Brian Hayes (Dublin South West, Fine Gael) | Oireachtas source

I move amendment No. 66:

In page 60, between lines 6 and 7, to insert the following:“Attribution of relevant profits for additional credit
39. (1) Schedule 24 to the Principal Act is amended in paragraph 9I—

(a) in subparagraph (1), in the definition of “tax”, by deleting “, for the purposes of the definition of ‘excluded dividend’ in this subparagraph,”,
(b) in subparagraph (4)(b) by substituting “subject to corporation tax at the rate specified in section 21A(3)(a)” for “chargeable to corporation tax under Case III of Schedule D”, and
(c) by inserting the following subparagraph after subparagraph (4):

“(4A) (a) Where the relevant profits in relation to the relevant dividend referred to in clause (a) or (b) of subparagraph (4) have not been subject to tax, which corresponds to corporation tax in the State, but are attributable to profits of a company which have been subject to such tax, then, for the purposes of subparagraph (4), the rate per cent of tax, which is referred to in clause (a) or (b) of that subparagraph as applicable to the relevant profits in relation to the relevant dividend, shall be deemed to be the rate per cent of tax, which corresponds to corporation tax in the State, applicable to those profits of that company which have been subject to such tax.

(b) For the purposes of clause (a) and subparagraphs (3) and (4)—

(i) each part, if any, of a relevant dividend mentioned in clause (a) or (b) of subparagraph (4), being—

(I) an amount (referred to in this subclause as the ‘directly taxed amount’), which is so much of the relevant dividend as does not exceed the relevant profits in relation to the relevant dividend which have been subject to tax, which corresponds to corporation tax in the State, or
(II) so much of the excess of the relevant profits in relation to the relevant dividend over the directly taxed amount as is attributable to profits of a company which have been subject to tax, which corresponds to corporation tax in the State, shall be treated as a separate relevant dividend, and

(ii) the aggregate value of the parts of the relevant dividend so treated under subclause (i) shall not exceed the value of that relevant dividend.

(c) For the purposes of this subparagraph—

(i) profits of a company are attributable to the profits of another company if they have been received directly or indirectly by the payment of dividends or the making of distributions by one or more companies directly or indirectly from the profits of that other company, and
(ii) relevant profits in relation to a relevant dividend shall not be attributable to the same profits of a company more than once.

(d) For the purposes of clause (c)(ii), any profits of a company, other than relevant profits in relation to a relevant dividend, and any profits of any other company to which they are attributable shall be deemed to be the same profits.”.

(2) This section shall have effect as respects dividends paid on or after the date of the passing of this Act.”.

This amendment is required to bring provisions relating to relief for foreign tax on dividends paid to Irish companies into line with rulings of the Court of Justice of the European Union. The rulings require that equality of treatment for corporation tax purposes be provided between domestically sourced dividends and dividends received from other EU member states. The amendment inserts a new subparagraph into paragraph 9I of Schedule 24 of the Taxes Consolidation Act 1997. That paragraph was enacted in Finance Act 2013 in response to a court ruling in the FII Group Litigation case, which required that the foreign nominal rate of tax be taken into account when calculating double tax relief for foreign tax paid on dividends from EU or EEA partner countries.

This requirement was met by providing for an additional foreign tax credit to be allowed by reference to the foreign nominal rate of tax.

It has been determined, however, following recent representations from taxpayers, that the current legislation is not yet fully in compliance with the judgment. It allows for the additional credit to be claimed where the dividend paid to the Irish company is paid directly out of the profits of the paying company that has suffered foreign tax. It unintentionally denies the additional credit where the taxed profits are paid indirectly to the Irish company. The proposed amendment addresses that. It allows for the additional credit to be claimed where the dividend that is paid to the Irish company is attributed indirectly, through other dividend-paying companies, to profits that have suffered foreign tax. That will ensure the paragraph operates as intended, and in line with the ruling of the court. The amendment also makes two technical amendments to paragraph 9I of Schedule 24. The amendment takes effect from the passing of the Act. I commend the amendment to the committee.

The amendment was introduced in order that the treatment of the issue would be in line with the European court’s judgment, which followed in the intervening period. We are simply reflecting the judgment in the treatment of existing Irish tax law.