EU Requests Ireland To Amend Discriminatory Tax Provisions

by Ulrika Lomas, for LawAndTax-News.com, Brussels

22 September 2008

Ireland has received a formal request from the EU to amend the discriminatory treatment resulting from a tax exemption for interest on savings certificates issued by the Irish state.

The request also relates to the possibility of a tax exemption of certain government, state-issued and state-guaranteed securities, while interest on similar foreign certificates and securities is not tax exempt.

In the opinion of the EC, these provisions discriminate against taxpayers who wish to invest in similar financial instruments issued in other member states, and are incompatible with the free movement of capital, as guaranteed by Article 56 of the EC Treaty and Article 40 of the EEA agreement.

The request takes the form of a reasoned opinion (second step of the infringement procedure provided for in article 226 of the EC Treaty). If there is no satisfactory reaction to the reasoned opinion within two months, the Commission may decide to refer the matter to the European Court of Justice.

Irish legislation exempts from tax interest payable on savings certificates issued by the Irish Ministry of Finance. It also provides for the possibility of an exemption of interest from or capital gains on certain government, state-issued and state-guaranteed securities paid to persons who are resident in Ireland for less than 3 years.

In the Commission's view the Irish provisions at issue dissuade taxpayers from investing in similar financial instruments issued in other member states or EEA countries by denying tax exemption for such instruments.

The ECJ ruled in a case against Belgium, on September 26, 2000 that any measure taken by a member state which is liable to dissuade its residents from making investments in other member states constitutes a restriction on free movement of capital within the meaning of Article 56 of the EC Treaty.

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