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The United States Court of Federal Claims has turned down a claim from an Irish citizen that more than USD5m in US tax withheld on gambling winnings should be refunded under the US-Ireland double tax avoidance treaty.
The claim was filed by the plaintiff, John P McManus, after USD5.22m in tax was withheld from winnings of USD17.4m connected to a three-day backgammon game held in the United States.
McManus, who claims citizenship in Ireland but lives in Switzerland, argued that he is entitled to a refund under the US-Ireland tax treaty because, at the time the event took place in 2012, he paid the Irish domicile levy and was therefore a resident of Ireland for the purposes of Article 22 of the tax treaty, and exempt from the tax on gambling proceeds.
Introduced in 2010, the domicile levy applies to Irish-domiciled individuals who own property in Ireland valued at more than EUR5m (USD5.3m), whose worldwide income exceeds EUR1m, and whose liability for Irish income tax in the relevant tax year was less than EUR200,000.
Citing Article 4 of the tax treaty, McManus argued that he was a "resident" of Ireland in 2012 because he was "liable to tax" in Ireland "by reason of his domicile." He also contends that the domicile levy falls into the definition of a "full" and "comprehensive" under the OECD's Model Tax Convention.
However, in her judgment, senior judge Nancy B Firestone agreed with the US Government's view, based on a letter received by the Irish tax authority, that payment of the domicile levy in itself is not sufficient to show that an individual is "resident" in Ireland for tax purposes. This letter stated that "[t]he payment of the domicile levy does not entitle John P McManus to receive treaty benefits in accordance with the provisions in the Ireland-USA Double Taxation Convention. The domicile levy is not a covered tax for the purposes of this Convention."
"In sum, none of McManus's arguments regarding his claim for a refund based on Articles 4 and 22 of the Tax Treaty have merit," judge Firestone wrote.
"The court finds that McManus's payment of the domicile levy alone did not make him a resident of Ireland in 2012 for the purposes of Article 4 of the Tax Treaty and thus his claim for a refund based on Article 22 is denied."
McManus also argued that the US tax on gambling winnings violates the treaty's non-discrimination clauses, which he contends apply to nationals of the US and Ireland regardless of residence status under the agreement.
However, judge Firestone said the plaintiff's claim in this regard is barred under the Federal Circuit's doctrine of "substantial variance," because this argument was not presented to the Internal Revenue Service prior to the court hearing, and was made for the first time at the oral argument on the parties' cross-motions for summary judgment.
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