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INVESTING IN IRELANDFOREIGN TAXES – DOUBLE TAXATION AGREEMENTS Relief for foreign taxes is available as a deduction in computing taxable income or in some cases is given as a credit against Irish tax, under double taxation agreements or under a number of EU Directives as implemented in Ireland and mentioned below. Ireland has comprehensive double taxation agreements in force with 45 countries. New Treaties with other countries are currently being negotiated. The agreements generally cover income tax, corporation tax and capital gains tax (direct taxes). Where a double taxation agreement does not exist with a particular country, there are provisions within the Irish Taxes Acts which allow unilateral credit relief against Irish tax for tax paid in the other country in respect of certain types of income (e.g. dividends and interest). The EU Directives referred to above are the EC "Parent-Subsidiaries Directive" (90/435/EEC as amended by as amended by Directive 2003/123) 4, the "EU Mergers Directive" (90/434/EEC) 5 and the Interest and Royalty Directive (2003/49) 6.
4 These directives ( 90/435 as amended by Directive 2003/123) are aimed at eliminating double taxation on dividends across border within the EU from subsidiaries to their parents. The shareholding for a company to be considered a parent is 5%. Taxes paid by lower tiers of subsidiaries may be taken into account for the purposes of giving credit relief to an Irish company that receives dividends from its subsidiaries in EU member states subject to a shareholding of 5% at each tier. 5 The purpose of this directive is to remove tax barriers to mergers, divisions, transfers of assets and exchanges of shares between companies from different member states. In general terms it achieves this by deferring any capital gains tax which would arise at the time of the merger. In general terms it allows certain transactions to take place without corporation tax or capital gains tax implications including transfer of a trade, the transfer of trading assets or transfer of development land 6 The purpose of the Directive is the total elimination of double taxation on cross border payments of interests and royalties between 25% associated companies.
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