[Senate Treaty Document 105-31]
[From the U.S. Government Publishing Office]
105th Congress Treaty Doc.
SENATE
1st Session 105-31
_______________________________________________________________________
TAX CONVENTION WITH IRELAND
__________
MESSAGE
from
THE PRESIDENT OF THE UNITED STATES
transmitting
CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND
THE GOVERNMENT OF IRELAND FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE
PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME AND
CAPITAL GAINS, SIGNED AT DUBLIN ON JULY 28, 1997, TOGETHER WITH A
PROTOCOL AND EXCHANGE OF NOTES DONE ON THE SAME DATE
September 24, 1997.--Convention was read the first time and, together
with the accompanying papers, referred to the Committee on Foreign
Relations and ordered to be printed for the use of the Senate
LETTER OF TRANSMITTAL
----------
The White House, September 24, 1997.
To the Senate of the United States:
I transmit herewith for Senate advice and consent to
ratification the Convention Between the Government of the
United States of America and the Government of Ireland for the
Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with Respect to Taxes on Income and Capital Gains,
signed at Dublin on July 28, 1997, (the ``Convention'')
together with a Protocol and an exchange of notes done on the
same date. Also transmitted is the report of the Department of
State concerning the Convention.
This Convention, which is similar to tax treaties between
the United States and other OECD nations, provides maximum
rates of tax to be applied to various types of income and
protection from double taxation of income. The Convention also
provides for resolution of disputes and sets forth rules making
its benefits unavailable to residents that are engaged in
treaty shopping.
I recommend that the Senate give early and favorable
consideration to this Convention, with its Protocol and
exchange of notes, and that the Senate give its advice and
consent to ratification.
William J. Clinton.
LETTER OF SUBMITTAL
----------
Department of State,
Washington, August 19, 1997.
The President: I have the honor to submit to you, with a
view to its transmission to the Senate for advice and consent
to ratification, the Convention Between the Government of
Ireland for the Avoidance of Double Taxation and the Prevention
of Fiscal Evasion with Respect to Taxes on Income and Capital
Gains, signed at Dublin on July 28, 1997, (``the Convention'')
together with a Protocol and an exchange of notes done on the
same date, which, in each case provides binding interpretations
and understandings concerning the application of the
Convention.
This Convention will replace the existing Convention
Between the Government of the United States of America and the
Government of Ireland for the Avoidance of Double Taxation and
the prevention of Fiscal Evasion with Respect to Taxes on
Income signed at Dublin on September 13, 1949. The new
Convention maintains many provisions of the existing
convention, but it also provides certain additional benefits
and updates the text to reflect current tax treaty policies.
This Convention is similar to the tax treaties between the
United States and other OECD nations. It provides for maximum
rates of tax to be applied to various types of income,
protection from double taxation of income, exchange of
information, and contains rules making its benefits unavailable
to persons that are engaged in treaty shopping.
Like other U.S. tax conventions, this Convention provides
rules specifying when income that arises in one of the
countries and is attributable to residents of the other country
may be taxed by the country in which the income arises (the
``source'' country). In most respects, the rates under the new
Convention are the same as those in many recent U.S. tax
treaties with OECD countries.
The maximum rates of tax that may be imposed on dividend
and royalty income are generally the same as in the current
U.S.-Ireland treaty. Pursuant to Article 10, dividends from
direct investments are subject to tax by the source country at
a rate of five percent. The threshold criterion for direct
investment has been reduced from 95 percent ownership of the
equity of a firm to ten percent consistent with other modern
U.S. treaties, in order to facilitate direct investment. Other
dividends are generally taxable at 15 percent. Under Article
12, royalties derived and beneficially owned by a resident of a
Contracting State are generally taxable only in that State.
As in the current convention, under Article 11 of the
proposed Convention, interest arising in one Contracting State
and owned by a resident of the other Contracting State is
exempt from taxation by the source country. The restrictions on
the taxation of royalty and interest income do not apply,
however, if the beneficial owner of the income is a resident of
one Contracting State who carries on business in the other
Contracting State in which the income arises and the income is
attributable toa permanent establishment in that State. In that
situation, the income is to be considered either business profit or
income from independent personal services.
The maximum rates of withholding tax described in the
preceding paragraphs are subject to the standard anti-abuse
rules for certain classes of investment income found in other
U.S. tax treaties and agreements.
The taxation of capital gains, described in Article 13 of
the Convention, generally follows the rule of recent U.S. tax
treaties as well as the OECD model. Gains on real property are
taxable in the country in which the property is located, and
gains from the sale of personal property are taxed only in the
State of residence of the seller, unless attributable to a
permanent establishment or fixed base in the other State.
Article 7 of the new Convention generally follows the
standard rules for taxation by one country of the business
profits of a resident of the other. The non-residence country's
right to tax such profits is generally limited to cases in
which the profits are attributable to a permanent establishment
located in that country. The present convention grants taxing
rights that are in some respects broader and in others narrower
than those found in modern treaties.
As do all recent U.S. treaties, this Convention preserves
the right of the United States to impose its branch profits tax
in addition to the basic corporate tax on a branch's business
(Article 7). This tax, which was introduced in 1986, is not
addressed under the present treaty. Paragraph 4 of the Protocol
also accommodates a provision of the 1986 Tax Reform Act that
attributes to a permanent establishment income that is earned
during the life of the permanent establishment but is deferred
and not received until after the permanent establishment no
longer exists.
Consistent with U.S. treaty policy, Article 8 of the new
Convention permits only the country of residence to tax profits
from international carriage by ships or aircraft and income
from the use, maintenance, or rental of containers used in
international traffic. This reciprocal exemption also extends
to income from the rental of ships and aircraft if the rental
income is incidental to income from the operation of ships and
aircraft in international traffic.
Article 21 of the proposed Convention provides special
thresholds to determine when income derived in connection with
the offshore exploration for, and exploitation of, natural
resources may be taxed in the source country. The general rule
of Article 21 is that all exploitation activities give rise to
a permanent establishment while exploration activities create a
permanent establishment only if they continue for a period of
120 days in a twelve-month period. Article 21 also provides
that salaries and other remuneration of a resident of one
Contracting State derived from an employment in connection with
offshore activities carried on through a permanent
establishment in the other may be taxed by the other State.
Other U.S. treaties with countries bordering on the North Sea
(e.g., Norway, the United Kingdom, and the Netherlands) have
similar articles dealing with offshore activities.
The taxation of income from the performance of personal
services under Articles 14 through 17 of the new Convention is
essentially the same as that under other recent U.S. treaties
with OECD countries. Unlike many U.S. treaties, however, the
new Convention, at Article 18,provides for the deductibility of
cross-border contributions by temporary residents of one State to
pension plans registered in the other State under limited
circumstances.
Article 23 of the new Convention contains significant anti-
treaty-shopping rules making its benefits unavailable to
persons engaged in treaty-shopping. The current convention
contains no such anti-treaty-shopping rules. The Limitation on
Benefits of the proposed Convention also eliminates another
potential abuse by denying U.S. benefits with respect to income
attributable to third-country permanent establishments of Irish
corporations that are exempt from tax in Ireland by operation
of Irish law (the so-called ``triangular cases''). Under the
new Convention, full U.S. treaty benefits generally will be
granted in these triangular cases only when the U.S. source
income is subject to a significant level of tax in Ireland or
in the country in which the permanent establishment is located.
The proposed Convention also contains rules necessary for
its administration, including rules for the resolution of
disputes under the Convention (Article 26) and for exchange of
information (Article 27).
The Convention would permit the General Accounting Office
and the tax-writing committees of Congress to obtain access to
certain tax information exchanged under the Convention for use
in their oversight of the administration of U.S. tax laws.
This Convention is subject to ratification. In accordance
with Article 29, it will enter into force upon the exchange of
instruments of ratification and will have effect for payments
made or credited on or after the first day of January following
entry into force with respect to taxes withheld by the source
country; with respect to other taxes, the Convention will take
effect for taxableperiods beginning on or after the first day
of January following the date on which the Convention enters into
force. When the present convention affords a more favorable result for
a taxpayer than the proposed Convention, the provisions of the present
convention will continue to apply for one additional year. Article
29(5) also provides that certain companies that are owned by residents
of member states of the European Union or of parties to the North
American Free Trade Agreement not be subject to the terms of Article
23(5)(b) for an additional two years.
The proposed Convention will remain in force indefinitely
unless terminated by one of the Contracting States, pursuant to
Article 30. That Article provides that, at any time after five
years from the date the Convention enters into force, either
State may terminate the Convention by giving prior notice
through diplomatic channels of six months.
A Protocol and an exchange of notes accompany the
Convention and provide binding interpretations and
understandings concerning the application of the Convention.
The Protocol, which states that it is an integral part of the
Convention, elaborates on the meaning of certain terms used in
the Convention. The exchange of notes provides further
clarification and will constitute an agreement that will enter
into force upon entry into force of the Convention.
A technical memorandum explaining in detail the provisions
of the Convention will be prepared by the Department of the
Treasury and will be submitted separately to the Senate
Committee on Foreign Relations.
The Department of the Treasury and the Department of State
cooperated in the negotiation of the Convention. It has the
full approval of both Departments.
Respectfully submitted,
Madeleine Albright.