153 Distributions to certain non-residents

Summary

This section provides that certain non-residents are exempt from income tax in respect of distributions made by Irish resident companies. The non-residents in question are —

• a person, other than a company, who is neither resident nor ordinarily resident in the State but is resident in another EU Member State, in a territory with which Ireland has a double taxation treaty in force or in a territory with which Ireland has a double taxation treaty signed which has yet to come into force (“a treaty country”);
• a non-resident company which is resident in another EU Member State or in a treaty country, but which is not controlled, either directly or indirectly, by Irish residents,
• a company which is not resident in the State and which is ultimately controlled by persons resident in another EU Member State or in a treaty country;
• a company which is not resident in the State and the principal class of the shares of which, or of a company of which it is a 75 per cent subsidiary, is substantially and regularly traded on a recognised stock exchange in another EU Member State or a in a treaty country, or on such other exchange as may be approved of by the Minister for Finance;
• a company which is not resident in the State and which is wholly-owned by two or more companies each of whose principal class of shares is substantially and regularly traded on a recognised stock exchange in another EU Member State or in a treaty country, or on such other exchange as may be approved of by the Minister for Finance;
• a parent company in another EU Member State in respect of distributions made to it by its Irish resident subsidiary company where withholding tax on such distributions is prohibited under the EU Parent-Subsidiaries Directive.

In the case of non-resident individuals who do not qualify for the exemption provided for by this section, the charge to income tax is confined to a rate of 25%. In effect, this means that the deduction of dividend withholding tax (DWT) from distributions received by such persons is a final liability tax.

Details

Definitions

(1) “qualifying non-resident person”, in relation to a distribution, is the person beneficially entitled to the distribution, being a person who is within a number of categories as set out below.

• A person, not being a company, who is neither resident nor ordinarily resident in the State but is resident for tax purposes in a “relevant territory”.
• A company not resident in the State which is resident for tax purposes in a “relevant territory” and which is not under the control (whether directly or indirectly) of a person or persons who is or are resident in the State.
• A company not resident in the State which is under the control (whether directly or indirectly) of a person or persons resident for tax purposes in a “relevant territory” who is or are not under the control (whether directly or indirectly) of a person who is, or persons who are, not so resident.
• A company not resident in the State and the principal class of the shares of which are substantially and regularly traded on a recognised stock exchange in a “relevant territory” or on such other stock exchange as may be approved of by the Minister for Finance.
• A company not resident in the State which is a 75 per cent subsidiary of a company whose principal class of shares are substantially and regularly traded on a recognised stock exchange in a “relevant territory” or on such other stock exchange as may be approved of by the Minister for Finance.
• A company which is not resident in the State and which is wholly-owned by two or more companies each of whose principal class of shares are substantially and regularly traded on a recognised stock exchange in a “relevant territory” or on such other exchange as may be approved of by the Minister for Finance.

“relevant territory” is an EU Member State other than Ireland, a territory with which Ireland has a double taxation treaty in force or in a territory with which Ireland has a double taxation treaty signed which has yet to come into force;

“tax”, when used in relation to residency in a “relevant territory”, means any tax imposed in that territory which corresponds to Irish income tax or corporation tax.

Meaning of “control”

(1A) The word “control” in paragraph (b)(i) of the definition of “qualifying non-resident person” is to be construed in accordance with subsections (2) to (6) of section 432 as if in subsection (6) of that section for “5 or fewer participators” there were substituted “persons resident in the State”. In effect, this means that if the rules contained in those subsections for determining who “controls” a company can be applied in such a way as to enable control of the company to be exercised by a person or persons (however many in number) resident in the State, then those rules are to be so applied.

(2) In paragraph (b)(ii) of the definition of “qualifying non-resident person”, the word “control” is also to be construed in accordance with the rules contained in subsections (2) to (6) of section 432 (which determine who “controls” a company) so that if these rules can be applied in such a way as to enable control of the company to be exercised by a person or persons (however many in number) resident for tax purposes in a relevant territory, then those rules are to be so applied. Similarly, if those rules can be applied in such a way as to enable such persons to be controlled by a person who is, or persons (however many in number) who are, not resident for tax purposes in a relevant territory, then the rules are to be so applied.

Meaning of “75 per cent subsidiary”

(3) For the purposes of determining whether a company is a 75 per cent subsidiary of another company, the provisions of sections 412 to 418 apply as if section 411(1)(c) were deleted. This ensures that a company may only be treated as a 75 per cent subsidiary of another company if that other company has a 75 per cent entitlement in the company in regard to the holding of shares, profits on a distribution and a share of assets on a winding-up. The deemed deletion of section 411(1)(c) is necessary as otherwise a company would not be treated as owning any share capital which it owned directly or indirectly in a company which is not resident in an EU State.

Meaning of “wholly-owned by two or more companies”

(3A) A company (called an “aggregated 100 per cent subsidiary”) is treated as being wholly-owned by 2 or more companies (called the “joint parent companies”) if and so long as 100 per cent of the ordinary share capital of the aggregated 100 per cent subsidiary is owned, directly or indirectly, by the joint parent companies.

For this purpose, subsections (2) to (10) of section 9 apply as they apply for the purposes of that section. The subsections in question set out rules for the determination of the ownership of the ordinary share capital of one company by another company whether that ownership is held directly or indirectly through one or more other companies.

For this purpose too, sections 412 to 418 apply with any necessary modifications as those sections apply for the purposes of group relief (Chapter 5 of Part 12). This ensures that a company may only be treated as an aggregated 100 per cent subsidiary of the joint parent companies if, in addition to owning 100 per cent of the ordinary share capital of that company, the joint parent companies between them also have a 100 per cent entitlement in the company in regard to profits on a distribution and a share of assets on a winding up. In applying sections 412 to 418 for this purpose, two modifications are made. Firstly, section 411(1)(c) is to be disregarded. This is necessary as otherwise companies resident outside the EU could not be taken into account in establishing ownership of a company. Secondly, a new subsection replaces the existing subsection (1) of section 412. This is necessary to more accurately reflect the concept of an aggregated 100 per cent subsidiary of joint parents.

Main exemption

(4) A qualifying non-resident person is not chargeable to income tax in respect of a distribution made by a company resident in the State. In addition, the amount or value of the distribution is treated for the purposes of sections 237 and 238 (which deal with the taxation of annual payments) as not brought into charge to income tax.

(4A) The exemption in subsection (4) does not apply to a distribution which is a property income dividend paid by a Real Estate Investment Trust (REIT) within the meaning of section 705A.

Exemption of distributions to which Parent-Subsidiaries Directive applies

(5) Income tax is not chargeable in respect of a distribution made to a parent company resident in another EU Member State by its Irish resident subsidiary where, as a result of section 831(5) which implements the EU Parent-Subsidiaries Directive in so far as it relates to the non-application of withholding taxes on distributions, dividend withholding tax under Chapter 8A of Part 6 does not apply to the distribution. In addition, the amount or value of the distribution is treated for the purposes of sections 237 and 238 (which deal with the taxation of annual payments) as not brought into charge to income tax.

Certain individuals who are not “qualifying non-resident persons”

(6) If the income of an individual for any tax year includes an amount in respect of a distribution made by a company resident in the State and the individual, though neither resident nor ordinarily resident in the State, is not a qualifying non-resident person, then income tax is not to be chargeable in respect of that distribution at a rate in excess of 25%. In effect, this makes the deduction of DWT from such a distribution (under Chapter 8A of Part 6) a final liability tax as DWT is deductible at a rate of 25%.

Relevant Date: Finance Act 2021