Revenue Note for Guidance

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Revenue Note for Guidance

PART 8

Annual Payments, Charges and Interest

CHAPTER 1

Annual payments

Overview

This Chapter provides for the collection of tax at source from annual payments —

The deduction at source provisions, however, do not apply in respect of annual payments made in return for the receipt of consideration which is not liable to income tax (section 242).

237 Annual payments payable wholly out of taxed income

Summary

This section provides for the effective collection of tax at source (that is, at the point of payment) from annuities and other annual payments and patent royalties payable wholly out of profits/gains brought into charge to income tax. By virtue of section 104, the provisions of this section are also applied to similar payments paid in respect of certain mines, quarries, etc. Under this section income tax may be deducted from the payment by the payer at the standard rate of income tax applicable for the year in which the amount payable becomes due.

It is to be noted that by virtue of section 24(1) this section cannot apply to payments of annuities and other annual payments made by an Irish resident company.

Details

Annual payments made out of taxed income – tax treatment

(1)(a) & (b) Where an annuity or other annual payment is made wholly out of profits/gains within the charge to income tax —

  • the person liable to pay the annuity or annual payment is charged to income tax on the profits/gains out of which the payment is to be made, and
  • that person is entitled on making the payment to deduct and retain the income tax on the payment at the standard rate of income tax in force for the year in which the payment becomes due.

The meaning of “annual payment” has been established by case law and is generally taken as meaning payments which are “pure income profit” in the hands of the recipient. This arises where the recipient is not required to incur some expense or to provide goods or services or give some other consideration in return for the annual payment.

It is to be noted that the payer is entitled but not obliged to deduct income tax from the payment. However, the entitlement given by this section to deduct and retain income tax at the standard rate out of the payment is the only method of obtaining tax relief in respect of the payment. Consequently, if the tax is not deducted and retained out of the payment, the cost of the tax will have to be borne by the payer without relief.

[As this section applies to annual payments paid wholly out of profits/gains brought into charge to income tax it follows that annual payments made out of exempt income or paid by persons exempt from income tax are not made out of income within the charge to income tax. Such annual payments are, in general, caught by section 238.]

(1)(d)&(c) The person entitled to the payment has no right to the amount deducted and retained by the payer under this section. The recipient must also allow the deduction so that the obligation of the payer to the recipient is discharged in full once the net amount of the payment is paid.

Patent royalties

(2) A similar entitlement to deduct and retain a sum representing income tax at the standard rate of income tax for the year in which the payment becomes due applies in the case of any royalty or other sum paid in respect of the user of a patent wholly out of profits/gains brought into charge to income tax.

Excluded payments

(1) & (3) Excluded from the section are —

  • yearly interest of money, and
  • rents and similar payments charged to tax under Case V of Schedule D.

Relevant Date: Finance Act 2017