Revenue Note for Guidance

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Revenue Note for Guidance

246 Interest payments by companies and to non-residents

Summary

This section imposes on companies generally, and on others who pay interest to persons whose usual place of abode is outside the State, the obligation to deduct tax from payments of annual interest and to account to the Revenue for the tax deducted. There are various exclusions from this requirement which include —

  • interest paid to or by a bank carrying on business in the State,
  • interest on certain securities issued by certified International Financial Services Centre (IFSC) companies, certified Shannon companies or specified collective investment undertakings,
  • interest paid by a company to an investment undertaking that is within the gross-roll-up taxation regime,
  • interest paid by a company in a fiduciary or representative capacity (except when paid to non-residents),
  • interest on Government securities and securities issued by certain State-sponsored bodies,
  • interest paid without deduction of tax by virtue of section 700,
  • interest which is a distribution by virtue of section 437,
  • interest paid by a company authorised by the Revenue not to deduct tax,
  • interest paid by a company or an investment undertaking to a company 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, provided certain conditions are met,
  • interest paid by finance and other companies that make loans but are not licensed banks or building societies (subject to certain conditions), and
  • interest paid to a special purpose securitisation company (within the meaning of “qualifying company” in section 110) and interest paid by such a company to a person who is 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.

Details

Definitions

(1)bank” includes a building society established under Irish law and also a building society established in accordance with the law of another EU Member State.

company” is widely defined to include any body corporate.

investment undertaking” comprises —

  • a unit trust mentioned in section 731(5)(a),
  • a special investment scheme within the meaning given to it in section 737,
  • an investment undertaking within the meaning given to it in section 739B,
  • a common contractual fund within the meaning given to it in section 739I, or
  • an investment limited partnership with the meaning given to it in section 739J.

relevant person” means a company or an investment undertaking.

relevant security” is a security issued by a company while it was carrying on certified IFSC or Shannon trading operations which has a redemption date within 15 years of the date of issue. This definition is only relevant in relation to the interest referred to in subsection (3)(c).

relevant territory” means a Member State of the EU other than the State, a country with which Ireland has a double tax treaty in force or a country with which Ireland has signed a double tax treaty which has yet to come into force.

tax” means tax imposed in a relevant territory which corresponds to Irish income or corporation tax.

Withholding tax

(2) Companies generally are obliged to deduct tax on payment of interest to a person resident in the State except where the interest is paid by the company in a fiduciary or representative capacity. Companies such as banks frequently act as trustees and executors and may be responsible in that capacity for the payment of interest; such interest must be paid without deduction of tax where the recipient is resident in the State. Interest paid to non-residents, whether by companies (and whether in a fiduciary or representative capacity or otherwise) or by individuals, must, however, be paid under deduction of tax and the tax has to be paid over to the Revenue. This provision overcomes the difficulty of collecting tax from non-residents on income arising to them in the State. It should be noted that the obligation to withhold tax under this section may be negated (that is, the payment may be made gross) under the terms of a particular double taxation treaty or by virtue of some of the exceptions provided for in subsection (3).

Exceptions

(3) Excluded from the withholding tax requirement are —

  • interest paid to or by a bank in the ordinary course of banking business,
  • interest paid in the State:
    1. by a company to another company to which subsection 5(a) applies (i.e. a finance/treasury company), or
    2. by a company to which subsection (5)(a)(i) and (ii) applies (i.e. a finance/treasury company) to another company that is resident in the State where that other company is deemed to be a member of the same group of companies as the finance/treasury company.
      For this purpose, the provisions of section 411 are to be applied to determine whether the companies are members of the same group with the exception that the 75% shareholding requirement in section 411 is replaced with a 51% shareholding requirement.
      Subparagraph (ii) applies to interest paid on or after 1 January 2014.
  • interest paid to a non-resident by a certified IFSC company, a certified Shannon company or a specified collective investment undertaking.
    This is a legacy exemption and applies only to “relevant securities” that were issued by an IFSC company prior to the expiry of their licence.
  • interest paid in the State to an investment undertaking (within the meaning of section 739B),
  • interest paid by companies authorised by the Revenue to pay interest without deduction of tax,
  • interest on securities in respect of which the Minister for Finance has given a direction under section 36 that the interest on the security be paid without deduction of tax,
  • interest paid to the National Asset Management Agency (NAMA) or a section 616(1)(g) company, the State acting through NAMA or a section 616(1)(g) company, or the National Treasury Management Agency (NTMA) by NAMA or a section 616(1)(g) company,
  • interest paid by NAMA, a section 616(1)(g) company, or the State acting through NAMA or a section 616(1)(g) company to a person resident in a relevant territory (excepting companies in certain cases),
  • interest paid by an industrial and provident society without deduction of tax by virtue of section 700,
  • interest paid in the State to an exempt approved pension scheme (within the meaning of section 774),
  • interest paid by a company and which is treated as a distribution under section 437 (interest paid to directors of close companies),
  • interest, which is not exempted from withholding tax by any of the other paragraphs (a) to (g) of subsection (3), paid, in the course of a trade or business, by a company or an investment undertaking (defined as a “relevant person” in subsection (1)) to a company (a) that is resident for tax purposes in a “relevant territory” (defined in subsection (1)) and 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 outside that territory, or (b) where the interest is exempt from tax under the terms of the double tax treaty between Ireland and the relevant territory. The withholding tax exemption does not apply where the interest is received by the non-resident company in connection with a trade or business carried on in the State through a branch or agency,
  • interest paid to a special purpose securitisation company (within the meaning of “qualifying company” in section 110) and interest paid by such a company to a person who is resident in another EU Member State, 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, except in a case where the interest is paid to a company in relation to a business which that company carries on in the State through a branch or agency.

Relevant securities

(4) Where interest is paid on relevant securities, the deletion of sections 445 and 446 are to be ignored and the expiry provisions for certification under those sections are treated as not applying. This enables the continued payment of interest on relevant securities without deduction of tax by IFSC and Shannon companies.

Conditions to be met by company receiving interest from finance companies and other companies that are not licensed banks or building societies

(5)(a) The company receiving the interest:

  • must advance money in the ordinary course of its trade and one of the activities of the trade must be the lending of money,
  • must account for the interest payable as a trading receipt,
  • must notify both the appropriate inspector and the company paying the interest that it is a company which meets the two preceding conditions, and
  • must notify the company paying the interest that it has so notified the inspector and provide the company paying the interest with its tax reference number. For this purpose a person’s tax reference number will consist of a reference number stated on a return of income form or notice of assessment issued to that person by an inspector, or the person’s value-added tax registration number. The reference number must relate to the company paying the interest. A reference number (e.g. a PPSN) which relates to say a director or other officer of the company is not acceptable.

Company ceasing to meet conditions

(5)(b) Once a company ceases to meet these conditions the company is obliged to immediately notify the inspector and the company paying the interest in writing that it no longer qualifies for the exclusion from withholding tax. The consequence of this is that the company paying the interest should withhold tax in accordance with this section as respects any interest paid after the company ceases to qualify for the exclusion.

Relevant Date: Finance Act 2020