Ireland Double Tax Treaties

Ireland has comprehensive double taxation agreements in force with 44 countries. The agreements generally cover income tax, corporation tax and capital gains tax (direct taxes).

New agreements with Greece and Iceland, which were signed in 2003, became effective for tax periods in 2005. Under the Icelandic treaty, the rate of taxation of dividends is limited to 5% or 15% of the amount of the gross dividend (depending on the taxpayer's ownership interest in the paying company). The taxation of royalties is limited to 10% in the case of royalties from copyrights of literary, artistic and scientific works, but royalties of a technical nature, such as from patents, are generally exempted. Payments of interest are also exempted from taxation in the source country. Both new agreements include exchange of information provisions.

An agreement replacing the existing treaty with Canada was also signed in 2003. Parliamentary procedures to bring the treaty into force were completed by Ireland in December 2004 and by Canada in April 2005. This treaty became effective for tax periods in 2006.

New treaties with Argentina, Egypt, Kuwait, Malta, Morocco, Singapore, Tunisia, Turkey and Ukraine are being negotiated.

Existing treaties with Cyprus, France and Italy are in the process of re-negotiation.

Almost all of Ireland's treaties provide for nil withholding tax on interest paid to a treaty partner; exceptions are Belgium, Canada and Japan, with the Israel and Poland treaties applying withholding tax to certain types of interest only. Royalty payments by Irish companies are also generally exempt from withholding, with the exceptions being Israel, Poland, Spain and Canada.

Although Ireland has a double tax treaty with the UK, the latter's Treasury announced in 2002 that it was proposing to classify Ireland as a 'tax haven', and would in future apply its 30% corporation tax rate to the profits of Irish subsidiaries of UK companies.

The Irish Department of Finance later announced that UK companies with subsidiaries based in the Republic were considering launching a legal challenge to the change, which had been brought on by the reduction of Ireland's corporation tax rate to an eventual 12.5%. The situation remains unclear.

Ireland Table of Treaties

Here is a list of some countries with which Ireland has signed and ratified Double Tax Treaties.

Agreements are now (as at January 2006) also in force with Bulgaria, Chile (subject to the necessary parliamentary procedures being completed in 2006; it is expected that they will become effective for tax periods in 2007), China, Croatia, India, Malaysia, Romania, the Slovak Republic, and Slovenia.

* In March 2006, the South Korean finance ministry drew up a list of several "tax havens" from which investors will be prevented from taking advantage of double tax treaties in an effort by the authorities to clamp down on 'treaty shopping'.

According to reports, Ireland, Labuan, Belgium and the Netherlands were among the countries and offshore territories named on the list.

Under new laws introduced from July 1, 2006, investors from these countries are subject to withholding taxes of up to 27.5% on South Korean income, including that derived from interest, dividends, and capital gains.

The move was the latest step by the South Korean government to clamp down on what it considered to be aggressive tax avoidance by foreign entities.

More Treaties Needed?

In its Pre-Budget Submission 2007, published in October 2006, the Irish Taxation Institute called on the government to increase the number of tax treaties in place with other countries.

The ITI observed that: "If we wish to maintain our competitive position as an attractive location for foreign investment, we will need to address a number of key tax policy issues."

It continued: "The overall tax package rather than purely the tax rate will be a critical factor for any business faced with a location or expansion decision...Our tax treaty network is a central part of the overall tax package. A comprehensive tax treaty network is critical to enabling global business to do business."

"In short, those countries with a comprehensive tax treaty network are best placed to attract inward investment and win the economic and employment benefits that come with such developments."

The ITI went on to suggest that Ireland's tax treaty network is lagging behind traditional competitors such as the UK, the Netherlands and Belgium, as well as newer EU member states, such as Malta and Hungary, which are "actively marketing their particular advantages as a location for business and currently have more treaties in place than Ireland".

In order to reverse this trend, the ITI proposed four changes to the country's tax code. These were:

    *
      That a policy be adopted to remove the preference for dealing with tax treaty jurisdictions;
    *
      That certain benefits within the treaties be extended where the ultimate parent company is in an EU or treaty country;
    *
      That a 'white list' of key countries be formulated through consultation with business and the tax profession; and
    *
      That a minimum of 10-15 new treaties be ratified by Budget 2012, with an immediate focus on key jurisdictions with which Ireland does not as yet have a tax treaty, and where one is deemed to be urgently needed.