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Ireland Consults On US Double Tax Agreement Changes

by Jason Gorringe,, London

26 August 2016

The Irish Finance Department has launched a consultation on changes to the country's tax agreement with the US.

The Department explained that the update is seen as necessary following the United States's decision to update its Model Tax Treaty.

The US update took account of recommendations from the OECD as part of its base erosion and profit shifting. For example, the 2016 Model does not reduce withholding taxes on payments of highly mobile income – income that taxpayers can easily shift around the globe through deductible payments such as royalties and interest – that are made to related persons that enjoy low or no taxation with respect to that income under a preferential tax regime.

In addition, a new article obligates the treaty partners to consult with a view to amending the treaty as necessary when changes in the domestic law of a treaty partner draw into question the treaty's original balance of negotiated benefits and the need for the treaty to reduce double taxation. The 2016 Model also includes measures to reduce the tax benefits of corporate inversions. Specifically, it denies reduced withholding taxes on US-source payments made by companies that engage in inversions to related foreign persons.

The US update also included rules providing that disputes between countries on the application of a double tax agreement should be resolved through mandatory binding arbitration, through the "last best offer" approach.

Announcing the consultation, the Irish Finance Department said: "The OECD Base Erosion and Profit Shifting (BEPS) reports, published in October 2015, made a number of recommendations for updating tax treaties globally. Countries around the world, including Ireland, are now actively engaged in implementing the BEPS recommendations both domestically and through international agreements."

"The Department of Finance and the Revenue Commissioners are calling for written comments from interested parties on the updated US Model Tax Treaty from an Irish perspective," it added.

TAGS: tax | Ireland | tax avoidance | interest | royalties | law | ministry of finance | tax authority | agreements | transfer pricing | withholding tax | United States | Tax | BEPS

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