Interest Payments Exemption from Withholding Tax

Interest Paid to US companies and US Limited Liability Companies Exemption from Withholding Tax

Subsections (3)(ccc) and (3)(h) of Section 246 TCA 1997 provide that withholding tax is not to be deducted from certain interest payments where the recipient of the interest is, by virtue of the law of a relevant territory, resident for the purposes of tax in a relevant territory. A relevant territory means a Member State of the European Communities other than the Republic of Ireland or a territory with which Ireland has a Double Taxation Treaty.

US Companies

It has come to Revenue’s attention that the requirement to be resident for the purposes of tax in a relevant territory may give rise to difficulties for US companies as the concept of residence for tax purposes is not recognised under US tax law and it is not possible for the payer of the interest to get such a confirmation. It is not the intention of the legislation to exclude US companies from the exemption from withholding tax provided for in either Section 246(3)(ccc) or 246(3)(h) TCA 1997. To clarify the position for US companies Revenue are prepared to accept that a company which is incorporated in the US and taxed in the US on its worldwide income will qualify for the exemption from withholding tax provided for in Section 246(3)(ccc) and 246(3)(h) TCA 1997.

US LLC’s

An additional difficulty arises for US Limited Liability Companies (LLCs). An LLC has corporate form and personality but is categorised as a partnership under the Internal Revenue Code of the USA. As such, the LLC is not separately taxed but is treated as a transparent or ‘look through’ entity for US tax purposes and its income is taken to flow through to its members who are taxed according to US principles as though they received the money directly. Therefore on a strict interpretation of the legislation an exemption from withholding tax cannot be granted where the interest is paid to US residents through a US LLC.

In recognition of the difficulties arising from the use of US LLCs Revenue are prepared to ‘look through’ the US LLC to the ultimate recipients of the interest subject to the following conditions:

1. Where the ultimate recipients of the interest themselves would qualify for exemption from withholding tax under Section 246(3)(ccc) or 246(3)(h) TCA 1997.
2. Where business is conducted through an LLC for market reasons and not for tax avoidance purposes.

Syndicated Debt Held by Irish Banks and the application of Section 246(3)(a) TCA 1997

Section 246(3)(a) TCA 1997 excludes from withholding tax interest paid in the State on an advance from a bank carrying on a bona fide banking business in the State. Exemption under this Section will apply to interest paid by an Irish corporate borrower to a bank carrying on a bona fide banking business in the State, where the bank did not provide the original advance but took an assignment of the original loan or part of the loan from a foreign institutional lender.