S.I. No. 102/1994 - Double Taxation Relief (Taxes on Income) (Portuguese Republic) Order, 1994.

1. The term "income" as used in this Convention includes, in particular, capital gains.

2. Notwithstanding the provisions of Article 5, an enterprise of a Contracting State that carries on business of a permanent nature in the other Contracting State through its own employees or any other personnel engaged for such purpose for a period or periods amounting to or exceeding in the aggregate 120 days in any twelve month period shall be deemed to have a permanent establishment in that other State.

3. Notwithstanding the provisions of Article 28, Article 8, paragraph 4 of Article 13 and paragraph 3 of Article 15 shall have effect in both Contracting States with respect to the assessment periods beginning on or after 1 January, 1988.

In witness whereof, the undersigned, duly authorised thereto, have signed this Protocol.

Done in duplicate at Dublin, this 1st day of June 1993, in the English and Portuguese languages, both texts being equally authoritative.

Dick Spring

For the Government

of Ireland

José Manuel Durão Barroso

For the Government of the

Portuguese Republic

GIVEN under the Official Seal of the Government, this 26th day of April, 1994.

ALBERT REYNOLDS,

Taoiseach.

EXPLANATORY NOTE.

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

The Convention provides for the allocation of taxing rights between Ireland and Portugal 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 Portugal, may be taxed in both countries.

For example, items such as business profits 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 and pensions 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 business profits arising through a permanent establishment which an enterprise of one country has in the other country, or dividends, interest or royalties 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 dividends flowing from Portugal to Ireland the Convention provides for a reduction of Portuguese withholding tax from 25 per cent to 15 per cent. Dividends paid from Ireland to Portugal are exempt from tax under current Irish domestic law.

No provision has been made in the Convention on the Portuguese side to allow, when calculating the Portuguese tax due on dividends paid by an Irish company to a Portuguese parent company, credit for the underlying corporation tax paid by the Irish company. Portuguese domestic rules will apply in such cases. On the Irish side, where dividends are paid by a Portuguese company to an Irish parent company (i.e. a company which holds directly or indirectly 25 per cent or more of the capital in the company paying the dividend), credit will be granted when those dividends are being taxed in Ireland for the underlying Portuguese company tax on those dividends.

Provision is made for safeguarding nationals and enterprises of one country against discriminatory taxation in the other country, for consultation between the competent authorities 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 carrying out the provisions of the Convention or of the domestic laws of the Contracting States concerning taxes covered by the Convention.

The Convention will become operative—

in Ireland

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

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

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 in the year next following the year in which this Convention enters into force;

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

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. The provisions of this Article shall, notwithstanding the provisions of Article 2, apply to taxes of every kind and description.

ARTICLE 25

Mutual Agreement Procedure

6. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties paid, having regard to the use, right or information for which they are paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention.

ARTICLE 13

Capital Gains

7. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest paid, having regard to the debt-claim for which it is paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention.

ARTICLE 12

Royalties

S.I. No. 102 of 1994.

DOUBLE TAXATION RELIEF (TAXES ON INCOME) (PORTUGUESE REPUBLIC) ORDER, 1994.

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