemptions were available.
The Commissioner was not satisfied that the appellant had discharged the burden of proof to show that the assessment to tax in respect of the termination payment was incorrect and the appeal failed.
One of the key takeaways from this decision is that employees who are exempt from Irish PRSI because they pay social security in another EU Member State outside Ireland under an A1 certificate of coverage cannot access the tax-free statutory redundancy payment under the RPA.
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For further information on this topic, please contact Barry McGettrick, any member of the Matheson Tax Department, or your usual Matheson contact.
