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International
Tax Updates
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Joe Bollard
Partner
Corporate Tax Services
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Canada
On 12 April 2005, a new double taxation
agreement (DTA) between Ireland and Canada entered
into force. This agreement replaces an existing tax
treaty that was signed in November 1966. The revised
agreement will apply with effect from 1 January 2006.
The 1966 agreement predated capital gains tax (CGT)
and the modern income tax system. In this regard,
the new treaty will cover transactions subjected to
CGT for the first time. In addition, new articles
dealing with dividends, interest and royalties generally
provide for lower withholding taxes than apply at
present. While dividend withholding tax (DWT) and
interest withholding tax are permitted under the treaty,
Irish domestic law provides that DWT and interest
withholding tax normally do not apply. A minimum withholding
tax of 5% may still apply to Canadian dividends, while
the rate of withholding tax on interest paid from
Canada has been reduced from 15% to 10%. The new treaty
provides that, as a general rule, royalties may be
subjected to a withholding tax of up to 10%.
 On
a less positive note, certain tax exemptions will
be removed and the tax credit available on Canadian
dividends paid to Irish individuals will be substantially
reduced.
Read tax alert
 Chile
A new double taxation agreement with Chile was signed
on 2 June 2005. If, as expected, the convention is
ratified during 2005, it will enter into force at
the beginning of 2006.
Greece
 The
new DTA with Greece was ratified by both the Greek
and Irish governments in 2004 and became effective
from 1 January 2005.
ECJ Cases
 Marks
& Spencer Plc v Halsey (HM Inspector of Taxes)
The long-awaited decision of the Advocate General
on the Marks & Spencer case has been published.
It involves a claim for cross-border loss relief.
The Advocate General has found in favour of Marks
& Spencer, and ruled that UK group loss relief
legislation is in breach of the Freedom of Establishment
provisions under the EC Treaty. However, if the law
provides that a cross-border group relief claim can
only succeed if it is established that the losses
in the other Member State cannot be group relieved
or carried forward in that other Member State, then
there would not be a breach of the Treaty.
Irish group relief legislation is similar to the UK
provisions and restricts loss relief to Irish companies
and branches. If the European Court of Justice (ECJ)
follows the Advocate General, Irish group relief may
also be in breach of the Treaty.
The issue as to whether past claims for cross-border
group relief will stand in the light of such a final
ECJ ruling is unclear until such time as we see the
detail. However, taxpayers should still consider whether
protective claims may be valid.
- Staatsecretaris
van Financien v Arthur Anderson
The Irish Government has been dealt a blow following
the ruling by the European Court of Justice (ECJ)
that insurance companies will have to pay VAT on outsourced
back office services. The decision of the ECJ will
add 21% to the cost of such arrangements, raising
doubts about the viability of outsourcing for the
industry.
- Airline ticket
tax
EU Finance Ministers agreed in principle
on 14 May 2005 to introduce an optional tax on airline
tickets to fund Third World development. Ministers
proposed that the tax be a voluntary contribution
that some Member States can turn into a mandatory
contribution, according to Luxembourg Prime Minister,
Jean-Claude Juncker, who chaired the ministerial meeting.
Holland
- Dutch capital
duty
 On
29 April 2005, the Dutch Government submitted a policy
paper to Parliament containing proposals to reform
Dutch tax law. The policy paper can be considered
as a discussion draft in preparation of legislative
proposals that are expected at the end of 2005. The
reform should take effect as of 1 January 2007. The
plans can be seen within the broad context of the
Government’s ongoing efforts to further improve
the Dutch investment climate and to comply with EU
law.
As indicated in an earlier International Tax Alert,
the Dutch Ministry of Finance announced on 24 March
2005 its intention to fully abolish Dutch capital
duty as of 1 January 2006. The intention is now confirmed
and formalised in the policy paper.
- Corporate
tax changes
The Dutch Government has proposed sweeping
tax changes that would lower the country’s corporate
tax rate and align its international tax rules more
closely with EU law. The proposals, released as a
white paper on 29 April 2005, would reduce the corporate
tax rate from 31.5% to 26.9%, and extend loss-relief
rules to countries outside the Netherlands but within
the EU.
Germany
- Corporate tax
changes
 Germany’s
Cabinet approved a draft plan on 4 May 2005 to cut
the corporate tax rate from 25% to 19%. The proposed
tax cut would go into effect in 2006 and is an effort
to jump-start Germany’s sluggish economy and
increase the competitiveness of small and medium-sized
companies.For further details on german tax developments
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read more |
Hungary
- Tax Reforms 
Abolition of Dividend Withholding Tax
As part of its ongoing tax reform, Hungary has announced
the abolition of dividend withholding tax with effect
from 1 January 2006. |
read more|
Other
Issues
- US
government finalises tax rules for foreign partnerships
 The
US Treasury and Internal Revenue Service (IRS) have
finalised regulations on the tax withholding obligations
of US partnerships that include foreign partners.
Under current rules, foreign individuals are subject
to US tax on income from doing business in the USA,
in addition to income earned in the USA through a
partnership. To ensure the tax gets collected, the
IRS requires that partnerships withhold tax on behalf
of the foreign partner. The final rules, first proposed
in September 2003, provide guidance on how to determine
a foreign partner’s share of partnership income
and how to calculate withholding tax and payment dates.
The matter of interest, penalties and extra taxes
for failure to comply with the regulations are also
addressed.
Tax advisors form
global alliance
A new alliance involving nine independent
firms and 658 tax advisors spread through various
parts of the world has been launched by former Andersen
employee, Frederic Donnedieu de Vabres. According
to a report in The Lawyer, the alliance, known as
Taxand, has been set up to allow tax advisors based
in France, Germany, India, Italy, Luxembourg, Spain,
Sweden, Switzerland and the USA to share information
on the latest international tax developments.
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