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Finance Act 2004
Exemption from Tax for certain Interest and Royalties Payments
Amendment of Part 8 (Annual Payments, Charges and Interest) of the Taxes Consolidation Act 1997
Implementation of Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States.
|Interpretation (Chapter 6).|| |
267G.—(1) In this Chapter—
‘arrangements’ means arrangements having the force of law by virtue of section 826(1)(a);
‘bilateral agreement’ means any arrangements, protocol or other agreement between the Government and the government of another state;
‘permanent establishment’ means a fixed place of business through which the business of a company of a Member State is wholly or partly carried on which place of business is situated in a territory other than that Member State;
‘company’ means a company of a Member State;
‘company of a Member State’ has the meaning assigned to it by Article 3(a) of the Directive;
‘interest’ means income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor's profits, and in particular, income from securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures but does not include penalty charges for late payment;
‘Member State’ means a Member State of the European Communities;
‘royalties’ means payments of any kind as consideration for
(a) the use of, or the right to use—
(i) any copyright of literary, artistic or scientific work, including cinematograph films and software,
(ii) any patent, trade mark, design or model, plan, secret formula or process,
(b) information concerning industrial, commercial or scientific experience;
(c) the use of, or the right to use, industrial, commercial or scientific equipment;
‘tax’, in relation to a Member State other than the State, means any tax imposed in that Member State which is specified in Article 3(a)(iii) of the Directive.
(2) For the purposes of this Chapter—
(a) a company shall be treated as an ‘associated company’ of another company during an uninterrupted period of at least 2 years throughout which—
(i) one of them directly controls not less than 25 per cent of the voting power of the other company, or
(ii) in respect of those companies, a third company directly controls not less than 25 per cent of the voting power of each of them,
(b) a permanent establishment of a company in a Member State shall be treated as being the beneficial owner of interest or royalties if—
(i) the debt-claim, right or asset in respect of which the interest arises, or as the case may be the royalties arise, consists of property or rights used by, or held by or for, the permanent establishment, and
(ii) the interest or royalties are taken into account in computing income of the permanent establishment which is subject to one of the taxes specified in Article 1.5(b) or Article 3(a)(iii) of the Directive,
(c) a word or expression used in this Chapter and in the Directive has, unless the contrary intention appears, the same meaning in this Chapter as in the Directive.
|Application (Chapter 6).|| |
267H.—(1) Subject to subsection (2), this Chapter shall apply to a payment, being interest or royalties, made—
(a) by either—
(i) a company resident in the State, or
(ii) a company not so resident which carries on a trade in the State through a permanent establishment if, in relation to the trade the interest gives, or as the case may be the royalties give, rise to a deduction under section 81 or 97 or relief under Part 8,
(b) to or for the benefit of—
(i) where subparagraph (ii) does not apply, a company which—
(I) is the beneficial owner of the interest, or as the case may be the royalties, and
(II) is, by virtue of the law of a Member State other than the State, resident for the purposes of tax in such a Member State,
(ii) a permanent establishment—
(I) which is situated in a Member State (in this subparagraph referred to as the ‘first Member State’) other than the State,
(II) which is treated as the beneficial owner of the interest, or as the case may be the royalties, and
(III) through which a company, which is (by virtue of the law of a Member State other than the State) resident for the purposes of tax in such a Member State, carries on a business in the first Member State,
if the company referred to in paragraph (a) is an associated company of the company referred to in paragraph (b).
(2) This Chapter shall not apply to—
(a) interest or royalties paid—
(i) to a company where the debt-claim, right or asset in respect of which the payment is made consists of property or rights used by, or held by or for, a permanent establishment of the company through which the company carries on a trade—
(I) in the State, or
(II) in a territory which is not a Member State,
(ii) by a company for the purposes of a business carried on by it through a permanent establishment in a territory which is not a Member State,
(b) interest on a debt-claim in respect of which there is no provision for repayment of the principal amount or where the repayment is due more than 50 years after the creation of the debt, or
(c) so much of any royalties paid as exceeds the amount which would have been agreed by the payer, and the beneficial owner, of the royalties if they were independent persons acting at arms' length.
|Exemptions from tax and withholding tax.|| |
267I.—(1) Where, apart from this section, section 238, 246(2) or 257 would apply to a payment of interest or royalties to which this Chapter applies, those sections shall not apply to that payment.
(2) A company which, by virtue of the law of a Member State other than the State, is resident for the purposes of tax in that Member State, shall not be chargeable to corporation tax or income tax in respect of interest or royalties to which this Chapter applies except where the interest is, or as the case may be the royalties are, paid to the company in connection with a trade which is carried on in the State by that company through a permanent establishment.
|Credit for foreign tax.|| |
267J.—(1) Where interest or royalties are received by a company resident in the State from an associated company, credit shall be allowed for—
(a) any withholding tax charged on the interest or royalties by Greece or Portugal, and
(b) any withholding tax charged on the royalties by Spain,
pursuant to the derogations provided for in Article 6 of the Directive against corporation tax in respect of the interest or royalties to the extent that credit for such withholding tax would not otherwise be allowed.
(2) Where by virtue of paragraph (a) a company is to be allowed credit for tax payable under the laws of a Member State other than the State, Schedule 24 shall apply for the purposes of that paragraph as if that paragraph were arrangements providing that the tax so payable shall be allowed as a credit against tax payable in the State.
(3) This section applies without prejudice to a provision of a bilateral agreement.
267K.—(1) Sections 267G, 267H, 267I and 267J shall not apply to interest or royalties unless it can be shown that the payment of the interest or royalties was made for bona fide commercial reasons and does not form part of any arrangement or scheme of which the main purpose or one of the main purposes is avoidance of liability to income tax, corporation tax or capital gains tax.
(2) Where a company which—
(a) is entitled to receive a payment of interest or royalties from any person, and
(b) had received from that person a payment of interest or royalties which was exempt from tax in accordance with the Directive,
ceases to fulfil the requirements specified in the Directive for exemption to apply, the company shall without delay inform that person that it has so ceased.”.