Text - Treaty Document: Senate Consideration of Treaty Document 105-31All Information (Except Treaty Text)

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[Senate Treaty Document 105-31]
[From the U.S. Government Publishing Office]



105th Congress                                              Treaty Doc.
                               SENATE

 1st Session                                                     105-31
_______________________________________________________________________


 
                      TAX CONVENTION WITH IRELAND

                               __________

                                MESSAGE

                                  from

                   THE PRESIDENT OF THE UNITED STATES
                              transmitting

 CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND 
THE GOVERNMENT OF IRELAND FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE 
   PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME AND 
   CAPITAL GAINS, SIGNED AT DUBLIN ON JULY 28, 1997, TOGETHER WITH A 
          PROTOCOL AND EXCHANGE OF NOTES DONE ON THE SAME DATE





 September 24, 1997.--Convention was read the first time and, together 
  with the accompanying papers, referred to the Committee on Foreign 
     Relations and ordered to be printed for the use of the Senate


                         LETTER OF TRANSMITTAL

                              ----------                              

                               The White House, September 24, 1997.
To the Senate of the United States:
    I transmit herewith for Senate advice and consent to 
ratification the Convention Between the Government of the 
United States of America and the Government of Ireland for the 
Avoidance of Double Taxation and the Prevention of Fiscal 
Evasion with Respect to Taxes on Income and Capital Gains, 
signed at Dublin on July 28, 1997, (the ``Convention'') 
together with a Protocol and an exchange of notes done on the 
same date. Also transmitted is the report of the Department of 
State concerning the Convention.
    This Convention, which is similar to tax treaties between 
the United States and other OECD nations, provides maximum 
rates of tax to be applied to various types of income and 
protection from double taxation of income. The Convention also 
provides for resolution of disputes and sets forth rules making 
its benefits unavailable to residents that are engaged in 
treaty shopping.
    I recommend that the Senate give early and favorable 
consideration to this Convention, with its Protocol and 
exchange of notes, and that the Senate give its advice and 
consent to ratification.

                                                William J. Clinton.


                          LETTER OF SUBMITTAL

                              ----------                              

                                       Department of State,
                                       Washington, August 19, 1997.
    The President: I have the honor to submit to you, with a 
view to its transmission to the Senate for advice and consent 
to ratification, the Convention Between the Government of 
Ireland for the Avoidance of Double Taxation and the Prevention 
of Fiscal Evasion with Respect to Taxes on Income and Capital 
Gains, signed at Dublin on July 28, 1997, (``the Convention'') 
together with a Protocol and an exchange of notes done on the 
same date, which, in each case provides binding interpretations 
and understandings concerning the application of the 
Convention.
    This Convention will replace the existing Convention 
Between the Government of the United States of America and the 
Government of Ireland for the Avoidance of Double Taxation and 
the prevention of Fiscal Evasion with Respect to Taxes on 
Income signed at Dublin on September 13, 1949. The new 
Convention maintains many provisions of the existing 
convention, but it also provides certain additional benefits 
and updates the text to reflect current tax treaty policies.
    This Convention is similar to the tax treaties between the 
United States and other OECD nations. It provides for maximum 
rates of tax to be applied to various types of income, 
protection from double taxation of income, exchange of 
information, and contains rules making its benefits unavailable 
to persons that are engaged in treaty shopping.
    Like other U.S. tax conventions, this Convention provides 
rules specifying when income that arises in one of the 
countries and is attributable to residents of the other country 
may be taxed by the country in which the income arises (the 
``source'' country). In most respects, the rates under the new 
Convention are the same as those in many recent U.S. tax 
treaties with OECD countries.
    The maximum rates of tax that may be imposed on dividend 
and royalty income are generally the same as in the current 
U.S.-Ireland treaty. Pursuant to Article 10, dividends from 
direct investments are subject to tax by the source country at 
a rate of five percent. The threshold criterion for direct 
investment has been reduced from 95 percent ownership of the 
equity of a firm to ten percent consistent with other modern 
U.S. treaties, in order to facilitate direct investment. Other 
dividends are generally taxable at 15 percent. Under Article 
12, royalties derived and beneficially owned by a resident of a 
Contracting State are generally taxable only in that State.
    As in the current convention, under Article 11 of the 
proposed Convention, interest arising in one Contracting State 
and owned by a resident of the other Contracting State is 
exempt from taxation by the source country. The restrictions on 
the taxation of royalty and interest income do not apply, 
however, if the beneficial owner of the income is a resident of 
one Contracting State who carries on business in the other 
Contracting State in which the income arises and the income is 
attributable toa permanent establishment in that State. In that 
situation, the income is to be considered either business profit or 
income from independent personal services.
    The maximum rates of withholding tax described in the 
preceding paragraphs are subject to the standard anti-abuse 
rules for certain classes of investment income found in other 
U.S. tax treaties and agreements.
    The taxation of capital gains, described in Article 13 of 
the Convention, generally follows the rule of recent U.S. tax 
treaties as well as the OECD model. Gains on real property are 
taxable in the country in which the property is located, and 
gains from the sale of personal property are taxed only in the 
State of residence of the seller, unless attributable to a 
permanent establishment or fixed base in the other State.
    Article 7 of the new Convention generally follows the 
standard rules for taxation by one country of the business 
profits of a resident of the other. The non-residence country's 
right to tax such profits is generally limited to cases in 
which the profits are attributable to a permanent establishment 
located in that country. The present convention grants taxing 
rights that are in some respects broader and in others narrower 
than those found in modern treaties.
    As do all recent U.S. treaties, this Convention preserves 
the right of the United States to impose its branch profits tax 
in addition to the basic corporate tax on a branch's business 
(Article 7). This tax, which was introduced in 1986, is not 
addressed under the present treaty. Paragraph 4 of the Protocol 
also accommodates a provision of the 1986 Tax Reform Act that 
attributes to a permanent establishment income that is earned 
during the life of the permanent establishment but is deferred 
and not received until after the permanent establishment no 
longer exists.
    Consistent with U.S. treaty policy, Article 8 of the new 
Convention permits only the country of residence to tax profits 
from international carriage by ships or aircraft and income 
from the use, maintenance, or rental of containers used in 
international traffic. This reciprocal exemption also extends 
to income from the rental of ships and aircraft if the rental 
income is incidental to income from the operation of ships and 
aircraft in international traffic.
    Article 21 of the proposed Convention provides special 
thresholds to determine when income derived in connection with 
the offshore exploration for, and exploitation of, natural 
resources may be taxed in the source country. The general rule 
of Article 21 is that all exploitation activities give rise to 
a permanent establishment while exploration activities create a 
permanent establishment only if they continue for a period of 
120 days in a twelve-month period. Article 21 also provides 
that salaries and other remuneration of a resident of one 
Contracting State derived from an employment in connection with 
offshore activities carried on through a permanent 
establishment in the other may be taxed by the other State. 
Other U.S. treaties with countries bordering on the North Sea 
(e.g., Norway, the United Kingdom, and the Netherlands) have 
similar articles dealing with offshore activities.
    The taxation of income from the performance of personal 
services under Articles 14 through 17 of the new Convention is 
essentially the same as that under other recent U.S. treaties 
with OECD countries. Unlike many U.S. treaties, however, the 
new Convention, at Article 18,provides for the deductibility of 
cross-border contributions by temporary residents of one State to 
pension plans registered in the other State under limited 
circumstances.
    Article 23 of the new Convention contains significant anti-
treaty-shopping rules making its benefits unavailable to 
persons engaged in treaty-shopping. The current convention 
contains no such anti-treaty-shopping rules. The Limitation on 
Benefits of the proposed Convention also eliminates another 
potential abuse by denying U.S. benefits with respect to income 
attributable to third-country permanent establishments of Irish 
corporations that are exempt from tax in Ireland by operation 
of Irish law (the so-called ``triangular cases''). Under the 
new Convention, full U.S. treaty benefits generally will be 
granted in these triangular cases only when the U.S. source 
income is subject to a significant level of tax in Ireland or 
in the country in which the permanent establishment is located.
    The proposed Convention also contains rules necessary for 
its administration, including rules for the resolution of 
disputes under the Convention (Article 26) and for exchange of 
information (Article 27).
    The Convention would permit the General Accounting Office 
and the tax-writing committees of Congress to obtain access to 
certain tax information exchanged under the Convention for use 
in their oversight of the administration of U.S. tax laws.
    This Convention is subject to ratification. In accordance 
with Article 29, it will enter into force upon the exchange of 
instruments of ratification and will have effect for payments 
made or credited on or after the first day of January following 
entry into force with respect to taxes withheld by the source 
country; with respect to other taxes, the Convention will take 
effect for taxableperiods beginning on or after the first day 
of January following the date on which the Convention enters into 
force. When the present convention affords a more favorable result for 
a taxpayer than the proposed Convention, the provisions of the present 
convention will continue to apply for one additional year. Article 
29(5) also provides that certain companies that are owned by residents 
of member states of the European Union or of parties to the North 
American Free Trade Agreement not be subject to the terms of Article 
23(5)(b) for an additional two years.
    The proposed Convention will remain in force indefinitely 
unless terminated by one of the Contracting States, pursuant to 
Article 30. That Article provides that, at any time after five 
years from the date the Convention enters into force, either 
State may terminate the Convention by giving prior notice 
through diplomatic channels of six months.
    A Protocol and an exchange of notes accompany the 
Convention and provide binding interpretations and 
understandings concerning the application of the Convention. 
The Protocol, which states that it is an integral part of the 
Convention, elaborates on the meaning of certain terms used in 
the Convention. The exchange of notes provides further 
clarification and will constitute an agreement that will enter 
into force upon entry into force of the Convention.
    A technical memorandum explaining in detail the provisions 
of the Convention will be prepared by the Department of the 
Treasury and will be submitted separately to the Senate 
Committee on Foreign Relations.
    The Department of the Treasury and the Department of State 
cooperated in the negotiation of the Convention. It has the 
full approval of both Departments.
    Respectfully submitted,
                                                Madeleine Albright.