State defends credit union tax exemption

The Department of Enterprise, Trade and Employment has submitted a "strong case" to the European Commission for the continued exemption of the credit union movement from corporation tax. It had been asked for its views on the matter by the Commission's competition directorate.

The Department consulted with the Department of Finance, the Registrar of Friendly Societies and the Irish League of Credit Unions before submitting its response. It has not yet heard back from the Commission and a final decision in the matter is not expected for a number of months, according to a spokesman.

However, a spokesman for the Commission said taxation issues could not be dictated at European level unless there was an unanimous decision by the EU Council of Ministers. The Commission can try to negotiate changes in national law. The credit union movement and the friendly societies are currently exempt from EU banking directives.

A complaint was received by the directorate some months ago from the Irish Bankers' Federation, which believes it is unfair that the credit union movement is exempt from the 32 per cent tax. "Our position is that all financial and credit institutions operating in the same market should be treated similarly," said a spokesman for the federation.

The general secretary of the Irish League of Credit Unions, Mr Tony Smyth, said the league was not a financial institution. "We are a mutual, wholly owned by members and run by volunteers for the greater part."

He said any surplus created by the movement was due to the voluntary efforts of members.

He said that, as long as the movement retained its local, community-based focus, it would not have difficulty defending the way it was treated for taxation. The exemption from corporation tax constituted state recognition of the social and voluntary nature of the movement.

"The Irish government has supported our position and we are very grateful to them for it. We feel reasonably confident that common sense will prevail."

A spokesman for the Irish Bankers' Federation said that, last summer, EU governments were sent a questionnaire from the Commission asking about credit institutions which offer a "service of general economic interest". The questionnaire asked for governments' views on how the application of State aid and other competition rules might make it impossible for the credit institutions to render their "service of general economic interest".

The survey was prompted by concerns the German government had concerning the effect the Amsterdam Treaty might have on their state or "lander"-owned banks. The spokesman for the federation said they queried the decision of the Government not to include the credit union movement in its response to the questionnaire. It also asked the competition directorate whether the exemption from corporation tax enjoyed by the credit union movement constituted State aid.