Revenue Note for Guidance
CHAPTER 6
Exemption from tax for certain Interest and Royalty payments
Overview
This Chapter gives effect to the EU Directive of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States.
The Directive was implemented in December 2003 by the European Communities (Abolition of Withholding Tax on Certain Interest & Royalties) Regulations 20031. The Chapter repeals the regulations and implements the Directive into primary law.
The Interest and Royalties Directive provides for the abolition of withholding tax on business interest and royalty payments made by a company in one Member State to its associated company resident in another Member State. It applies to such a payment whether it is made by an Irish resident company or by a company resident in another EU Member State if the payment is made for the purposes of the trade carried on by the company through a permanent establishment in the State.
Greece, Portugal and Spain are entitled to continue to apply withholding tax to interest and royalty payments under a derogation in the Directive. The Member State of the recipient company is obliged to give credit for such withholding tax against corporation tax on the payments in the hands of the recipient.
267G Interpretation (Chapter 6)
Summary
This section is the interpretation section for Chapter 6. It contains definitions of terms used throughout the Chapter. It also sets out the rules under which a company will be regarded as an associated company of another company and the circumstances under which a permanent establishment of a company in a Member State is to be treated as the beneficial owner of interest or royalties.
Details
Definitions
(1) “arrangements” means a double taxation convention.
“bilateral agreement” means arrangements, protocol or other agreements between the Government and the government of another State.
“permanent establishment” means a fixed place of business of a Member State company which is situated in a territory other than that Member State.
“company” is a company of a Member State.
“company of a Member State” is a company registered under a Member States’ company law.
“interest” means interest from any debt-claim and includes income from securities, bonds or debentures but does not include penalty charges for late payments.
“Member State” is a Member State of the European Communities.
“royalties” covers certain copyright royalties, patent royalties, payments for the right to use trademarks, designs, plans etc., payments for information concerning industrial, commercial or scientific experience and payments for the right to use certain equipment.
“tax” in relation to an EU Member State, other than the State, is tax that corresponds to corporation tax in the State.
“the Directive” means Council Directive 2003/49/EC2 of 3 June 2003, as amended.
Associated companies
(2)(a) A company will be regarded as an associated company of another company throughout an uninterrupted 2 year period throughout which it controls not less than 25 per cent of the voting power of the other company, or where a third company directly controls not less than 25 per cent of the voting power in each company.
Permanent establishments
(2)(b) A permanent establishment of a company in a Member State is to be treated as the beneficial owner of interest or royalties if the asset in respect of which the payment is made is property or rights held by the permanent establishment and the interest or royalty payment is part of the permanent establishment’s taxable income.
(2)(c) Any word or expression used in this Chapter and in the Directive, has the same meaning in this Chapter as in the Directive, unless the contrary intention appears.
Relevant Date: Finance Act 2019