TAX UPDATE

Dividend Withholding Tax – Self-certification for Non-resident Companies

The Irish Revenue Commissioners have published e-brief 26/10 which reduces the administrative obligations of certain companies in order to obtain exemption from Dividend Withholding Tax. Non-resident companies receiving dividends from Irish resident companies would previously have had to complete the non-resident declaration form and also produce a tax residence and/or auditor’s certificate. This has proven to be burdensome and time consuming.

The Irish Revenue Commissioners have accepted this to be ineffective and so a self-certification system will apply whereby a qualifying non-resident company will provide a declaration to the dividend paying company or the qualifying intermediary. This will be acceptable in order to claim exemption from Dividend Withholding Tax.

The declaration must provide:

• A statement that the company is beneficially entitled to the distribution;
  
• Details of the tax residency of the company;
  
• A statement that further documentation relating to the residency of the company will be provided on request.

The above arrangements are in effect from 3 April 2010 and the declaration will be valid to the end of the 5th year after the year in which the declaration is signed.

Exemption from Irish withholding tax on certain patent royalty payments

The Irish Revenue Commissioners recently published a Statement of Practice “Treatment of Certain Patent Royalties Paid to Companies Resident outside the State” which came into effect from 26 July 2010.

Under this statement, certain patent royalties can be paid out without deducting withholding tax. Generally, any payment made in respect of a patent to a non-resident company must be subjected to withholding tax at the standard rate. There are, however, extensive exemptions that can be availed of including payments made to associated companies resident in another EU member state and payments made by a company in the course of a trade to a company resident in a treaty country.

This statement further broadens the exemptions from withholding tax by including payments made by an Irish company in respect of a ‘foreign patent’ to any non-resident company. It will be highly beneficial for companies involved in the exploitation of intellectual property and will hopefully prove to be a helping hand in the recovery of the economy.

In order to avail of this exemption, the following is required:

• The foreign patent is a patent originally registered outside the State in relation to an invention developed outside the State;
  
• The payment is made under a licence agreement executed in a foreign territory and is subject to foreign law;
  
• The payee company is not resident in the State and does not carry on a trade in the State through a branch or agency;
  
• The payee company is the beneficial owner of the royalty payment;
  
• The paying company pays the royalty in the course of it’s trade;
  
• The payment is not part of a back to back or conduit arrangement.

An application to the Irish Revenue Commissioners must be made by the payee company which provides details on the paying company and also provides the necessary documentation to show the above requirements.

For more information contact Úna Wrynn on +353 1 675 3151 or email unawrynn@citytrust.ie

Transfer Pricing Documentation Obligations

Following on from the article on transfer pricing in our last newsletter edition, the Irish Revenue Commissioners have issued a Guidance note on the documentation obligations of companies to explain the pricing of intra-group transactions. The company is required to have documentation readily available to satisfy the Revenue that its transfer prices are at arms length.

The requirements are quite relaxed – there is no standard format and the company does not have to prepare it themselves i.e. it is acceptable to use documentation prepared by an associate company in another jurisdiction.

The Revenue have provided a non-exhaustive list of documentation that should be kept for transfer pricing purposes as follows:

• All associated persons;
  
• The nature and terms of transactions;
  
• Details on the methods used when arriving at the pricing of transactions;
  
• Details on how the method of pricing above has resulted in the arms length principal;
  
• Budgets, forecasts etc. which were relied on in arriving at the pricing;
  
• Terms of relevant transactions with third parties and associates.

Two sources of guidance also recommended by the Revenue are “EU Transfer Pricing Documentation” and the OECD Transfer Pricing Guidelines. Again, as with the above, these are not binding guidelines but set out good documentation practice.

For more information contact Danny Cox on +353 1 675 3144 or email dannycox@citytrust.ie