Ireland: High Court decides providers of pension schemes are not required to verify bona fides of transfer
In Michael O’ Sullivan v Canada Life Insurance [Ireland] Limited, the Irish High Court ruled on two aspects relating to the transfer of Personal Retirement Savings Account (PRSA) abroad pursuant to the Occupational Pension Schemes and Personal Retirement Savings Accounts (Overseas Transfer Payments) Regulations 2003 (the Regulations).
Firstly, the court clarified the extent of the duties on providers of such schemes to verify the bona fides of the transfer. Secondly, it held that an employment connection with the transferee country is not necessary in order to justify the transfer of a PRSA abroad.
The plaintiff opened a PRSA with Canada Life (the defendant) in February 2013. On May 30 2013 he instructed the defendant to transfer the PRSA to a fund in Malta.
The defendant sought the approval of the Irish Revenue Commissioners (Revenue), who stated that it was for the defendant, as the PRSA provider, to conclude whether the transfer was for bona fide reasons and permissible under the regulations. The defendant cited Revenue’s letter when refusing the plaintiff’s application to transfer on the basis that he did not live in Malta and had no employment connection with the place.
The plaintiff sought a mandatory injunction from the court to compel the defendant to allow the transfer. The application for the injunction was treated as the trial of the action.
The plaintiff argued that he had bona fide reasons for transferring the funds which did not involve any intention to evade a revenue liability in Ireland or to allow for easier access to the funds. He argued that it was a breach of the free movement of capital in the EU to prevent him from transferring his funds.
The defendant argued that the person seeking to transfer the funds is under an obligation to prove that the transfer of the funds is for bona fide reasons and connected with residency and employment in Malta.
The requirement that the transfer of the PRSA abroad be for bona fide reasons was introduced in 2009 to prevent PRSAs being used to facilitate artificial” transfers of occupational pension schemes abroad.
In 2012 the Revenue introduced a further requirement that a declaration be signed by the person seeking to transfer the PRSA abroad verifying that the transfer was in accordance with the regulations, was for bona fide reasons and not for the purpose of circumventing pension tax legislation. This further requirement was as a result of the pensions industry warning Revenue of a dual transfer practice whereby PRSAs were being transferred out of Ireland to a jurisdiction which satisfied Irish legislative requirements but immediately transferred onwards to another jurisdiction where it was easier to access the funds. There was a concern that this practice was damaging the underlying aim of encouraging people to save for their retirement which presupposes that the funds are not easily accessible.
Revenue was invited to make submissions to the court. It contended that this declaration was not in itself conclusive evidence of the bona fides of the transaction and the PRSA provider was obliged to use its best endeavours to ensure the accuracy of the declaration. The court held that it was not.
The court held that fund managers were not obliged to conduct an independent examination and evaluation of the motives of the fund owner, provided there was no indication from the facts that gave rise to a suspicion. It went onto state that it was not possible to lay down a general rule because it depends on the circumstances of the particular case. On the facts of the case at hand it held that no facts existed which would justifiably make the defendant ”uneasy” and therefore they were not obliged to verify the factual circumstances behind the application or “to make some general exploration of the applicant’s motives”.
Though the court was keen to not set down a general test; the decision does give comfort to providers of PRSAs that they are not under a general obligation to investigate the accuracy of declarations that a transfer is for bona fide purposes. It is clear from the decision, however, that in certain circumstances where the provider can refuse the transfer where they have reason to believe that the transfer may not be for bona fide reasons.
The defendant argued that PRSAs could only be transferred overseas where the overseas provider could provide “relevant benefits” in accordance with the requirements under Irish tax legislation. The relevant legislation deals with both occupational pension schemes and PRSAs. The legislation provides that a “relevant benefit” is one which is given in anticipation of, or on, retirement or death, or one which is given in anticipation of, or in connection with, any change in the nature of the services of the employee.
It was argued that the plaintiff should not be allowed to transfer the fund on the basis that he was neither resident nor employed in the transferee country. The court rejected this argument on the grounds that there was a distinction between occupational pensions and PRSAs on the basis that PRSAs are not related to employment and can be taken out regardless of employment status. It was therefore held that there was no necessity for an employer/employee relationship to exist in the transferee country.
This is an important clarification that PRSAs are capable of being transferred to another jurisdiction regardless of whether the transferor has an employment or residency connection.