S.I. No. 816/2005 - Double Taxation Relief (Taxes on Income) (Portuguese Republic) Order 2005

STATUTORY INSTRUMENTS

S.I. No. 816 of 2005

Double Taxation Relief (Taxes on Income) (Portuguese Republic) Order 2005

WHEREAS it is enacted by sections 826(1) and 828 of the Taxes Consolidation Act 1997 (No. 39 of 1997) that if the Government by order declare that arrangements specified in the order have been made with the government of any territory outside the State in relation to affording relief from double taxation in respect of income tax, corporation tax in respect of income and chargeable gains and any taxes of a similar character imposed by the laws of the State or by the laws of that territory, and that it is expedient that those arrangements should have the force of law, then subject to section 826 of that Act, the arrangements shall notwithstanding anything in any enactment, have the force of law:

AND WHEREAS it is further enacted by section 826(6) of the Taxes Consolidation Act 1997 that where such an order is proposed to be made, a draft of the order shall be laid before Dáil Éireann and the order shall not be made until a resolution approving of the draft has been passed by Dáil Éireann:

AND WHEREAS a draft of the following Order has been laid before Dáil Éireann and a resolution approving of the draft has been passed by Dáil Éireann:

NOW, the Government, in exercise of the powers conferred on them by sections 826(1) and 828 of the Taxes Consolidation Act 1997 (No. 39 of 1997) hereby order as follows:

1.        This Order may be cited as the Double Taxation Relief (Taxes on Income (Portuguese Republic) Order 2005.

2.        It is declared -

(a)        that the arrangements specified in the Protocol, the text of which is set out in the Schedule to this Order, have been made with the Government of the Portuguese Republic in relation to affording relief from double taxation in respect of income tax, corporation tax or capital gains tax and any taxes of a similar character, imposed by the laws of the State or by the laws of the Portuguese Republic, and

(b)        that it is expedient that those arrangements should have the force of law.

SCHEDULE

PROTOCOL BETWEEN IRELAND AND THE PORTUGUESE REPUBLIC AMENDING THE CONVENTION FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME AND ITS PROTOCOL SIGNED AT DUBLIN ON I JUNE, 1993

Ireland and the Portuguese Republic, desiring to conclude a Protocol to amend the Convention between the Contracting Parties for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and its Protocol, signed at Dublin on 1 June, 1993 (hereinafter referred to as “the Convention”);

Have agreed as follows:

ARTICLE 1

Paragraph 2 of Article 13 (Capital Gains) of the 1993 Convention shall be deleted and replaced by the following:

“2. For the purposes of paragraph 1, gains from the alienation of immovable property situated in the other Contracting State shall include gains from shares or comparable interests, other than shares quoted on a stock exchange, deriving more than 50 per cent of their value directly or indirectly from immovable property situated in that other State.”

ARTICLE 2

Insert new Paragraph 6 in Article 13 (Capital Gains) of the 1993 Convention as follows:

“6. The provisions of paragraph 5 shall not affect the right of a Contracting State to levy according to its laws, a tax on gains from the alienation of shares in securities of, or other corporate rights of, or debt claims on a company which is a resident of that Contracting State, if such gains are not subject to tax in the other Contracting State, and

(a)  such gains are derived by an individual who is a resident of the other Contracting State and was a resident of the first-mentioned State at any time during the three years immediately preceding the aforementioned alienation, and

(b) (i)      the individual who derived the gains has held at any time, either alone or with his or her spouse or one of their relations by blood or marriage, directly or indirectly, at least 5 per cent of the issued share capital of a particular class of shares in that company, or

(ii)      the value of the participation exceeds euro 500,000.”

ARTICLE 3

Insert this new paragraph in the Protocol to the 1993 Convention.

Ad Article 24, Paragraph 3

It is understood that the provisions of the Convention shall not be interpreted so as to prevent the application by a Contracting State of the thin capitalisation provisions provided for in its domestic law, except in those cases in which the associated enterprises can show that due to the special characteristics of their activities or their specific economic circumstances, the conditions made or imposed between those enterprises are in conformity with the arm's length principle.

ARTICLE 4

(1)     Each of the Contracting States shall notify to the other the completion of the procedures required by its law for the bringing into force of this Protocol.

(2)     This Protocol shall enter into force on the date of the receipt of the later of these notifications and shall thereupon have effect:

(a)    In Ireland:

(i)        as respects income tax and capital gains tax, for any year of assessment beginning on or after the first day of January in the calendar year next following the year in which this Protocol enters into force;

(ii)       as respects corporation tax, for any financial year beginning on or after the first day of January in the calendar year next following the year in which this Protocol enters into force;

(b)    In Portugal:

(i)        in respect of taxes withheld at source, the fact giving rise to them appearing on or after the first day of January of the year next following the year in which the Protocol enters into force;

(ii)       in respect of other taxes, as to income arising in any fiscal year beginning on or after the first day of January of the year next following the year in which the Protocol enters into force.

IN WITNESS WHEREOF, the undersigned duly authorised thereto, have signed this Protocol.

DONE in duplicate at Lisbon, this 11^th day of November, 2005, in the English and Portuguese languages, both texts being equally authoritative.

EXPLANATORY NOTE

(This note is not part of the Instrument and does not purport to be a legal instrument.)

This Order gives the force of law to the Protocol amending the Convention between Ireland and the Portuguese Republic which is set out in the Schedule. The effect of the Protocol is summarised below.

The existing Double Taxation Convention between Ireland and the Portuguese Republic and its Protocol was signed in Dublin on 1 June, 1993. The current Protocol makes an amendment to some of the existing Articles of the 1993 Convention and its Protocol.

Article 1 of the Protocol amends Article 13 (2) of the existing Convention to ensure that either Contracting State can tax gains arising on the disposal of shares deriving more than 50% of their value from immovable property situated in that State.

Article 2 of the Protocol inserts a new provision in Article 13 (Capital Gains) of the 1993 Convention to allow either Contracting State to tax gains arising from a disposal of shares by an individual subject to specific conditions.

Article 3 of the Protocol ensures that Article 24 (Non-Discrimination) of the Convention does not apply to prevent the application of domestic laws in relation to thin capitalisation provisions.

Article 4 of the Protocol provides that the provisions of the Protocol will enter into force when each country has completed its constitutional requirements for ratification and has notified the other state accordingly. It will thereupon have effect for tax periods in the following year.