817V Payment of interest

Summary

The purpose of this section is to apply the defensive measures to outbound payments of interest. It provides for the conditions which must be met for a relevant payment of interest to be within the scope of the measures. Where the section applies, existing exemptions from income tax and existing exclusions from the obligation to deduct withholding tax are disapplied.

Details

Subsection (1) provides the conditions which must exist for a relevant payment of interest to be within the scope of the measures. These are:

• (1)(a) the recipient is an associated entity that is resident in a specified territory and is not resident in another territory that is not a specified territory. Circumstances may arise where an entity is dual tax resident in a specified territory and in another jurisdiction. Where an associated entity is resident for tax purposes in a non-specified territory it is not within the scope of the defensive measures, or
• (1)(b) the recipient is a permanent establishment of an associated entity that is situated in a specified territory.

However, relevant payments of interest are only with the scope of section 817V to the extent that it is not an excluded payment, as defined in section 817U(1).

(2) Existing exemptions from tax for non-residents in receipt of Irish source interest, contained in section 198(1)(c), are disapplied where the relevant payment of interest is within the scope of the measures. In addition, existing exclusions from the obligation to deduct withholding tax by Irish companies or non-resident companies carrying on a trade in the State through a branch or agency, contained in sections 64(2), 246(3), 246A(3)(a)(A) and 246A(3)(b)(A), are also disapplied where the relevant payment of interest is within the scope of section 817V.

(3) The obligation for the payor to provide an account of the payment made and the income tax deducted, and the provisions of the Income Tax Acts relating, insofar as these are applicable to the charge, assessment, collection and recovery of income tax, are ensured by importing the provisions of section 238, via section 246(2). Furthermore, the application of section 246(2) is modified for the purposes of this subsection so that references to yearly interest in that subsection are to be read as a relevant payment of interest within the scope of section 817V, this ensures that both yearly interest and non-yearly interest are subject to withholding tax where this section applies.

(4) Where interest on securities of certain State-owned companies, being those listed in the table in section 37, is within the scope of this section then such interest cannot be paid without the deduction of tax.

(5) The section contains a targeted anti-avoidance measure to prevent arrangements to circumvent the section. It provides that where it is reasonable to consider that arrangements are entered into by any person and the main purpose or one of the main purposes of the arrangements, or any part of the arrangements, is the avoidance of any of the provisions of this section to a relevant payment of interest, directly or indirectly, to an associated entity in a specified territory, then the section shall apply as if those arrangements, or that part of the arrangement, had not been entered into.

(6) Where it is reasonable to consider that the company is not, and should not be, aware that any portion of the relevant interest on a quoted Eurobond or a wholesale debt instrument, issued by that company and held in a recognised clearing system, is paid to an associated entity or permanent establishment which is resident, or situated, in a specified territory, then interest paid in those circumstances will not be subject to withholding tax as provided by section 817V(1). However, this subsection is subject to the targeted anti-avoidance provision contained in subsection (5).

(7) Subsection (7) excludes from the scope of the defensive measures a portion of a relevant payment of interest paid by a company where a corresponding amount is paid by the recipient entity located in a specified territory to another person.

The conditions whereby a portion of the relevant payment of interest is excluded form section 817V are:

• (7)(a) to the extent that a corresponding amount has been paid by the recipient entity to another person in a tax period which commences within 12 months of the end of the tax period in which the original payment of interest is made by the company,
• (7)(b) the corresponding amount referred to above would been an excluded payment if it had been paid by the company directly to the other person, and
• (7)(c) all payments were made for bona fide commercial purposes.

(8) The entity to which the defensive measure applies is the payor of the interest, so that a clearing house or other intermediary are not liable for any withholding tax arising on a payment to which the defensive measure applies.

Relevant Date: Finance Act 2024