The Irish Revenue has updated its guidance on the operation of the interest withholding tax rules which reflect two changes to the Tax and Duty Manual. The updated guidance is summarised in this blog.
In general, Irish tax legislation (specifically, section 246 of the Taxes Consolidation Act 1997) requires the deduction of income tax at the standard rate from annual interest paid by companies, or by any person to another person whose usual place of abode is outside the Ireland’s tax jurisdiction.
However, the list of exemptions to this withholding tax requirement is extensive, and practices in relation to a number of these exemptions are set out in the Tax and Duty Manual. Generally, these exemptions are allowed automatically and do not require prior approval from Revenue.
The Changes In Summary
The amended brief sets out how advance clearance, under certain double taxation treaties, can be obtained in order to avoid the need to operate interest withholding tax under section 246 in situations where that withholding tax would be refundable in full.
The brief also explains that the Hong Kong withholding tax exemption is extended to interest paid to a Hong Kong company taxed under the profits tax concession for corporate treasury centres.
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Double Tax Treaties
According to the guidance, advance clearance that interest withholding tax under section 246 TCA 1997 need not be paid may be given in the following circumstances:
- Without this clearance, the payment would be subject to withholding under section 246 and the person to whom the payment is made is not entitled to an exemption from withholding tax.
- The person to whom the interest is paid is the beneficial owner of the interest.
- The person to whom the interest is paid is treated as opaque for Irish tax purposes and for the purposes of tax imposed by the other contracting state, or is treated as opaque under the double taxation treaty.
- Under the relevant double tax treaty, that person is treated as a resident of the other contracting state.
- That double taxation treaty provides that no interest withholding tax shall apply on payments to residents of that contracting state.
- The person provides Revenue with the following:
- Completed Form IC6 (Company) Interest or Form IC7 (individuals) Interest, as applicable; and
- Such documentation and confirmations as are necessary to satisfy Revenue that the loan is one to which this procedure applies.
Hong Kong Corporate Treasury Centres
The guidance also sets out how the withholding tax exemption operates with respect to jurisdictions with territorial tax systems, specifically Hong Kong. Under a territorial tax system, tax is only imposed on income derived from sources within the territory in question.
Ordinarily, where such a territorial system applies to the company receiving the interest, that interest will not be exempt from withholding tax.
However, the updated guidance confirms that such interest will be treated by the Revenue as exempt where:
- such interest is paid to a company treated as a resident of Hong Kong for the purposes of the double tax treaty with Ireland, and
- the interest is:
- subject to the full rate of corporate profits tax that applies in Hong Kong
- included in the corporate treasury profits of the qualifying Corporate Treasury Centre and corporate profits tax is imposed on those profits.
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