246A Interest in respect of wholesale debt instruments

Summary

This section provides the rules governing the tax treatment of interest paid on wholesale debt instruments, that is, commercial paper and certificates of deposit.

Broadly, the section provides:

• Firstly, in the case of non-residents, that interest may be paid gross without the need for a formal declaration of non-residence, provided the person by or through whom the interest is paid is satisfied that the person beneficially entitled to the interest is not resident in the State and the product is held in a recognised clearing system and the instrument is issued in an amount which is not less than set minima. In a case where the instrument is not held in a recognised clearing system a formal declaration of non-residence is required.
• Secondly, in the case of residents, interest may be paid gross provided the person by or through whom the interest is paid obtains the tax reference number of the person beneficially entitled to the interest and makes this available to the Revenue Commissioners along with the amount of interest paid. In the case of instruments held in recognised clearing systems the instrument must be in an amount which is not less than set minima.

The rules relating to wholesale debt instruments will only come into force following a Ministerial order.

Details

Definitions

(1) The definition of “approved denomination” is designed to provide for the minimum denomination which a certificate of deposit or commercial paper must be issued in if the treatment set out in the section is to apply.

(2) A “recognised clearing system” for the purposes of the Tax Acts and the Capital Gains Tax Acts is any clearing system which has already been recognised by the Revenue Commissioners for the purposes of sections 64 and 739B. These systems are listed in the definition and there is a mechanism for Revenue to extend recognition to other systems by order.

Tax treatment

(3)(a) Any possibility of DIRT or withholding tax applying where either the issuing bank or company (the “issuer”) or the paying agent is non-resident is removed where the instrument is held in a recognised clearing system and the instrument is of an approved denomination. Accordingly, interest paid by a non-resident issuer using a resident paying agent will be exempt from any withholding requirement and, likewise, interest paid by a resident issuer using a non-resident paying agent will also be exempt from any withholding requirement.

(3)(b) In the case of resident issuers or resident paying agents (paying on behalf of a resident issuer), a range of options by which interest may be paid gross is provided for where either sufficient details are returned to Revenue to enable the recipient to be identified or a suitable declaration by the recipient is in place.

Interest paid by a resident issuer or a resident paying agent where the deposit is held in a recognised clearing system and is of an approved denomination (that is, a case within subsection (3)(b)(ii)(I)) will be free of any DIRT or withholding tax, but the issuer or the paying agent, as appropriate, will in such a case be required to supply the tax reference number of the person receiving the interest when making the annual return of interest paid gross. Only the paying agent dealing directly with the clearing system would be obliged to return this information. For example, where an issuer pays interest through a clearing system, the paying agent receiving the interest through the clearing system and responsible for paying the interest to individual investors will be responsible for acquiring the tax reference number and for making the return.

Interest paid by a resident issuer or a resident paying agent directly to the person beneficially entitled to the interest and who is a resident of the State will be free of DIRT or withholding tax where the person’s tax reference number has been provided (that is, a case within subsection (3)(b)(ii)(II)). Again, the issuer or the paying agent will be required to include the tax reference number in the return of interest paid without deduction of tax.

Finally, interest paid to a non-resident beneficial owner will be free of DIRT or withholding tax where the person has made the required declaration (that is, a case within subsection (3)(b)(ii)(III)). In such a case there will be no requirement to return tax reference numbers to Revenue along with the annual return of interest paid gross.

Provision of tax reference numbers

(4) For cases within paragraph (b)(ii)(I) and (II) of subsection (3) and which are not within paragraph (a) of subsection (3), the person paying the interest is required to provide the tax reference numbers to Revenue along with the details of interest paid without deduction of tax as is already required under section 891. Where interest is paid which is within those two paragraphs, the person paying the interest is —

• firstly, regarded as a person to whom section 891 would apply if it would not otherwise apply. Basically section 891 applies to financial institutions and not all paying agents would come within its remit. This provision ensure that all other paying agents could be required to make the return required under section 891,
• secondly, regarded as a person who by virtue of section 894 is required to make an automatic annual return under section 891 (the actual requirement in section 891 is for the return to be made following a request by an inspector) if that person would not otherwise have to make such an automatic return, and
• finally, requires the person paying the interest to return the tax reference number of the persons within these two cases in the return to be made of interest paid without deduction of tax to such persons.

Revenue may seek details of tax reference numbers if they have not already been included in a return under section 891.

Form of declaration

(5) The form of the declaration to be made in relation to a case which is within paragraph (b)(ii)(III) of subsection (3) is set out.

Presumption that person qualifies

(6) The person making the payment may continue to regard the person to whom it pays interest as a person within paragraph (b)(ii)(II) (that is, beneficially entitled to the interest) or (b)(ii)(III) (that is, non-resident, beneficially entitled to the interest and having provided the required declaration) after it has satisfied itself that the payment is such a payment until it is in possession of information to the contrary.

Keeping of records

(7) Provision is made for the keeping of declarations and the examination of such by a Revenue officer.

Commencement order

Subsection (2) of section 49 of the Finance Act 2003 provides that the rules relating to the tax treatment of wholesale debt instruments will only apply as respects an instrument issued on or after such day as the Minister for Finance designates by order.

Relevant Date: Finance Act 2019