International taxation: Republic of Ireland perspective

Jun 30, 2020

Sean Arthur, lead FAE Taxation ROI Educator and the FAE Tax ROI examiner, discuss topic areas that candidates have recurring difficulties with examinations. One area where FAE candidates have found it particularly challenging is when to apply the international taxation knowledge required in the competency statement to the facts contained within a simulation.

Chartered Accountants offering tax advice to clients are often faced with international tax issues. Therefore, an awareness of the OECD model treaty is vital due to the global nature of business and investment. More specifically, as the island of Ireland has two separate tax systems (the Irish and UK tax systems), it is essential that Chartered Accountants have the ability to describe and apply the main provisions of the Ireland UK Double Tax Treaty (Irl/UK DTT).

This article is not intended to be a complete guide to the main provisions of the Irl/UK DTT, as such details are contained in the FAE Taxation 3 (ROI) 2019–2020 textbook. It is also worth noting that recently the area of permanent establishments and the double taxation relief available on business profits has been answered well by candidates. Therefore, this article is intended to give a summary of the step by step process which can be used when advising on the tax exposure of an Irish tax resident and domiciled individual who is employed and/or has investments in the UK. The steps are outlined below:

Step 1 – Confirm Irish tax residency position

If an individual is Irish tax resident and domiciled, then they are assessed to Irish income tax on their worldwide income. An individual will be considered Irish tax resident if they are in Ireland for a total of 183 days or more in a tax year or 280 days or more in a tax year plus the previous tax year taken together (with a minimum of 30 days in each year).

Where an individual satisfies the Irish tax residency tests (183/280-day tests) but is not Irish domiciled, then they can avail of the remittance basis of assessment.

If an individual is not Irish tax resident as they do not trigger the Irish tax residency tests, then the individual is only charged to Irish income tax on their Irish-sourced income.

Step 2 – If an individual is dual resident, consult the tie-breaker clause

If an individual is Irish tax resident but spends days in the UK, you may find that the individual will trigger tax residency in the UK also.

The Irl/UK DTT does not allow for the concept of dual residence. Article 4 (Fiscal Domicile) in the DTT provides a mechanism for deciding which state is treated as the state of residence. This mechanism is commonly known as the ‘tie-breaker’ clause and it involves the successive application of a number of objective tests, such as establishing where the individual’s permanent home is and where their centre of vital interests is.

Step 3 – Consider what type of UK income received (assuming the individual is resident and domiciled in Ireland)

UK employment income

If an Irish tax resident and domiciled individual has UK employment income, Article 15 of the Ireland UK DTT is relevant.

 Article 15 (Employments and Similar)key points for consideration
  • Employment income/remuneration is taxable in the state of residence of the employee (i.e. Ireland), but it may also be taxable in the source state (where the employer is located, i.e. UK).
  • Remuneration derived by an Irish tax resident individual in respect of an employment exercised in the UK shall be taxable only in Ireland if:

    (1) the individual is present in the UK for 183 days or less in the fiscal year concerned;
    (2) the remuneration is paid by, or on behalf of, an employer who is not UK resident; and
    (3) the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the UK.
    Therefore, if these three conditions are met, the remuneration earned by an Irish tax resident individual will only be taxable in Ireland. No double taxation should arise.

  • Remuneration derived by an Irish tax resident individual in respect of an employment exercised in the UK shall be taxable in the UK and Ireland if the above three conditions are not met in respect of the individual and the employment exercised in the UK.
  • Where the remuneration is taxable in the UK and Ireland, a double tax credit for tax paid in the UK is allowed against the tax liability of the employee in Ireland. The credit for foreign tax in respect of the income cannot exceed the amount of Irish tax attributable to that same income. 

When providing tax advice to an Irish tax resident individual who carries out employment duties in the UK, the availability of trans-border worker tax relief should also be considered. This is a valuable tax relief available to individuals employed in treaty countries (such as the UK) who exercise their employment duties in a treaty country. For the relief to be available:

  • the individual must be employed for a continuous period of not less than 13 weeks and must spend at least 1 day a week in Ireland;
  • the employment income must be taxable in the country where the duties are performed; and
  • any foreign tax due on the income must be paid and must not be eligible for repayment.

If the individual has no income taxable in Ireland other than the foreign employment, no further Irish tax will be due on the UK employment income.

UK rental income

If an Irish tax resident and domiciled individual has UK rental income, Article 7 of the Irl/UK DTT is relevant.

Article 7 (Income from Immovable Property)key points for consideration
  •  Rents from property situated in the UK are taxable in the UK.
  • Ireland will also tax UK rents received.
  • A double tax credit for tax paid in the UK is allowed against the tax liability of the landlord in Ireland. The credit for foreign tax in respect of the rental income cannot exceed the amount of Irish tax attributable to that same income. 

UK interest income

If an Irish tax resident and domiciled individual has UK interest income, Article 12 of the Irl/UK DTT is relevant.

 Article 12 (Interest)key points for consideration
  • All interest is to be taxed in the State of residence only.
  • Interest received from a UK financial institution by an Irish tax resident individual will be taxed in Ireland only. 

UK dividend income

If an Irish tax resident and domiciled individual receives dividends from a UK company, Article 11 of the Irl/UK DTT is relevant.

Article 11 (Dividends)key points for consideration
  •  Where a UK company pays a dividend to an Irish tax resident, it will not carry a tax credit against any Irish tax payable.
  • An Irish tax resident recipient is subject to Irish income tax only on the UK dividend.

It is hoped that FAE candidates will approach an indicator involving the provision of international tax advice by undertaking the above three steps. Steps 1 and 2 are necessary to confirm the Irish tax residency position of the individual while step 3 provides guidance on how to deal with different types of UK income.

The information in this article is relevant as at the date of publication 1 July 2020.