S.I. No. 290/1991 - Double Taxation Relief (Taxes on Income and Capital Gains) (Republic of Korea) Order, 1991.

1. In respect of subparagraph (

a

) of paragraph 1 of Article 2 (Taxes Covered) of the Convention, it is understood that the Convention shall apply to the Korean defence tax where charged by reference to the income tax or the corporation tax.

2. In respect of Article 8 (Shipping and Air Transport) of the Convention, it is understood that the provisions of paragraph 1 of that Article shall also apply to profits from the operation of vessels engaged in fishing, dredging or hauling activities on the high seas.

3. With reference to paragraph (1) of Article 23 (Elimination of Double Taxation) of the Convention, if subsequently to the signature of the Convention Korea provides relief from its tax on intercorporate dividends, it shall immediately notify Ireland and enter into negotiations in order to establish new provisions concerning the credit to be allowed by Korea against its tax on dividends.

IN WITNESS WHEREOF, the undersigned have signed this Protocol which shall have the same force and validity as if it were inserted word by word in the Convention.

DONE in duplicate at Dublin this 18th day of July of the year one thousand nine hundred and ninety in the English.

For the Government

of Ireland

For the Government of

The Republic of Korea

GIVEN under the Official Seal of the Government, this 21st day of

November, 1991.

CHARLES J. HAUGHEY,

Taoiseach.

EXPLANATORY NOTE.

This Order gives the force of law in Ireland to the Convention with the Republic of Korea set out in the Schedule to the Order.

The Convention provides for the allocation of taxing rights between Ireland and the Republic of Korea and for the granting of relief from double taxation with regard to items of income and capital gains which, under the laws of Ireland and the laws of the Republic of Korea, may be taxed in both countries.

For example, items such as trading profits, interest, royalties and gains on movable property not arising through or connected with a permanent establishment in the source country, profits from the operation of ships or aircraft in international traffic and non-government pensions are taxable only in the country of residence of the recipient. On the other hand, remuneration in respect of services rendered to a government of one of the countries is normally taxable only in that country, i.e. the country of source.

Where both countries continue to have taxing rights, for example, with regard to trading profits arising through a permanent establishment which an enterprise of one country has in the other country or dividends received in one country from the other country, the Convention provides that the country of residence of the recipient will allow a credit against its own tax for the tax imposed on the same income by the country of source. Thus double taxation is relieved.

Capital gains arising from the disposal of immovable property and of shares linked with immovable property may be taxed by the country in which the property is situated. Capital gains arising from the disposal of other property are normally to be taxed only in the country of residence of the taxpayer unless they arise from the disposal of assets of a permanent establishment or fixed base which the taxpayer has in the other country. Double taxation is relieved by the granting of a credit in the country of residence for tax paid in the country where the property is located.

In the case of a dividend flowing from Ireland to Korea, the Convention grants to a Korean resident portfolio investor* a right to the Irish tax credit in respect of the dividend. Payment of this tax credit can be obtained by the resident of Korea subject to a liability to Irish tax of not more than 15 per cent on the aggregate of the dividend and the tax credit. There is no Irish withholding tax on dividends flowing from an Irish company to a direct investor† resident in Korea. In the case of a dividend flowing from Korea to Ireland, the Convention provides for a reduction of the Korean withholding tax on dividends from 25 per cent to 15 per cent in the case of a portfolio investor and to 10 per cent in the case of a direct investor. The reduced withholding tax is creditable against Irish tax on such dividends.

There is no provision in the Convention for the giving of credit relief for the underlying corporate tax paid on the profits out of which the dividends are paid from a company resident in one State to a company resident in the other State. This is so because the current system of company tax in Korea does not acknowledge that dividends flowing from one Korean company to another Korean company should carry a tax credit or, as is the case in Ireland, be exempt from any further company tax in the hands fo the receiving company.

However, the Protocol includes at paragraph 3 a provision securing that if the Korean tax law with regard to inter-company dividends is changed in the future, Korea must immediately notify Ireland and enter into negotiations to provide for a new basis for dealing with this issue.

The Convention secures that the benefits of tax incentive reliefs are preserved in large measure for branch profits flowing from Ireland to Korea. Paragraph 4 of Article 23 provides that the business profits of a permanent establishment of a Korean company operating in Ireland which have been taxed at the 10 per cent rate in Ireland will be deemed to have borne an additional amount of tax equal to 15 per cent of the profits. The effect of this is that credit for Irish tax at an effective rate of 25 per cent on such profits will be available for set off against Korean tax on those profits.

Provision is made for safeguarding nationals and enterprises of one country against discriminatory taxation in the other country, for consultation between the competent authorities of the two countries for the purpose of resolving any difficulties or doubts arising as to the interpretation or application of the Convention and for the exchange of such information between these authorities as is necessary for the carrying out of the provisions of the Convention or of the domestic law of either State in relation to the taxes covered by the Convention.The Convention will be effective in Ireland as follows

(i) as respects income tax and capital gains tax, for any year of assessment beginning on or after 6 April in the year next following the year in which the Convention enters into force, and

(ii) as respects corporation tax, for any financial year beginning on or after 1 January in the year next following the year in which the Convention enters into force.

*A shareholder who is an individual or a company other than a company which, directly or indirectly, holds 10 per cent or more of the voting power in the company resident in the other Contracting State which pays the dividend.

†A company which controls 10 per cent or more of the voting power in the company resident in the other Contracting State which pays the dividend.

4. The competent authorities of the Contracting States may communicate with each other directly for the purpose of reaching an agreement in the sense of the preceding paragraphs.

ARTICLE 26

Exchange of Information

5. Enterprises of a Contracting State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State, shall not be subjected in the first-mentioned State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which other similar enterprises of that first-mentioned State are or may be subjected.

6. Nothing contained in this Article shall be construed as obliging a Contracting State to grant to a person who is a resident of the other Contracting State a greater relief from tax chargeable on dividends derived from a company which is a resident of the first-mentioned Contracting State than the relief to which the person may be entitled under the provisions of Article 10 (Dividends) of this Convention.

7. In this Article the term "taxation" comprises the taxes which are the subject of this Convention.

ARTICLE 25

Mutual Agreement Procedure

8. Where a company which is a resident of a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company, except insofar as such dividends are paid to a resident of that other State or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other State, nor subject the company's undistributed profits to a tax on the company's undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State.

ARTICLE 11

Interest

9. The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.

ARTICLE 6

Income from Immovable Property

S.I. No. 290 of 1991.

DOUBLE TAXATION RELIEF (TAXES ON INCOME AND CAPITAL GAINS) (REPUBLIC OF KOREA) ORDER, 1991.

WHEREAS it is enacted by

section 361

(1) of the

Income Tax Act, 1967

(No. 6 of 1967), as amended by

section 86

of the

Finance Act, 1974

(No. 27 of 1974),

section 38

(1) of the

Capital Gains Tax Act, 1975

(No. 20 of 1975),

section 166

of the

Corporation Tax Act, 1976

(No. 7 of 1976), and

section 47

(4) of the

Finance Act, 1983

(No. 15 of 1983), 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 or capital gains tax 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, the arrangements shall, notwithstanding anything in any enactment other than

section 47

of the

Finance Act, 1983

, have the force of law

AND WHEREAS it is further enacted by section 361 (6) of that Act that where such an order is proposed to be made, a draft thereof 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

NOW, the Government, in exercise of the powers conferred on them in

section 361

of the

Income Tax Act, 1967

(No. 6 of 1967), as amended by

section 38

(1) of the

Capital Gains Tax Act, 1975

(No. 20 of 1975),

section 166

of the

Corporation Tax Act, 1976

(No. 7 of 1976), and

section 47

(4) of the

Finance Act, 1983

(No. 15 of 1983), hereby order as follows