Credit for foreign withholding tax

JansheerKahn

Irish company A Ltd performs services in Netherlands.
Withholding Tax at say 16% withheld on the gross services and under the DTA this is income taxable in Netherlands only.

My query is as follows;

Netherlands withholding tax was withheld on the gross payments.

In order to claim double tax relief we need to calculate the Irish measure of the foreign income.
Can the Irish measure of foreign income be calculated on the basis of the gross income as this is what the Netherlands withholding tax was based on or do we need to calculate the net foreign income after overheads etc?
Surely as withholding tax was applied on the gross payments the gross amounts can be used as the basis for calculating the Irish measure of the foreign income as otherwise would be significant unrelieved foreign tax due to the Irish income being based on net profit but Netherlands income based on gross income.

Marcusm

What types of services and in what context? Was the person based in the Netherlands at the time? DTR credit will be limited to the profit wring from the provision of services such that a withholding on the gross may cause a net loss. Are you sure the withholding tax is not relieved under the DTA?

JansheerKahn

Engaged on professional contract for two months. Holland has the primary rights - PE established in Holland.
Tax was withheld on the gross amounts due.
Direct costs involved were not taken into account - €10,000

Query is as follows;

Gross income €100,000
Tax Withheld €16,000

(1)
Net foreign income €84,000
RE Gross at 87.5% €96,000
Double tax credit at 12.5% €12,000

Deduction as opposed to credit for the remaining €4,000 of foreign tax

(2)
Gross foreign income €100,000
Less costs €10,000
Foreign income €90,000
W H Tax €16,000
Net foreign income €74,000
Foreign effective rate 17.77%

Irish Rate 12.5%

ReGross NFI at 12.5% €84,571
Double tax credit €10,571

Deduction as opposed to credit for the remaining €5,429 of foreign tax
Therefore less credit under this method as net foreign income less due to costs being taken into account

Is (1) or (2) correct or neither method?!
(2) would seem inequitable as foreign tax was originally withheld on the gross amounts before costs so should Irish measure of this income also be before costs for double tax credit purposes?

Marcusm

JansheerKahn wrote: »

Engaged on professional contract for two months. Holland has the primary rights - PE established in Holland.
Tax was withheld on the gross amounts due.
Direct costs involved were not taken into account - €10,000

Query is as follows;

Gross income €100,000
Tax Withheld €16,000

(1)
Net foreign income €84,000
RE Gross at 87.5% €96,000
Double tax credit at 12.5% €12,000

Deduction as opposed to credit for the remaining €4,000 of foreign tax

(2)
Gross foreign income €100,000
Less costs €10,000
Foreign income €90,000
W H Tax €16,000
Net foreign income €74,000
Foreign effective rate 17.77%

Irish Rate 12.5%

ReGross NFI at 12.5% €84,571
Double tax credit €10,571

Deduction as opposed to credit for the remaining €5,429 of foreign tax
Therefore less credit under this method as net foreign income less due to costs being taken into account

Is (1) or (2) correct or neither method?!
(2) would seem inequitable as foreign tax was originally withheld on the gross amounts before costs so should Irish measure of this income also be before costs for double tax credit purposes?

A contract being undertaken for 2 months would not, in the ordinary course of events, constitute a PE. Was the work undertaken at the client's premises or where?