107 Other relief from double taxation

Summary

This section grants unilateral relief in the case of gifts and inheritances of foreign-situated property which are subject to tax in two or more jurisdictions (including the State) and which are not covered by an arrangement under section 106. The tax in each jurisdiction must be broadly similar for the relief to apply. The credit will apply irrespective of where the property is situated.

Details

(1)(a) “foreign tax” means any tax which is chargeable under the laws of any territory outside the State and is of a character similar to estate duty, gift tax or inheritance tax;

“event” means—

• a death, or
• any other event,

by reference to which the date of the gift or the date of the inheritance is determined.

(1)(b) In identifying property as “foreign”, its situs (i.e. its location) is frozen at the date of the gift or the date of the inheritance. If, under a will, a testator leaves the residue of his/her estate, including French securities, to A and B equally, it might be some time before the residue can be retained for them and investments may have been sold, or there may have been a change of investments since the death. Thus, the legatees may receive cash but will be treated, for double taxation purposes, as receiving the French assets if they receive the proceeds of such assets or assets representing the same.

(2) Where the Revenue Commissioners are satisfied that a benefit is reduced in value because a payment of foreign tax has been made in respect of that benefit, they will allow relief by way of a credit against the Irish tax chargeable on that benefit. The credit will apply irrespective of where the property is situated. In order to qualify for the relief, the foreign tax must have been paid on the same event that gave rise to the charge to Irish tax on the benefit. The credit is not to exceed the lesser of—

• the actual capital acquisitions tax payable on that event in respect of the foreign property in question (the capital acquisitions tax may be paid either by the person getting the relief or by some other person), or
• the foreign tax.

The reference to the same disposition is necessary to confine the allowance to a reduction of Irish tax only where, under the same disposition, foreign tax is payable.

(3) This section does not apply where a credit is already allowed under a double taxation agreement between the states concerned.

(4) This subsection deals with the situation where, for example, a residuary legatee’s taxable inheritance is reduced (within the meaning of subsection (2)) by the payment of foreign tax. An example of this situation would arise where a specific legatee, who bears foreign tax, is reimbursed out of the residue under a direction in a will. The specific legatee is deemed to get a pecuniary legacy of the amount of the tax attributable to that legacy. For inheritance tax purposes, he/she will be treated as getting 2 legacies, i.e. the full amount of the legacy and a pecuniary legacy of the amount of the tax. The subsection ensures that the residuary legatee will not qualify for double taxation relief in respect of the pecuniary legacy of the tax even though he/she “bears” the foreign tax indirectly. In law, what the residuary legatee loses is not the tax but the amount of the pecuniary legacy of the amount of the tax.

Relevant Date: Finance Act 2015