198 Certain interest not to be chargeable

Summary

This section exempts non-residents from tax in respect of certain interest receipts. The exemption from Irish income tax only applies where the company or person receiving the interest is a tax resident of another EU Member State, a tax resident of a country with which Ireland has a tax treaty in force or a tax resident of a country with which Ireland has signed a tax treaty which has yet to come into force. (Certain conditions apply in respect of interest payments to companies.)

Details

Interpretation

(1)(a) Definitions of the terms “arrangements”, “relevant territory” and “tax” are provided for the purposes of the interpretation provision contained in paragraph (b).

(1)(b) An interpretation of when a company or a person is to be regarded as a resident of a relevant territory (that is, a resident of another EU Member State, a tax treaty country or a country with which Ireland has signed a tax treaty which has yet to come into force) is provided. Essentially a person is such a resident where the tax treaty in force or a tax treaty signed but not yet to come into force between Ireland and the other territory so provides or, if there is no tax treaty and the other territory is another EU country, where the tax law of that country so provides.

Exemption

(1)(c)(i) Interest paid to companies which are not resident in the State or to persons who are not ordinarily resident in the State—

• by companies in the course of carrying on relevant trading operations in the IFSC (section 446) or the Shannon Airport Area (section 445), or
• by companies which are specified collective investment undertakings (section 734),

is exempt from Irish income tax in the hands of the recipient of the interest.

(1)(c)(ii) Interest paid for business purposes by a company or a collective investment undertaking (as defined in section 246) to a company which is not tax resident in the State but which is tax resident in another EU Member State, in a country with which Ireland has a tax treaty in force or in a country with which Ireland has signed a tax treaty which has yet to come into force (“relevant territory” as defined in subsection (1)) is also exempt from income tax, where the tax regime in that relevant territory is one that imposes a tax that generally applies to interest receivable in that territory by companies from sources out-side that territory, or where the interest is exempt under the terms of the double tax treaty between Ireland and the relevant territory.

(1)(c)(iii) Interest paid by a company to a person who-

• is not a resident of the State and is regarded as being a resident of an EU or treaty country, or
• is a company which is not resident in the State and-
  • is controlled by a person who is resident in another EU Member State or tax treaty country and the company is not under the control of a person not so resident, or
  • the principal class of shares of which is substantially or regularly traded on a recognised stock exchange in the State, another Member State of the EU, a tax treaty country, or on such other stock exchange as may be approved of by the Minister for Finance,

is exempt from income tax if the interest is-

1. Eurobond interest (i.e. interest to which section 64(2) applies),
2. interest on wholesale debt instruments as defined in section 246A, or
3. interest paid in respect of asset covered securities within the meaning of the Asset Covered Securities Act 2001.

Subsection (1)(c)(iii) was amended by section 39 of the Finance Act 2012 and applies to interest paid on or after the 31st March 2012 (i.e. the date of passing of the Finance Act 2012).

(1)(c)(iv) Interest paid by a special purpose securitisation company (that is a “qualifying company” within the meaning of section 110) to a person (this includes individuals as well as corporates and other entities) who is not resident in the State and is tax resident in another EU Member State, a tax treaty country or a country with which Ireland has signed a tax treaty which has yet to come into force, is exempt from income tax if that interest is paid out of the assets of the qualifying company.

(1)(c)(v) Discounts arising on securities issued by a relevant person (within the meaning of section 246), in the ordinary course of a trade or business carried on by that relevant person, are exempt from income tax if issued to a person (this includes individuals as well as corporates and other entities) who is not resident in the State and is tax resident in another EU Member State, a tax treaty country or a country with which Ireland has signed a tax treaty which has yet to come into force.

(2) Certificates certifying that IFSC or Shannon companies are carrying on relevant trading operations expired on 31 December 2005 or, in certain cases, 31 December 2002. In the absence of a provision to the contrary, the exemption under subsection (1)(c)(i)(I) would cease to apply in respect of interest paid after the expiry date of the certificate. In the context of interest paid by such companies in respect of certain securities, this is addressed by ignoring the deletion of sections 445 and 446 and the time limit to the application of the certificate set out in those sections. Thus, interest paid by an IFSC or Shannon company to a company not resident in the State, or to a person not ordinarily resident in the State, in respect of such securities will continue to be exempt from income tax despite those sections being deleted and the certificate having expired. The securities concerned here are relevant securities within the meaning of section 246; these are securities issued by an IFSC or Shannon company in the course of carrying on relevant trading operations on terms which oblige the company to redeem the security within 15 years after the date on which the security was issued.

Relevant Date: Finance Act 2021