Tax status of credit unions likely to stay

THE Government is confident that the European Commission will shortly reject a complaint that credit unions are favoured by certain tax exemptions.

The Competition Directorate of the Commission has been considering whether or not the credit union movement should be forced to pay corporation tax following a complaint by the Irish Bankers Federation (IBF) about the issue.

However, the credit unions have argued strongly that they should not be taxed, as they are social and voluntary in nature and are not financial institutions. It has been said that the only reason credit unions record surpluses is because 16,000 volunteers work free of charge. If this statistic was to be factored into their cost base, the estimates of corporation tax due would be wiped out completely.

The Department of Enterprise, Trade and Employment supported the credit union position and now believes the Commission will uphold the movement's tax-exempt status.

"We understand informally that the Competition Directorate of the European Commission will shortly accept our rebuttal of a complaint alleging that Irish credit unions are favoured by certain tax exemptions," the Department said in information received in response to a freedom of information request.

Meanwhile, the report of the working group on the taxation of credit union savings is still with the Minister for Finance. Seven of the nine-member group, which reported to Mr McCreevy at the end of September last year, supported a compromise deal that would allow credit union members to hold savings of £7,500 (#9,523) tax-free.

The report also recommended that credit unions remain exempt from corporation tax while they would not be required to report interest or dividends on credit union savings.

The Finance Bill contained no provisions on the taxation of credit union savings, but the Irish League of Credit Unions (ILCU) has said it will be lobbying for the implementation of the working group's proposals when the Bill reaches committee stage.

The ILCU is keen to have its tax position clarified, but Mr McCreevy, who has already been forced to do a U-turn on the issue, is likely to tread warily before deciding how to proceed.