172B Dividend withholding tax on relevant distributions

Summary

In general, unless otherwise provided for, DWT must be deducted from all relevant distributions made by Irish resident companies on or after 6 April, 1999.

This general rule does not apply in the case of scrip dividends, that is, where additional share capital is issued in place of a cash distribution. Instead, the company must reduce the amount of additional share capital to be issued to the person to whom the distribution is to be made. The reduction is to be such an amount as secures that the value of the additional share capital issued to that person does not exceed an amount equal to the amount that person would have received, after deduction of DWT, if that person had received the distribution in cash instead of in the form of additional share capital. The company is then liable to pay to the Collector-General an amount (which is treated as a deduction of DWT) equal to the DWT which would have been required to be deducted had the general rule applied.

Similarly, the general rule does not apply in the case of other non-cash distributions made by companies. In such cases, the recipient receives the “gross” distribution but the company must pay to the Collector-General an amount (which is treated as a deduction of DWT) equal to the DWT which would have been required to be deducted from the distribution had the general rule applied. The company is entitled to recover that amount from the recipient of the distribution as a simple contract debt in a court of competent jurisdiction.

Provision is also made as to the retention period for documentation used for DWT purposes and for the examination of this documentation by Revenue.

Certain exemptions are also provided for.

Details

General rule – DWT must be deducted from all relevant distributions

(1) Subject to any exceptions, an Irish resident company which makes a relevant distribution to a specified person on or after 6 April, 1999 must deduct DWT from the amount of the distribution. The specified person must allow the deduction of DWT and the company is acquitted and discharged of the money represented by the deduction of DWT as if that money had actually been paid to the specified person.

Special rule – scrip dividends

(2) Where on or after 6 April, 1999 an Irish resident company makes a relevant distribution to a specified person which consists of additional share capital instead of a cash distribution, subsection (1) does not apply. Instead, subject to any exceptions, the company must reduce the amount of share capital issued to the specified person by a certain amount. The amount in question is such amount as secures that the value (at the time of making the relevant distribution) of the additional share capital issued to the specified person does not exceed what the specified person would have received, after deduction of DWT, if that person had received a cash distribution instead of additional share capital. In similar vein to subsection (1), the specified person must allow the reduction of the additional share capital and the company is acquitted and discharged of the money represented by the reduction as if that money had actually been paid to the specified person. The company is then liable to pay the Collector-General an amount (which is to be treated as if it were a deduction of DWT) equal to the DWT which would have been required to be deducted from the relevant distribution if subsection (1) had in fact applied to that distribution. The company is liable to pay the amount in question in the same manner in all respects as if it were the DWT which would have been so required to be deducted from the relevant distribution.

Special rule – other non-cash distributions

(3) Neither does subsection (1) apply where on or after 6 April, 1999 an Irish resident company makes a relevant distribution to a specified person and the distribution is a non-cash distribution other than the issue of additional share capital in place of a cash distribution. Instead, subject to any exceptions, the company is liable to pay to the Collector-General an amount (which is to be treated as if it were a deduction of DWT) equal to the DWT which would have been required to be deducted from the relevant distribution if subsection (1) had in fact applied to the relevant distribution. The company is liable to pay that amount in the same manner in all respects as if it were the DWT which would have been so required to be deducted from the relevant distribution. The company is empowered to recover a sum equal to that amount from the specified person as a simple contract debt in any court of competent jurisdiction.

All relevant distributions liable to DWT unless paying company satisfied that DWT does not apply

(4) An Irish resident company must, in general, treat every relevant distribution to be made by it on or after 6 April, 1999 as a distribution to which DWT applies. However, where as a result of any exception the company is satisfied that a relevant distribution to be made to a specified person is not a relevant distribution to which DWT applies, the company is, subject to the terms of that exception, entitled to so treat relevant distributions to be made by it to the specified person until such time as it is in possession of information which can reasonably be taken to indicate that a relevant distribution to be made to the specified person is or may be a relevant distribution to which DWT applies.

Retention and examination of documentation

(4A)(a) A resident company must keep and retain all declarations (and accompanying certificates) and notifications (other than notices from Revenue) made or given to the company under the Chapter. Such documents must be kept and retained by the company for the longer of 6 years or the period which, in relation to the relevant distributions in respect of which the declaration or notification is made or given, ends not earlier than 3 years after the date on which the company has ceased to make relevant distributions to the person who made the declaration or gave the notification to the company.

(4A)(b) When requested to do so by notice in writing from Revenue, a resident company must make available to Revenue, within the time specified in the notice, all such declarations, certificates or notifications or such class or classes of such declarations, certificates or notifications as may be specified in the notice.

(4A)(c) Revenue may examine, or take extracts from or copies of, any such declarations, certificates or notifications.

Computation of profits or gains not affected by DWT

(5) The law relating to the computation of profits or gains for tax purposes is not to be affected by deduction of DWT from relevant distributions. Accordingly, subject to section 129, the amounts of relevant distributions are to be taken into account in computing profits or gains of persons beneficially entitled to such distributions. The reference to “subject to section 129” maintains the existing exemption from corporation tax for dividends and other distributions of an Irish resident company which are received by other Irish resident companies.

Distributions covered by Parent Subsidiaries Directive and by certain unlimited companies exempt

(6) Excluded from the charge to DWT are relevant distributions made to a non-resident parent company (as defined in section 831) by its Irish resident subsidiary (with the meaning of that section) and which are covered by section 831. That section implements the European Council Directive concerning the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, commonly referred to as the Parent Subsidiaries Directive. However, the Directive does not extend to Irish unlimited companies. Accordingly, provision is made to extend this exclusion to distributions made by an Irish unlimited company to its parent company in other EU Member States in the same circumstances as limited companies may do so. While limited companies can in general pay dividends free of DWT, if the parent company is controlled by non-EU residents the paying company must be able to show that the parent company exists for bona fide commercial purposes and does not form part of a tax avoidance arrangement. Similar considerations apply in relation to unlimited companies.

Exemption of certain distributions

(7) The following distributions are exempt from DWT, namely, distributions made out of profits or gains from stallion fees, the occupation of certain woodlands or stud greyhound service fees; distributions made out of income of certain patents and which are exempt from income tax; and distributions made out of the profits of certain mines.

(8) DWT also does not apply in the case of a relevant distribution made by an Irish resident company to another Irish resident company of which it is a 51 per cent subsidiary. The term “51 per cent subsidiary” is defined generally for the purposes of the Tax Acts in section 9 as a company more than 50 per cent of the ordinary share capital of which is owned directly or indirectly by that other company.

Relevant Date: Finance Act 2019