Europe Urges Ireland And UK To Amend Tax Laws

by Jason Gorringe, Tax-News.com, London

03 April 2007

The European Commission is calling on the Irish government to amend its tax legislation after finding that taxation of income sourced in the United Kingdom breaches the EC Treaty. The Commission has also sent a similar request to the UK government.

According the Commission's complaint, while Ireland normally does not normally tax income received by non-domiciled persons from money invested abroad if the interest is left on the foreign bank account, these rules exclude income that is sourced in the UK, thus treating such income less favourably than income arising elsewhere in the EU. The Commission considers that this is contrary to the EC Treaty and to the EEA Agreement, as it restricts the free movement of capital.

The Commission has warned the Irish government that the matter will be referred to the European Court of Justice if it does not respond satisfactorily within two months.

At the same time the European Commission has decided to send a request for information notice to the United Kingdom about similar remittance base taxation rules, which in turn appear to discriminate against income sourced in Ireland.

"The Commission does not advocate remittance base taxation, as it may lead to double non-taxation." said EU Taxation and Customs Commissioner Laszlo Kovacs. "Nonetheless, where it exists, the Single Market requires that it is at least applied in a non-discriminatory manner".

Ireland applies remittance base taxation to foreign sourced income of persons who are not Irish domiciled, or who are Irish citizens not ordinarily resident in Ireland.

Remittance base taxation means that income from money invested abroad is only taxed in so far as the income is paid to the state of residence. So, for instance, interest received on a foreign bank account is not taxed, as long as the interest is not paid to the state of residence, but is left on the foreign bank account.

However, Ireland excludes income sourced in the United Kingdom from remittance base taxation. This dissuades non-domiciled and not ordinary residents living in Ireland from investing their money in the United Kingdom. Equally, it is likely to make it more difficult for providers of capital investment opportunities in the United Kingdom to attract capital from these persons, the EC argues.

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