Revenue Note for Guidance

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Revenue Note for Guidance

172F Obligations of qualifying intermediary in relation to relevant distributions

Summary

This section sets out the obligations of a qualifying intermediary in relation to relevant distributions made to it by a company resident in the State, or amounts representing such distributions paid on to it by another qualifying intermediary. The qualifying intermediary must create and maintain an Exempt Fund and a Liable Fund in relation to such distributions and amounts. The Exempt Fund is to include only those clients of the qualifying intermediary who are —

  • non-liable persons who have made to the qualifying intermediary the appropriate declaration of exemption referred to in Schedule 2A, and
  • other qualifying intermediaries who have advised the qualifying intermediary that the distributions, or amounts representing such distributions, to be paid on to them by the qualifying intermediary are to be received by them on behalf of persons in their Exempt Funds.

In the case where the qualifying intermediary is a depositary bank holding shares in trust for, or on behalf of, the holders of American depositary receipts (ADRs), the qualifying intermediary is to include in its Exempt Fund the ADR holders on whose behalf it is to receive distributions from Irish resident companies and who have United States of America addresses on its ADR register. It is also to include in its Exempt Fund any further intermediary to whom it is to pass on such distributions where those distributions are to be received by that further intermediary for the benefit of that further intermediary’s ADR holders whose address in that further intermediary’s ADR register is located in the United States of America.

The Liable Fund is to include the remainder of the qualifying intermediary’s clients.

The qualifying intermediary must notify the company making the distributions and other qualifying intermediaries who are paying on the distributions to it as to whether the distributions to be received by it are to be received for the benefit of persons in its Exempt Fund or Liable Fund. The company is to apply DWT only to the distributions which relate to the Liable Fund. The qualifying intermediary must also update its Exempt Fund and Liable Funds as often as may be necessary and must notify the company and the other qualifying intermediaries of all such updates. The company must apply DWT to a distribution unless it has been notified by the qualifying intermediary that the distribution is to be received by the qualifying intermediary for the benefit of a person in its Exempt Fund.

The qualifying intermediary is obliged to make an annual return to Revenue where Revenue so request. Revenue may modify this request so that only details of a particular class or classes of distributions (e.g. a return could require details of all payments over €1,000 or all distributions relating to a particular company). The return is to include details showing —

  • the name and address of each company from which it receives distributions on behalf of its clients and of each other qualifying intermediary from which it receives amounts representing such distributions on behalf of its clients,
  • the amount of each such distribution,
  • the name and address of the clients to whom the distributions or amounts representing the distributions were given by the qualifying intermediary, and
  • whether those clients were non-liable persons.

The return must be made in an electronic format approved by Revenue. If Revenue is satisfied that the qualifying intermediary has not got the facilities to make the return electronically, the return may be made in writing in a form prescribed or authorised for that purpose by Revenue.

Details

Creation and maintenance of Exempt Fund and Liable Fund

(1) A qualifying intermediary who is to receive, on behalf of its clients, relevant distributions made by an Irish resident company or payments representing such distributions paid to it by another qualifying intermediary must create and maintain 2 separate categories in relation to such distributions and payments, namely, an Exempt Fund and a Liable Fund.

The qualifying intermediary must also notify the company making the distributions or the other qualifying intermediary, as appropriate, as to whether the distributions or the payments representing the distributions are to be received by it for the benefit of a person included in the Exempt Fund or a person included in the Liable Fund.

Exempt Fund

(2) Subject to subsections (3) and (5), a qualifying intermediary is to include in the Exempt Fund only —

  • persons beneficially entitled to the distributions or payments who are non-liable persons, and
  • any further qualifying intermediary to whom the distributions or payments are to be paid on by the qualifying intermediary and are to be received by that further qualifying intermediary for the benefit of persons included in that further qualifying intermediary’s Exempt Fund.

(3)(a) A qualifying intermediary must not include a person beneficially entitled to the relevant distribution in its Exempt Fund unless it has received from that person the appropriate declaration of exemption (see Schedule 2A). In this context, it should be noted (see paragraph 8(f) of Schedule 2A) that a declaration of exemption made by a qualifying non-resident person, not being a company, must be accompanied by a certificate of tax residence from the tax authority in the country of the person’s residence.

With regard to relevant distributions received by non-resident companies from Irish resident companies on or after 3 April 2010, subsection (3)(a)(ii)(II) requires that an intermediary must include in its Exempt Fund only those non-liable non-resident companies who have provided a current declaration in accordance with paragraph 9 of Schedule 2A, being a current declaration within the meaning of paragraph 2A of Schedule 2A.

The certificate of tax residence given in accordance with paragraph 8(f) of Schedule 2A is effective only for the period from the date of issue until 31 December in the fifth year following the year in which the certificate was issued. Consequently, if the non-resident person is to continue to be eligible for inclusion in the Exempt Fund the certificates have to be renewed at the end of such period.

It should also be noted that if the qualifying non-resident person is a trust, the declaration must (see paragraph 8(g) of Schedule 2A) be accompanied by two documents, namely, a certificate signed by the trustee or trustees of the trust showing the names and addresses of the beneficiaries and settlors of the trust and a notice by Revenue stating that it has noted the contents of the certificate.

(3)(b) The qualifying intermediary must not include a further qualifying intermediary in its Exempt Fund unless it has received the notification from the further qualifying intermediary made under subsection (1). This is the notice to the effect that the distributions or payments representing such distributions which are to be paid on to the further qualifying intermediary by the qualifying intermediary are to be received by the further intermediary for the benefit of persons included in its Exempt Fund.

Exempt Fund – special arrangements for American depositary receipts

General Note

Special arrangements are made to cater for investment instruments known as American Depositary Receipts or ADRs. ADRs are US dollar denominated negotiable instruments which allow US investors to trade in non-US securities without the costs and difficulties normally presented by overseas equity investment. ADRs are traded in the main US Stock Exchanges, New York, AMEX and NASDAQ. They provide non-US companies easy access to the US capital markets – the largest investor base in the world – and are widely recognised as the optimal method for domestic US investors to invest internationally. In recent years many large Irish quoted companies as well as emerging new companies have raised substantial capital in the US via ADRs.

The DWT legislation generally requires a “chain” of certification, from the individual shareholder through any qualifying intermediaries (including depositary banks) up to the Irish dividend-paying company, before the dividend can be paid gross. This is in line with the normal practice internationally and was put in place following consultations with representatives of company registrars and the main intermediaries. It purpose is to ensure that only genuine residents of tax treaty countries can avail of the exemption.

However, the volume of US investment in Irish companies via ADRs is so great that the burden of the certification “chain”, and the associated paperwork, in an ADR context was considered overly onerous. Consequently, the DWT legislation allows the American depositary banks who receive dividends from Irish companies and pass them on to the US ADR holders a less rigorous certification procedure. In essence, the depositary bank is allowed to receive, and pass on, the dividend from the Irish company gross —

  • where the depositary bank’s register shows that the direct beneficial owner has a US address on the register, but without being supported by a certificate of US tax residence, and
  • if there is a further intermediary such as a mutual fund between the depositary bank and the beneficial shareholder, where the depositary bank receives confirmation from the intermediary that the beneficial shareholder’s address in the intermediary’s records is in the US, but again, without being backed up by a certificate of US tax residence.

In effect, the procedures for exemption from DWT in the case of ADRs operate on an “address system” for that part of the chain of ownership which is below a depositary bank but only where the ultimate individual owner’s recorded address is in the US.

Detailed Note

(3)(c) If provided for in the qualifying intermediary agreement, a qualifying intermediary which is a depositary bank holding shares in trust for, or on behalf of, the holders of American depositary receipts (ADRs) must operate the provisions of subsection (3)(d) subject to any conditions that may be specified in the qualifying intermediary agreement.

(3)(d) Where subsection (3)(d) applies, such a qualifying intermediary must include certain persons in its Exempt Fund, notwithstanding the requirements of subsections (3)(a) and (b). These persons are —

  • its ADR holders who are beneficially entitled to distributions to be received by it on their behalf from Irish resident companies (or to payments representing such distributions to be received by it on their behalf from another qualifying intermediary) and whose address on its ADR register is located in the United States of America, and
  • any specified intermediary to whom it is to pay on those distributions or payments (or amounts or other assets representing such distributions or payments) which are to be received by that specified intermediary for the benefit of —
    • its ADR holders who are beneficially entitled to the distributions or payments and whose address in the specified intermediary’s ADR register is located in the United States of America and who, in accordance with subsection (3)(e)(iii)(I), are to be included in that specified intermediary’s Exempt Fund, or
    • any further specified intermediary to which the distributions or payments (or amounts or other assets representing such distributions or payments) are to be given by the specified intermediary and are to be received by that further specified intermediary for the benefit of persons who, in accordance with clauses (I) and (II) of subsection (3)(e)(iii), are to be included in that further specified intermediary’s Exempt Fund.

(3)(e) The circumstances in which an intermediary is to be treated as a specified intermediary for the purposes of this section are set out.

(3)(e)(i) The intermediary must not be a qualifying intermediary but must be a person within paragraph (a), (b), (c) or (d) of section 172E(4) who is operating as an intermediary in an establishment situated in the United States of America.

(3)(e)(ii) The intermediary must create and maintain an Exempt Fund and a Liable Fund for the distributions or payments representing distributions which it is to receive, on behalf of other persons, from a qualifying intermediary or another specified intermediary. These Funds must be created and maintained in accordance with subsections (1) and (5) as if the intermediary were a qualifying intermediary, but this requirement is subject to the rules of subparagraphs (iii) and (iv).

(3)(e)(iii) The intermediary must include in its Exempt Fund only —

  • those persons who are beneficially entitled to the distributions or payments in question and who are ADR holders whose address on the intermediary’s ADR register is located in the United States of America, and
  • any further specified intermediary to which the distributions or payments are to be given by the intermediary and are to be received by that further specified intermediary for the benefit of persons included in that further specified intermediary’s Exempt Fund.

(3)(e)(iv) The intermediary must include in its Liable Fund all its ADR holders except those included in its Exempt Fund.

(3)(e)(v) The intermediary must notify, in writing or by electronic means, the qualifying intermediary or the further specified intermediary from which it is to receive the distributions or payments as to whether the distributions or payments to be received by it are for the benefit of persons included in its Exempt Fund or persons included in its Liable Fund.

(3)(e)(vi) The intermediary must enter into an agreement with the qualifying intermediary or the further specified intermediary from whom it is to receive relevant distributions for its American depositary receipt holders. Under the terms of this agreement it must agree that if and when required to comply with subsection (7A) it will do so.

(3)(f) Where under the special arrangements for ADRs, a person is included in the qualifying intermediary’s or specified intermediary’s Exempt Fund and, apart from those arrangements, that person would not be a non-liable person in relation to distributions or payments representing distributions to be received on the person’s behalf by a qualifying intermediary or a specified intermediary, then, the person is to be treated as a non-liable person in relation to those distributions. In effect, this dispenses with the need for the person to make a declaration of exemption as set out in Schedule 2A.

(3)(g) Notwithstanding paragraph (e) (which sets out the conditions for qualification as a specified intermediary), where Revenue is satisfied that a specified intermediary or other specified intermediary referred to in subsection (7A) has failed to comply with that subsection —

  • Revenue may, by written notice, notify it that it will cease to be treated as a specified intermediary from such date as is specified in the notice, and
  • notwithstanding “confidentiality obligations”, Revenue may make available to any qualifying intermediary (being a depositary bank holding shares in trust for, or on behalf of, the holders of American depositary receipts) or specified intermediary a copy of such notice.

(3)(h) Where subsequently Revenue is satisfied that the intermediary has furnished the information required under subsection (7A) and will in future comply with that subsection if and when requested to do so, Revenue may, by further written notice, revoke the notice given to the intermediary under paragraph (g) from such date as may be specified in the further notice, and a copy of that further notice must be given by Revenue to any person to whom a copy of the notice under paragraph (g) was given.

Liable Fund

(4) The qualifying intermediary must include in its Liable Fund all persons on whose behalf it is to receive the distributions or payments representing the distributions other than such of those persons as are included in its Exempt Fund.

Updating of Exempt Fund and Liable Fund

(5) The qualifying intermediary must update its Exempt Fund and Liable Fund as often as may be necessary so as to ensure that the provisions of subsections (2) to (4) are complied with and that section 172E(1) is also complied with, that is, that DWT is not applied where an Irish resident company makes a relevant distribution, through one or a chain of qualifying intermediaries, to a person beneficially entitled to the distribution who is a non-liable person. The qualifying intermediary must notify the Irish resident company or other qualifying intermediaries, as appropriate, of all such updates.

Relevant distributions through qualifying intermediary liable to DWT unless paying company notified that distribution is to be received by qualifying intermediary for the benefit of person included in its Exempt Fund

(6) A company making a relevant distribution through a qualifying intermediary cannot treat the distribution as being made for the benefit of a person beneficially entitled to the distribution who is a non-liable person unless, before the making of the distribution, the qualifying intermediary has notified the company that the distribution is to be received by it for the benefit of a person included in its Exempt Fund. In the absence of such a notification, the company must deduct DWT from the distribution.

Annual return by qualifying intermediary on request from Revenue

(7) For each tax year beginning with the year 1999–2000 the qualifying intermediary, on being requested by written notice from Revenue, must make a return to Revenue within the time specified in the notice. The return must show —

  • the name and address of each resident company from which it received, on behalf of other persons, relevant distributions in the year concerned,
  • the name of each other person from whom it received, on behalf of other persons, payments representing distributions made by resident companies in the year concerned,
  • the amount of each such distribution,
  • the name and address of each person to whom such a distribution, or a payment representing such a distribution, was given by the qualifying intermediary, and
  • the name and address of each such person in respect of whom the qualifying intermediary has received a declaration of exemption from DWT.

A return which is required to be so made by a qualifying intermediary may be confined to such class or classes of relevant distributions as may be specified in the notice given to the qualifying intermediary by Revenue.

Information on recipients to be provided by qualifying intermediaries where distributions made through specified intermediaries

(7A)(a) Special arrangements apply where a qualifying intermediary has been required by Revenue notice to make a return to Revenue under subsection (7)(a) and a relevant distribution, the details of which are required to be included in that return, has been given by the qualifying intermediary to a specified intermediary.

(7A)(b) In such circumstances, the qualifying intermediary must, immediately on receiving the notice under subsection (7)(a), request the specified intermediary, by way of written notice or in electronic format, to notify the qualifying intermediary or Revenue of the name and address of each person to whom the specified intermediary gave such a distribution and of the amount of each such distribution.

(7A)(c) The specified intermediary is required to furnish, within 21 days of the receipt of such notice, to the qualifying intermediary or, at the discretion of the specified intermediary, to Revenue, by way of notice in writing or in electronic format, the information so required.

(7A)(d) Where the specified intermediary furnishes the information so required to the qualifying intermediary, the qualifying intermediary is to include that information in the return required to be made by it under subsection (7)(a). If the information is furnished direct to Revenue by the specified intermediary, the specified intermediary must, by way of written notice or in electronic format, immediately advise the qualifying intermediary of that fact and the qualifying intermediary must then include in its return under subsection (7)(a) a statement to the effect that it has been so advised by the specified intermediary.

(7A)(e) If any person to whom a specified intermediary gave such a distribution is another specified intermediary, the specified intermediary must, immediately on the receipt of such notice, request the other specified intermediary, by way of written notice or in electronic format, to notify the specified intermediary or Revenue of the name and address of each person to whom the other specified intermediary gave such a distribution and of the amount of each such distribution.

(7A)(f) Where this happens, the other specified intermediary must, within 21 days of the receipt of such notice, furnish to the specified intermediary or, at the discretion of the other specified intermediary, to Revenue, by way of written notice or in electronic format, the information so required.

(7A)(g) Where the other specified intermediary furnishes the information so required to the specified intermediary, the specified intermediary must immediately transmit that information to the person (being the qualifying intermediary or Revenue) to whom it furnishes the information required to be furnished by it under paragraph (b) of this subsection.

If that person is the qualifying intermediary, the qualifying intermediary must include that information in the return required to be made by it under subsection (7)(a). If that person is Revenue, the specified intermediary must immediately notify the qualifying intermediary, in writing or in electronic format, of the fact that the information required to be furnished by the other specified intermediary under paragraph (e) of this subsection has been furnished to the specified intermediary and transmitted by the specified intermediary to Revenue. The qualifying intermediary must then include in its return under subsection (7)(a) a statement that it has been so advised by the specified intermediary.

If the other specified intermediary furnishes the information directly to Revenue, it must, by way of written notice or in electronic format, immediately advise the specified intermediary of that fact, the specified intermediary must in turn, by way of similar notice or in similar format, immediately advise the qualifying intermediary of that fact and the qualifying intermediary must then include in the return required to be made by it under subsection (7)(a) a statement to the effect that it has been so advised by the specified intermediary.

(7A)(h) Where the specified intermediary or the other specified intermediary furnishes information to Revenue in an electronic format, that format must be agreed in advance with Revenue.

Electronic returns and return filing date

(8) The return must be made in an electronic format approved by Revenue and must be accompanied by a declaration made by the qualifying intermediary, on the prescribed or authorised form, to the effect that the return is correct and complete.

Written return acceptable in certain circumstances

(9) The return can be made in writing where Revenue are satisfied that the qualifying intermediary does not have the facilities to make the return in the required electronic format. A written return must be in a form prescribed or authorised by Revenue and must be accompanied by a declaration made by the qualifying intermediary, on the prescribed or authorised form, to the effect that the return is correct and complete.

Relevant Date: Finance Act 2020