Tax Deal to Be Replaced

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Tax Deal to Be Replaced

February 14, 2008

By Paddy Clancy

IRELAND’S attractiveness as a base for giant U.S. multinationals could be considerably reduced under talks due this year between the Dublin and Washington administrations.

The talks could also have major implications for Irish residents with investment in the U.S., including properties.

The two countries have a treaty dating back to 1997 which ensures that taxpayers and companies do not pay the same tax on their income or profits in more than one jurisdiction.

The treaty, signed on the Irish side by Ray Burke when he was finance minister, established what elements of a company’s profits are paid in each jurisdiction.

The deal, known as a double taxation agreement, was generally regarded as being favorable to Ireland.

Now it is to be renegotiated at the request of the U.S. Treasury after officials contacted the Irish government. They requested talks to renegotiate the agreement which covers a number of crucial areas, such as income tax, corporation tax and capital gains tax.

The current agreement was negotiated just as Ireland was on the verge of a sensational economic growth. Government sources have said it’s unlikely any new agreement will be as generous to Ireland.

It’s unclear so far what elements of the treaty the U.S. is seeking to renegotiate.

Formal talks are set to begin in June. But already there has been behind-the-scenes contact between American officials and the Irish Revenue Commissioners, De-partment of Finance and Department of Foreign Affairs.

A spokeswoman for the Revenue Commissioners confirmed that negotiations would commence later this year. She said the U.S. was in the process of updating a number of agreements with European countries.

The 1997 agreement also sets out the law in relation to the treatment of dividends between subsidiaries and parent companies, and also company royalties. This is especially significant for U.S. multinationals with Irish holding companies, where large transactions between jurisdictions are commonplace.

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