817W Payment of royalties

Summary

The purpose of this section is to apply the defensive measures to outbound payments of royalties, as defined in section 817U(1). It provides for the conditions which must be met for a payment of royalties 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

(1) Subsection (1) provides the conditions which must exist for a payment of a royalty 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 817W to the extent that it is not an excluded payment, as defined in section 817U(1).

(2)(a) This subsection deems the payment of royalties as annual profits arising to the non-resident recipient from property in the State. As a result there is a charge to Irish income tax by reference to section 18(1).

(2)(b) This subsection ensures that the payment of a royalty which is within the scope the defensive measures is an annual payment for the purposes of section 238(2). It follows that the charging, assessing, collection and recovery of income tax applies for royalties within the scope of the defensive measures.

(2)(c) Section 242A(3) provides that the requirement to apply withholding tax under section 238 does not apply to any payment to which section 242A applies, so it is disapplied for the purposes of the defensive measures. Section 242A(4) removes the royalty payments to which section 242A applies from the charge to tax that would otherwise apply, so it too is disapplied for the purposes of the defensive measures.

(3) The interaction of the defensive measures for payments of royalties with provisions relating to the capital sums for the sale of patent rights, contained in Section 757, is addressed to ensure that where the payment of a royalty might fall to be taxed under both section 757 and this section, then the defensive measures in this Chapter take precedence.

(4) 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 a royalty, 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.

Relevant Date: Finance Act 2024