FROM THE OFFICE OF PUBLIC AFFAIRS

The Treasury Department announced Monday that U.S. Ambassador Jean Kennedy Smith and Irish Minister of Finance Charlie McCreevy signed a new income tax Convention and Protocol with Ireland in Dublin.

Diplomatic notes interpreting a number of provisions of the new Convention and Protocol were exchanged at the time of signing. The new Convention will replace the existing Convention between the United States and Ireland, which has been in effect, unamended, since 1951. The new Convention is subject to ratification.

The new Convention generally follows the pattern of recent U.S. treaties with other developed countries and conforms to U.S. treaty policy as reflected in the new U.S. model treaty, although much of the new Convention was negotiated before the U.S. model was completed. The parties also took into account the provisions of the Model treaty issued by the Organization for Economic Cooperation and Development (OECD).

The withholding rates on dividend, interest and royalty income in the proposed Convention essentially are the same as those in the present U.S.-Ireland treaty.

As with the recent U.S. treaties and the OECD Model, the proposed Convention provides generally for the taxation by one State of the business profits of a resident of the other only when such profits are attributable to a permanent establishment located in that other State. The present Convention grants taxing rights that are in some respects broader and in others narrower than those found in modern treaties. In addition, the proposed Convention preserves the U.S. right to impose its branch tax on U.S. branches of Irish corporations. This tax, which was enacted in 1986, is not imposed under the present treaty.

The taxation of capital gains under the proposed Convention generally follows the rule of recent U.S. treaties, as well as the OECD Model, under which gains on real property are taxable in the country of situs of the property and gains from the alienation of personal property are taxed only in the residence State of the alienator unless attributable to a permanent establishment or fixed base in the other State.

The taxation of income from the performance of personal services under the proposed Convention is essentially the same as that under recent U.S. treaties with OECD countries. Unlike many U.S. treaties, the proposed Convention provides for the deductibility of cross-border contributions by a temporary resident of one country to certain pension plans in the other, under limited circumstances.

The proposed Convention and Protocol contain rules, similar to those in all recent U.S. tax treaties, to deny the benefits of the Convention to persons that are engaged in treaty shopping. The present Convention contains no such anti-treaty-shopping rules.

Also included in the proposed Convention are the rules necessary for administering the Convention, including rules for the resolution of disputes under the treaty and for the exchange of information.

The proposed Convention will enter into force upon the exchange of instruments of ratification. It will have effect, with respect to taxes payable at the source, for payments made or credited on or after the first day of January following entry into force. In other cases the Convention will have effect with respect to taxable periods beginning on or after the first day of January following the date on which the Convention enters into force. Where the present Convention affords a more favorable result for a taxpayer than the proposed Convention, the taxpayer will be entitled to elect to continue to apply the provisions of the present Convention, in its entirety, for one additional year. In addition, the Convention provides an additional two years of protection for certain companies that are owned by residents of member states of the European Union or of parties to the North American Free Trade Agreement.

Copies of the Convention, along with the Protocol and exchange of notes, are available from the Office of Public Affairs, Treasury Department, Room 2315, Washington, DC 20220.