Revenue Tax Briefing

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Revenue Tax Briefing Issue 35, March 1999

Dividend Withholding Tax (DWT) Finance Bill 1999

Introduction

This article firstly sets out a brief summary of the DWT scheme as contained in the 1999 Finance Bill and as passed by Dáil Eireann. A more detailed description of the scheme follows on pages 11-18.

Summary of Scheme

In general, DWT will apply at a rate of 24% to dividends paid and other distributions made on or after 6 April 1999 by all companies resident in the State. DWT will not apply, however, where the resident company is also a collective investment undertaking but not an offshore fund. DWT will apply to all “relevant distributions” except:

  • Dividends paid to Ministers of the Government in their capacity as such Ministers and
  • Distributions made by an Irish resident subsidiary company to its parent in another EU Member State where withholding tax is prohibited under the EU Parent Subsidiaries Directive.

Relevant Distributions

The term “relevant distributions” includes all payments normally treated as a distribution for income tax and corporation tax purposes. It includes:

  • Normal cash dividends and non-cash dividends
  • Expenses incurred by close companies in providing benefits or facilities for a participator in the company
  • Excess interest paid by close companies to directors
  • Scrip dividends of both quoted and unquoted companies, that is, additional share capital of a company taken in lieu of a cash distribution.

Exemptions

Provision is made for an exemption from DWT for relevant distributions made to persons who are beneficially entitled to the distributions and who are within one of the following categories:

  • An Irish resident company
  • A pension scheme
  • A qualifying employee share ownership trust
  • A collective investment undertaking
  • A charity.

To qualify for exemption, the persons concerned must make the appropriate declaration of entitlement to exemption as set out in the new Schedule 2A being inserted into the Taxes Consolidation Act 1997.

Special transitional arrangements for non-residents

DWT will not apply in the case of a distributions made in the period from 6 April 1999 to 5 April 2000 to persons (whether or not beneficially entitled to the distributions) who are within one of the following categories:

  • A person whose address in the share register of the company is in a country with which Ireland has a tax treaty (“a tax treaty country”) or in another EU Member State
  • A non-resident company which is ultimately controlled by persons who are resident for tax purposes in a tax treaty country or another EU Member State
  • A non-resident company the principal class of shares of which, or of a company of which it is a 75% subsidiary, is substantially and regularly traded on a recognised stock exchange in a tax treaty country or another EU Member State, or on such other stock exchange approved by the Minister for Finance.

Exemption from DWT for non-residents from 6 April 2000

Exemption from DWT will apply from 6 April 2000 only to those non-resident persons who are beneficially entitled to the distributions and who are within one of the following categories:

  • Persons (other than companies) who are neither resident nor ordinarily resident in the State and who are resident for tax purposes in a tax treaty country or in another EU Member State
  • Non-resident companies which are ultimately controlled by persons who are resident for tax purposes in a tax treaty country or in another EU Member State
  • Non-resident companies the principal class of shares of which or of a company of which it is a 75% subsidiary is substantially and regularly traded on a recognised stock exchange in a tax treaty country or in another EU Member State, or on such other stock exchange approved by the Minister for Finance.

To qualify for exemption from 6 April 2000, the persons concerned must make the appropriate declaration of entitlement to exemption as set out in the proposed new Schedule 2A to the Taxes Consolidation Act 1997.

Intermediaries and Authorised Withholding Agents

Special arrangements are provided to deal with the common situation whereby distributions are paid through intermediaries. Provision is also made to allow intermediaries to become authorised withholding agents. Distributions can be made by companies to an authorised withholding agent without deducting DWT, but the authorised withholding agent then effectively steps into the shoes of the company and must, if appropriate, apply DWT when paying on the distributions to the beneficial owners of the distributions.