Interest payments and section 246(3)(h)(I) of the Taxes Consolidation Act 1997

Following a recent enquiry, Revenue wishes to clarify the position in relation to interest payments, section 246(3)(h)(I) of the Taxes Consolidation Act 1997 ("TCA 1997") and territories providing for a remittance basis of taxation.

Section 246(3)(h)(I) of the TCA 1997, as amended in Finance Act 2010, provides an exemption from withholding tax on interest paid by a company or an investment undertaking ("relevant person") where—

• the interest is paid to a company that is resident for tax purposes in a relevant territory (as defined in the section), and
• the tax regime in the relevant territory is one that imposes a tax that generally applies to interest receivable in that territory by companies from sources outside that territory.

Accordingly, where the relevant territory provides for a remittance basis of taxation, under which the relevant territory’s tax applies only to interest payments from sources outside that territory that have been received in that territory, such interest would not be exempt from the withholding tax.

However, where such interest

• is paid to a company that is resident for tax purposes in the relevant territory and
• is payable by the relevant person to an account located in the relevant territory,

it will be treated by Revenue as exempted,

• under section 246(3)(h)(I) of the TCA 1997, from withholding tax and
• under section 198(1)(c)(ii)(I) of the TCA 1997, from the charge to income tax.

Where the interest is not payable by the relevant person to an account located in the relevant territory it will be subject to witholding tax and chargeable to income tax.