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Amendment of Schedule 24 (relief from income tax and corporation tax by means of credit in respect of foreign tax) to Principal Act.
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26.— (1) Schedule 24 to the Principal Act is amended—
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(a) in paragraph 1 by inserting the following definitions:
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“ ‘aggregate income for the tax year’ has the same meaning as in section 531AL;
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‘aggregate of the tax value of the reduction’ means the income tax value of the amount by which all income for which credit is to be allowed for foreign tax is treated as reduced in accordance with subparagraph (3)(c) of paragraph 7 ascertained by subtracting the income tax that is chargeable in respect of the year of assessment from the income tax that would be chargeable if all income for which credit is to be allowed for foreign tax had not been reduced in accordance with subparagraph (3)(c) of paragraph 7;”,
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(b) in paragraph 2 by inserting the following after subparagraph (2):
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“(2A) In the case of any income within the charge to income tax, the credit shall be applied first in reducing the income tax chargeable in respect of that income.”,
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(c) by inserting the following after paragraph 5:
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“Limit on total credit — universal social charge.
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5A. (1) The amount of the credit to be allowed against universal social charge for foreign tax in respect of any income—
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(a) shall not exceed the sum which would be produced by computing the amount of that income in accordance with Part 18D, and then charging it to universal social charge for the year of assessment for which the credit is to be allowed, but at a rate ascertained by dividing the universal social charge payable by that person for that year by the amount of the aggregate income for the tax year of that person, and
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(b) shall be determined (subject to clause (a)) by the formula—
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(FT — C) — TV
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where—
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FT is the foreign tax, including foreign tax not chargeable directly, in respect of the income,
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C is the credit allowed against income tax for foreign tax in respect of the income, and
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TV is the portion of the aggregate of the tax value of the reduction attributable to the income determined by the formula—
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A x B
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C
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where—
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A is the aggregate of the tax value of the reduction,
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B is the part of the foreign tax by which the income has been reduced in accordance with subparagraph (3)(c) of paragraph 7, and
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C is the aggregate of the reductions by which all income for which credit is to be allowed for foreign tax has been reduced in accordance with subparagraph (3)(c) of paragraph 7.
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(2) Subject to subparagraph (1), where an individual is assessed to tax in accordance with section 1017 or 1031C and each spouse or civil partner falls to be charged to universal social charge on his or her share of that income, the amount of the credit to be allowed against universal social charge in respect of each share of that income shall not exceed such part of the credit as bears to that credit the same proportion as the share of each spouse or civil partner in that income bears to that income.”,
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(d) in paragraph 7 by substituting “either income tax or corporation tax” for “any of the Irish taxes” in subparagraph (3)(c),
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(e) by inserting the following after paragraph 7:
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“Effect on computation of income of allowance of credit against universal social charge.
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7A. (1) Where credit for foreign tax is to be allowed against any of the Irish taxes in respect of any income, this paragraph shall apply in relation to the computation for the purposes of universal social charge of the amount of that income.
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(2) Where the universal social charge payable depends on the amount received in the State, that amount shall be treated as increased by the amount of the credit allowable against income tax.
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(3) Where subparagraph (2) does not apply—
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(a) no deduction shall be made for foreign tax (whether in respect of the same or any other income), and
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(b) where the income includes a dividend and under the arrangements foreign tax not chargeable directly or by deduction in respect of the dividend is to be taken into account in considering whether any, and if so what, credit is to be allowed against the Irish taxes in respect of the dividend, the amount of the income shall be treated as increased by the amount of the foreign tax not so chargeable which is to be taken into account in computing the amount of the credit.
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(4) In relation to the computation of the income of a person for the purposes of paragraph 5A, subparagraphs (1) to (3) shall apply in relation to all income in the case of which credit is to be allowed for foreign tax under any arrangements.”,
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(f) by inserting the following after paragraph 9H:
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“Dividends: additional credit.
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9I. (1) In this paragraph—
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‘excluded dividend’ means a dividend, or any part of a dividend, paid by a source company to a relevant company, in so far as it is paid out of so much, if any, of the relevant profits of a source company, as—
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(a) has not been subject to tax, and
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(b) has been received, from a company which is connected with the relevant company and is not resident in a relevant Member State—
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(i) directly by means of a dividend or other distribution of profits, being profits which have not been subject to tax, or
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(ii) indirectly, from the profits mentioned in subclause (i), by the payment of dividends, or the making of other distributions, by one or more companies, without the income or profits represented by any of those dividends or distributions having been subject to tax;
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‘relevant company’, in relation to a dividend, means a company that—
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(a) is resident in the State, or
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(b) is, by virtue of the law of a relevant Member State other than the State, resident for the purposes of tax in such a Member State and the dividend forms part of the profits of a branch or agency in the State;
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‘relevant dividend’ means so much of a dividend as is neither—
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(a) an excluded dividend, nor
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(b) a dividend which, by virtue of section 21B(4)(c), is not to be taken into account in computing income for corporation tax;
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‘source company’ means a company which—
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(a) is not resident in the State, and
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(b) is, by virtue of the law of a relevant Member State other than the State, resident for the purposes of tax in such a Member State;
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‘tax’, except in the case of corporation tax in the State, means—
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(a) tax imposed in a country other than the State, which corresponds to such corporation tax, and
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(b) tax, corresponding to income tax in the State, which is imposed in a country other than the State by deduction from dividends or other distributions of profits,
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but, for the purposes of the definition of ‘excluded dividend’ in this subparagraph, any tax charged by reference to a dividend or other distribution of profits such that most of the value of that dividend or distribution is exempted from that charge to tax shall be excluded from the meaning of ‘tax’.
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(2) For the purposes of this paragraph, the relevant profits of a source company in relation to a dividend shall be—
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(a) if the dividend is paid for a specified period, the profits of that period,
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(b) if the dividend is not paid for a specified period but is paid out of specified profits, those profits, or
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(c) if the dividend is paid neither for a specified period nor out of specified profits, the profits of the last period for which accounts of the body corporate were made up which ended before the dividend became payable,
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but if, in a case within clause (a) or (c), the total dividend exceeds the profits available for distribution of the period mentioned in clause (a) or (c), as the case may be, the relevant profits shall be the profits of that period together with so much of the profits available for distribution of preceding periods (other than profits previously distributed or previously treated as relevant for the purposes of this subparagraph) as is equal to the excess, and for this purpose the profits of the most recent preceding period shall first be taken into account, then the profits of the next most recent preceding period, and so on.
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(3) Where a source company pays a relevant dividend to a relevant company then, for the purpose of allowing credit against corporation tax for foreign tax in respect of that dividend, there shall, subject to paragraph 4, and subparagraph (5), be taken into account, as if it were tax payable in respect of that dividend under the law of the territory in which a source company is resident, an amount (referred to in this paragraph as ‘additional foreign credit’) determined in accordance with subparagraph (4).
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(4) The additional foreign credit referred to in subparagraph (3) in respect of a relevant dividend shall be—
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(a) where the relevant dividend is subject to corporation tax at the rate specified in section 21(1), an amount determined by the formula—
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(A x B) — C
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where—
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A is the amount of the relevant dividend brought into charge to corporation tax in the State,
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B is the lower of—
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(i) the rate per cent specified in section 21(1), or
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(ii) the rate per cent of tax, which corresponds, in the relevant Member State in which the source company is resident for the purposes of tax, to corporation tax in the State, applicable to the relevant profits in relation to the relevant dividend,
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and
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C is the amount of the credit for tax against corporation tax attributable to the relevant dividend which, apart from this paragraph, would be allowable under this Schedule,
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or
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(b) where the relevant dividend is chargeable to corporation tax under Case III of Schedule D, the amount determined by the formula—
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(A x B) — C
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where—
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A is the amount of the relevant dividend brought into charge to corporation tax in the State,
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B is the lower of—
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(i) 25 per cent, or
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(ii) the rate per cent of tax, which corresponds, in the relevant Member State in which the source company is resident for the purposes of tax, to corporation tax in the State, applicable to the relevant profits in relation to the relevant dividend,
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and
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C is the amount of the credit for tax against corporation tax attributable to the relevant dividend which, apart from this paragraph, would be allowable under this Schedule.
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(5) The provisions of paragraph 9E shall not apply to any additional foreign credit calculated in accordance with this paragraph.
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(6) This paragraph shall not apply to dividends paid in any case where paragraph 9H applies.”,
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and
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(g) by inserting the following paragraph after paragraph 13:
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“14. The provisions of this Schedule shall apply for income levy as they apply for universal social charge with any necessary modifications.”.
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(2) Paragraphs (a) to (e) of subsection (1) shall have effect as if they had come into operation for the year of assessment (within the meaning of section 2 of the Principal Act) 2011 and each subsequent year of assessment.
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(3) Paragraph (f) of subsection (1) shall apply to dividends paid on or after 1 January 2013.
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(4) Paragraph (g) of subsection (1) shall have effect as if it had come into operation for the years of assessment (within the meaning aforesaid) 2009 and 2010.
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