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Ireland Eases Rules For Royalty Tax Withholding Waiver

by Lorys Charalambous, Tax-News.com, Cyprus

03 November 2016


Companies eligible for the waiver from the requirement to withhold tax upon the payment of a royalty to a non-resident company will no longer have to receive advance clearance from the Irish Revenue.

The rules on tax on payments of patent royalties are set out in Section 238(2) of the Taxes Consolidation Act 1997 (TCA 1997). Typically, on making a payment of a royalty or other sum paid in respect of the user of a patent, the payer is obliged to deduct out of the payment a sum representing the amount of income tax on the payment at the standard rate.

However, Chapter 6 of Part 8 of the TCA 1997 provides that withholding taxes will not apply to royalty payments that meet the requirements of that Chapter. Essentially this waiver covers payments made to associated companies resident in another EU member state. In addition, Section 242A of the TCA 1997 provides that withholding tax will not apply to royalties paid by a company in the course of a trade or business to a company resident in a treaty country.

Statement of Practice (SP) CT 01/10 sets out these rules. It was updated on October 18, 2016.

According to Revenue, it was updated "to replace the requirement to seek advance clearance from Revenue for the application of the administrative practice with a requirement to make a notification to Revenue."

It said, in Revenue eBrief No. 88/16 of October 21, that "a company that is applying the administrative practice, to pay a royalty to a non-resident company without deduction of tax on or after October 18, 2016, is required to notify Revenue that it is availing of the administrative practice. The notification must be made in respect of each accounting period during which relevant royalties are paid and the administrative practice is applied."

TAGS: compliance | tax | business | tax compliance | Ireland | tax avoidance | royalties | revenue guidance | law | accounting | corporation tax | enforcement | tax authority | agreements | multinationals | legislation | tax planning | transfer pricing | tax reform | trade

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