Double Tax Treaty

Green Onions

Why does Ireland have Double Tax Treaties with the US and the UK, but not with countries in Europe/the European Union?

CIARAN_BOYLE

Green Onions wrote: »

Why does Ireland have Double Tax Treaties with the US and the UK, but not with countries in Europe/the European Union?

Ireland do have dtas with eu countries. at least the 5 I checked there.

I would assume and I do believe that we have dtas with all eu countries.

Green Onions

Thank you Ciaran. Also for Capital Acquisition Tax?

CIARAN_BOYLE

Green Onions wrote: »

Thank you Ciaran. Also for Capital Acquisition Tax?

I'm sure that the terms of the treaties in question are contained in the treaties. They are likely to vary given that we have dtas with 72 different countries. Reading the relevant treaty may answer your question.

thegolfer

Green Onions wrote: »

Thank you Ciaran. Also for Capital Acquisition Tax?

Only two DTAs for CAT with UK and the US.

Green Onions

Thank you. This is what I heard, but not sure if this is true?

As a UK or US resident in Ireland you "only" pay tax on gifts and inheritances in your "own" country - regardless of whether that % is higher or lower than the Irish tax rate.

However, as an EU-union resident in Ireland, you pay 33% tax rate on gifts and inheritance: 33% in Ireland minus a credit granted for taxes paid in your "own" country.

Peregrinus

The default position is that an Irish resident (regardless of nationality) is liable to CAT on their worldwide gifts and inheritances.

However liablity to UK inheritance tax doesn't depend on the residence of the recipient, but on the domicile (i.e. permanent residence) of the donor.

As I understand it, if a UK citizen who is resident in Ireland receives a gift or inheritance of UK property from a UK-domiciled donor, then:

(a) the UK will levy a charge to UK inheritance tax; and

(b) Ireland will levy a charge to Irish CAT; but

(c) the amount of UK inheritance tax paid is available as a credit towards Irish CAT. If the K iinheritance tax liablity is equal to or greater than the Irish CAT liability, then the net Irish CAT liability will be nil.

The Ireland/US double taxation agreement is different. It provides that country A can only tax inheritances of property in country B if the donor was domiciled in country A. Thus if an Irish resident (regardless of nationality) inherits property in the US from a US-domiciled donor, there's no Irish CAT. Obviously, in practice this happens more often to US citizens who have come to live in Ireland, but the same rules would apply to an Irish born and bred person inheriting property in the US.

As to why other double taxation agreements don't deal with inheritance tax/CAT:

Worldwide, models of inheritance tax/estate tax/gift tax/CAT vary very widely, and there is no standard model for double taxation agreement in this are (whereas there is a standard model for DTAs dealing with income tax and CGT). Every double taxation agreement has to be custom-built, as it were, by negotiations between the two countries concerned, having regard to the particular features of the tax regime of both countries. It's an awful lot of time and effort. It's not worth doing this unless each country has a significant number of people receiving gifts or inheritance of property in, or from donors in, the other. Most countries are just not interested in negotiating a tax treatment covering inheritances with little old Ireland. And, to be honest, Ireland is similarly uninterested in such a treaty with most other countries.

Instead, Ireland offers a unilateral tax relief - i.e. one it gives regardless of what the other country does. If you, an Irish resident, inherit property in country C (with whom there is no relevant tax treaty) and your Irish CAT liability on that inheritance would normally be, say, 10,000, but you pay 3,000 in estate duty or similar in country C, you can deduct that from your Irish CAT liability and pay only 7,000 in Ireland. If the tax hit in country C is 10,000 or greater, then your Irish CAT liability is reduced to nil.

Green Onions

Thank you very much. So if there is a recurrent tax-free threshold in Country C (i.e. every 10 years), the Irish resident (regardless of nationality) is liable to Irish CAT?

Peregrinus

Green Onions wrote: »

Thank you very much. So if there is a recurrent tax-free threshold in Country C (i.e. every 10 years), the Irish resident (regardless of nationality) is liable to Irish CAT?

If I understand your question correctly, the answer is "yes". Ireland gives a tax credit against CAT liability for any inheritance tax paid in the other country. If, because of the recurrent tax-free threshold in the other country, you don't have to pay any inheritance tax there, you don't get any credit against your CAT liability.

Green Onions

Peregrinus wrote: »

If I understand your question correctly, the answer is "yes". Ireland gives a tax credit against CAT liability for any inheritance tax paid in the other country. If, because of the recurrent tax-free threshold in the other country, you don't have to pay any inheritance tax there, you don't get any credit against your CAT liability.

Thank you. I.e.:
For foreign companies, it is interesting to invest in the State as they are incentivised with a low corporation tax.
For foreign employees with a gift or inheritance, it is economically uninteresting to work here.

Peregrinus

That reflects the fact that, historically, we have been keen to attract foreign investment, but less keen to attract foreigners from wealthy backgrounds who expect to receive gifts or inheritances.

Which, you know, is a policy I don't have a lot of trouble with. I can't see much argument for a concessional tax regime that would create a privileged class of foreign workers who pay less tax than their Irish counterparts. We don't have a skilled labour shortage in Ireland, such that we would need to do something like that, and the negative social implications are obvious.

Green Onions

Thank you for clarifying. I can't see much argument for a concessional tax regime either but am trying to understand the taxation implications.