S.I. No. 308/1994 - Double Taxation Relief (Taxes on Income and Capital Gains) (Kingdom of Spain) Order, 1994.

1. Where under any provision of this Convention income or gains is, or are, relieved from tax in Spain and, under the law in force in Ireland, an individual, in respect of the said income or gains, is subject to tax by reference to the amount thereof which is remitted to or received in Ireland, and not by reference to the full amount thereof, the relief to be allowed under this Convention in Spain shall apply only to so much of the income or gains as is, or are, remitted to or received in Ireland.

2. Notwithstanding the provisions of this Convention, income (imputed or otherwise) or capital gains derived from time-share rights not exceeding 4 annual weeks by a resident of a Contracting State, and capital represented thereby owned by a resident of a Contracting State, shall be taxable only in that State.

3. Notwithstanding the provisions of Articles 10, 11, 12 and 13, the tax reductions or exemptions which would, under those provisions, otherwise be applicable to dividends, interest, royalties and gains, shall not apply where such income or gains are derived from one Contracting State by a company which is a resident of the other Contracting State and in which persons who are not residents of that other Contracting State hold directly or indirectly a participation of more than 50 per cent of the share capital.

Provided that the provisions of this paragraph shall apply only to dividends, interest, royalties and gains arising in one of the Contracting States and derived by a company resident in the other Contracting State where that company is engaged merely in the holding of shares or other property.

4.

a

) Notwithstanding the provisions of paragraph 1 of Article 11, if under Spanish domestic legislation interest arising in Spain and paid to a resident of Ireland becomes subject to Spanish taxation, such interest, which may be taxed in Ireland, may also be taxed in Spain, but if the recipient of the interest is the beneficial owner, the tax so charged shall not exceed 10 per cent of the gross amount of the interest.

b

) The provisions of subparagraph

a

) shall, in no case, apply to interest paid in connection with the sale on credit of any industrial, commercial or scientific equipment.

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. Notwithstanding paragraph 2 of Article 12, but subject to paragraphs 4 and 6 of that Article, income derived by a resident of a Contracting State from the leasing on a bareboat basis of ships, aircraft or containers, used in international traffic, shall be taxable only in that State.

6. Nothing in Article 24 shall be construed as preventing a State from applying the provisions of its domestic laws regarding "thin-capitalisation".

7. The Agreement dated 25 February, 1975, between Spain and Ireland for the avoidance of double taxation on income derived from the business of sea or air transport shall not have effect as respects any tax for any period for which this Convention has effect in relation to that tax.

In witness whereof the Plenipotentiaries of the two Contracting States, duly authorised thereto, have signed the present Protocol and affixed thereto their seals.

Done in duplicate at Madrid this 10th day of February, 1994 in the English and Spanish languages, each text being equally authoritative.

RICHARD RYAN

For Ireland

JAVIER SOLANA MADARIAGA

For the Kingdom of Spain

GIVEN under the Official Seal of the Government, this 5th day of October, 1994.

ALBERT REYNOLDS

Taoiseach

EXPLANATORY NOTE

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

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

For example, items such as business profits, interest 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, certain income or gains derived from time-share rights, certain dividends 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.

The Convention effectively secures that rentals received by an Irish enterprise in respect of the leasing, on a bareboat basis, of aircraft, ships or containers used in international traffic will be taxable only in Ireland where the Irish enterprise does not have a permanent establishment in Spain.

Capital gains arising from the disposal of immovable property and of shares linked with immovable property, and of shares in a company where the beneficiary has a participation of at least 25 per cent in the capital of the company 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.

A provision of the Convention preserves the taxation rights of a State in respect of income and capital gains arising from the exploration and exploitation of the sea bed and subsoil in the territory of that State were such activities are carried on for more than thirty days.

In the case of dividends flowing from Ireland to Spain, the Convention grants to Spanish portfolio investors* a tax credit in respect of Irish dividends. Where appropriate, repayment of the tax credit can be obtained subject to a liability to Irish tax not exceeding 15 per cent of the aggregate of the dividend and the tax credit. No repayment of a tax credit will be made in respect of a dividend, the beneficial owner of which is a direct investor**. However, no withholding taxes are levied on such a dividend.

*A share-holder who is an individual or a company, other than a company which controls directly or indirectly at least 25 per cent of the voting power in the company resident in Ireland which pays the dividend.

**A company which controls directly or indirectly at least 25 per cent of the voting power in the company paying the dividend.

In the case of dividends flowing from Spain to Ireland, the Convention provides for a reduction of Spanish withholding tax from 25 per cent to 15 per cent for Irish portfolio investors. Dividends flowing to an Irish direct investor will be exempt from the Spanish withholding tax.

In the case of Irish income and gains paid to residents of Spain a credit equal to the Irish tax paid will be granted. Where such income includes dividends paid to a Spanish company which is a direct investor in the Irish company paying the dividends, the credit will include the underlying Irish tax attributable to those dividends.

On the Irish side, Spanish tax on profits, income and gains from sources within Spain will be allowed as a credit against Irish tax on the same profits, income or gains. Where dividends are paid by a Spanish company to an Irish parent company, credit will be granted when those dividends are being taxed in Ireland for the underlying Spanish company tax on those dividends.

A provision has been included in the Protocol to the Convention which limits the benefits of certain of its provisions. Under this provision, the tax reductions and exemptions otherwise applicable to dividends, interest, royalties and capital gains will not apply where the income or gains are derived by a company which is not substantially controlled by residents of its country of residence and which is engaged in the mere holding of shares or other property. There is an understanding between the competent authorities of both countries that companies actively dealing in shares would not be regarded as engaged "in the mere holding of shares or other property". In considering the effect of this provision, account must be taken of reliefs available under the domestic laws of both countries and EU legislation which may limit the scope of the provision.

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

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

in Spain

(i) in respect of taxes withheld at source, in relation to income derived on or after the first day of January in the calendar year next following that in which the Convention enters into force;

(ii) in respect of other taxes, in relation to the income of any tax year beginning on or after the first day of January in the calendar year next following that in which the Convention enters into force.

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 undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State.

9. The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this Article.

ARTICLE 11

Interest

S.I. No. 308 of 1994.

DOUBLE TAXATION RELIEF (TAXES ON INCOME AND CAPITAL GAINS) (KINGDOM OF SPAIN) 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

AND WHEREAS a draft of this order has been laid before Dáil Éireann and 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 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), hereby order as follows