64 Interest on quoted Eurobonds

Summary

Interest on quoted Eurobonds may be paid without deduction of withholding tax in certain circumstances. Eurobonds are, in general, long-dated debt securities issued through the Euro-markets.

Interest on quoted Eurobonds which is paid by or through a person who is not resident in the State may be paid without deduction of tax. Where the person by or through whom the interest is paid is resident in the State, withholding tax applies unless the recipient makes a declaration of non-residence, or the bonds are held in a recognised clearing system.

Where interest is paid in full in a case where the bonds are held in a clearing system, a withholding tax arises where receiving agents receive interest on behalf of Irish bondholders.

Details

Definitions

(1) “appropriate officer” is an officer of the Revenue Commissioners who is authorised by them for the purposes of the section.

“quoted Eurobond” is a security which is issued by a company, is quoted on a recognised stock exchange and carries a right to interest.

Clearing systems

(1A) The clearing systems listed in section 246A(2)(a) are automatically recognised for the purposes of this section. The clearing systems concerned are: Bank One NA, Depository and Clearing System; Central Moneymarkets Office; Clearstream Banking SA; Clearstream Banking AG; CREST; Depository Trust Company of New York; Euroclear; Monte Titoli SPA; Netherlands Centraal Instituut voor Giraal Effectenverkeer BV; Siccovam SA; SIS Sega Intersettle AG.

In addition, any other clearing system designated by the Revenue Commissioners as a “recognised clearing system” for the purposes of section 246A is automatically designated also for the purposes of this section.

[Clearing systems

These Systems were created in response to the need of the international securities markets for a mechanism for the settlement of transactions. The systems include settlement of transactions in internationally traded debt and equity securities to “participants” who have entered into an agreement to participate in the systems. In general, participants are banks, brokers, dealers and other institutions professionally engaged in managing new issues of securities, market-making or trading, and holding the wide variety of securities accepted in the Clearing System, either on their own account or on behalf of client investors.

Each participant opens one or more clearing accounts in accordance with their own requirements and those of their clients. Transfers of securities between participants are effected simultaneously in the accounts of the 2 participants. This simultaneous book entry basis of settlement limits risks to participants. Participants agree to submit the securities deposited by them to be held by the manager of the system. Participants share, with all other participants holding securities of the same type in the system, a co-ownership right in the pool of such securities held. Ownership may be transferred by mere changes in book entry so that title is expressed only by the latest available book entry record in the accounts.]

“relevant foreign securities” are —

• investments which give rise to foreign dividends, that is, stocks, funds, shares or securities of bodies of persons not resident in the state, and
• investments which give rise to foreign public revenue dividends, that is, investments which give rise to interest, annuities, dividends or shares of annuities payable out of the public revenue of any Government or public authority or institution outside of the State.

“relevant person” is either the company by whom the interest is paid, the paying agent or the receiving agent, as appropriate. A paying agent is a person who pays the interest on behalf of a company. It can be a bank, stockbroker or similar person. A receiving agent is a bank or other person who obtains payment of interest on behalf of another person. It could be a dealer in interest coupons who will purchase the coupons form the investor. Paying and receiving agents have certain responsibilities under the section.

Removal of obligation on company to withhold tax

(2) Section 246 requires that interest paid by a company should be paid under deduction of tax. The tax so deducted is payable to the Revenue Commissioners. In certain specified circumstances a company is not obliged to withhold tax from interest payments on any quoted Eurobond. The specified circumstances are where —

• the paying company or the paying agent is outside of the State (obviously, a paying company which is not in the State is not obliged to withhold tax; however, payment by a foreign company operating through an Irish paying agent could give rise to a liability on the paying agent to withhold tax – this provision ensures that such a liability cannot arise, thus facilitating the use of Irish paying agents),
• the payment is made by or through a person in the State, and either the Eurobond is held in a recognised clearing system or the beneficial owner of the interest is not resident in the State and has made a declaration of non-residence to the paying company or the paying agent.

(3) Where the interest payment is made by or through a person in the State, that person is required to make a return to the appropriate officer of payments made without deduction of tax to non-residents. The return must specify the payer’s name and address and describe the payment. It does not require identification of the recipient’s name and address. However, the payer of the interest is obliged to retain the declarations of non-residence for inspection by an inspector or appropriate officer where required. A return is to be made on request by the appropriate officer, or automatically within 12 months of the making of the payment.

(4) Where any provision of the Tax Acts deems interest paid on any quoted Eurobond to be the income of any person other than the beneficial owner, the provisions as to non-residence apply in a like manner to the person whose income the interest is deemed to be. An example of this arises in the case of the “transfer of assets abroad” provisions under section 806. Under that section certain income arising to a person who is non-resident can be treated as being income of a person who is resident. In those circumstances, the non-resident recipient of the interest would not be entitled to make a declaration of non-residence because the interest is deemed to be income of the other person.

Receiving agents

(5) A withholding tax applies where a receiving agent in the State receives Eurobond interest on behalf of any person. However, that tax need not be withheld if the beneficial owner of the interest is a non-resident and makes a declaration of non-residence to the paying agent. The subsection adapts sections 62 and 63 and applies them in relation to interest on Eurobonds.

(5)(a) Under section 62 as adapted, where a receiving agent in the State obtains payment of interest on behalf of another person, and either —

• the payment was not made by or entrusted to a person in the State, or
• the bonds were held in a clearing system,

withholding tax is to be applied.

It should be noted that withholding tax is not needed at the point of the receiving agent if the interest was paid by an Irish company (unless the bond was held in a clearing system) as withholding tax would have been operated at the level of the company. The same situation applies in a case where that interest was paid by an Irish paying agent. If, however, the bond was held in a clearing system, the company or paying agent would not be obliged to withhold tax and it would, consequently, then be appropriate to have withholding tax at the point of the receiving agent.

(5)(b) Under section 63 as adapted, the necessity for the receiving agent to operate a withholding tax where the beneficial owner of the interest is non-resident and has made a declaration of non-residence is removed.

(5)(c) The consequential changes necessary in Schedule 2 are made. That Schedule provides the machinery for assessment and collection of the withholding tax. For the purposes of dealing with withholding tax at the point of the receiving agent, clauses (1) and (2) of the definition of “chargeable person” in paragraph 1A of Part 1 of Schedule 2 are ignored. Those clauses deal only with withholding tax at the point of the paying agent and are not relevant in the context of a receiving agent.

Declarations as to non-residence

(7) The form of declaration in respect of securities beneficially owned by persons who are not resident in the state so that a relevant person may pay interest without a deduction of tax is set out.

The person to whom interest on a deposit is payable must sign the declaration and give it to the relevant person. The person who makes the declaration (“the declarer”) may be the non-resident beneficial owner himself or herself or a person, resident or otherwise, holding the security in trust for a non-resident.

The declaration must be in a form prescribed or authorised by the Revenue Commissioners.

The declarer must declare that the person beneficially entitled to the interest is not resident in the State.

The declaration, as respects a non-resident person who is beneficially entitled to the interest, must contain the name of the person, the address of that person’s principal place of residence, and the name of the country in which that person is resident at the time the declaration is made.

An undertaking must be given by the declarer to advise the relevant person if the person beneficially entitled to the interest becomes resident in the State.

Such other information as the Revenue Commissioners may reasonably require must be supplied in the declaration.

(8) A relevant person is required to keep and retain declarations for the longer of 6 years, and 3 years after the latest date on which interest, in respect of which the declaration was made, is paid. An inspector or appropriate officer may require a relevant person to make available to the inspector or appropriate officer within a specified time all declarations made under this section on giving notice in writing to the relevant person. An inspector or appropriate officer may examine all such declarations made available by a relevant person and take extracts from them or copies of them.

Relevant Date: Finance Act 2019