IRIS: When money transfers could be taxed – The limits and exemptions

The Independent Authority for Public Revenue (AADE) has clarified the rules governing money transfers via IRIS, specifically when such transactions may be subject to tax, following issues that have arisen recently, mainly due to mistakes made by users.

As ERT reports, the Tax Authority has made it clear that everyday transfers of small amounts do not raise any tax concerns when they relate to family expenses intended to cover daily needs, such as money transfers from parents to students for rent, tuition fees, supermarket expenses and so on.

In fact, in such cases there is no monetary threshold, apart from the basic rule that each transaction cannot exceed €1,000 per day.

Problems with the Tax Authority may arise when mistakes are made and a misleading description is entered — such as “gift” or “loan” when the transaction is neither. In such cases, there is at least a theoretical risk that separate taxation could be triggered, with rates reaching as high as 40%.

It should be noted that, for parental transfers or gifts between first-category relatives, the tax-free threshold stands at €800,000, provided the transfer is carried out through the banking system.

The situation is entirely different for self-employed professionals. Accepting payments via IRIS is mandatory, and any amounts received are regarded as business income and taxed accordingly.

According to the clarifications provided by AADE:

• Transfers of small amounts between relatives and close acquaintances, whether made through IRIS or another banking transaction, do not in themselves constitute an issue of particular tax interest, unless a specific pattern of abusive practice is identified, such as regular frequency or repeatedly transferring the same — particularly large — amounts.
• In particular, money given by parents and grandparents to children and grandchildren for everyday minor expenses — in other words, pocket money — is not treated as a cash gift requiring the submission of a declaration through the myPROPERTY application.

Pocket money and gifts

The Tax Authority nevertheless clarifies that a monetary parental transfer or gift is an entirely different matter from pocket money.

Taxpayers who give money to relatives or even friends should be aware of the following:

• Cash gifts of up to €800,000 to people belonging to the first category — namely children, spouses, parents and grandchildren — are tax-free, provided they are made through the banking system and the relevant declaration is submitted. Amounts exceeding €800,000 are subject to a 10% tax.
• Declarations concerning monetary parental transfers are submitted through the myPROPERTY platform. At a later stage, AADE checks the transaction against information provided by credit institutions. If the bank does not confirm the transaction and the taxpayer fails to provide the necessary supporting documents, the Tax Authority imposes tax without applying the tax-free allowance. This means that tax is charged from the very first euro of the parental transfer or cash gift, at a rate of 10%, 20% or 40%, depending on the degree of kinship.
• Monetary parental transfers made in cash — meaning funds that are not transferred through the banking system — are taxed separately at a rate of 10%, with no tax-free threshold.
• In cases involving successive gifts through which individuals who are not entitled to the €800,000 tax-free allowance ultimately benefit — for example, a gift from a child to a parent followed by a gift from that parent to another child — the Tax Authority investigates the actual circumstances, the purpose of the transactions and the period of time between them. If it is established that the ultimate beneficiary is a person who does not belong to the first category of beneficiaries — for example, a sibling — and that the successive gifts were made for this purpose, a 20% tax is imposed with no tax-free threshold. If the interval between successive gifts is short, particularly if it does not exceed six months, the case may be treated as an indication warranting a tax audit.
• Cases involving transfers of money into a joint account held by the child or recipient together with a third party are also subject to scrutiny. Authorities investigate whether the funds were used by the child or recipient rather than by the third party. If it is established that the funds were used by the third party, gift tax is imposed.
• Cash gifts to siblings, uncles, aunts and other relatives belonging to the second and third categories are taxed from the first euro. Monetary gifts to relatives in the second category are taxed at a rate of 20%, while gifts to relatives and other individuals in the third category are taxed at 40%.

The limits

Since last January, the transaction limits for IRIS have been increased compared with the initial thresholds.

The daily limit for individuals was raised from €500 to €1,000 — both for transfers between private individuals and for payments to professionals — while the monthly cap was set at €5,000.

There is no fee for transactions between private individuals. For transactions involving non-private recipients, charges apply exclusively to the recipient of the funds — the professional, merchant or business.

The cost varies depending on the type of business and the payment channel used, whether via the professional’s mobile phone number or tax identification number (AFM).

The fee ranges from 0.2% to 0.5% of the transaction amount and is, in all cases, lower than the fees charged for credit and debit card payments.