S.I. No. 428/1994 - Double Taxation Relief (Taxes on Income) (Russian Federation) Order, 1994.

1. In the case of interest, wages and salaries paid by an enterprise of a Contracting State the capital of which is wholly or partly owned or controlled, directly or indirectly, by residents of the other Contracting State, such interest, wages and salaries shall be deductible in computing the taxable profits of such enterprise. The foregoing sentence shall apply accordingly to interest, wages and salaries when computing the taxable profits of a permanent establishment of an enterprise of a Contracting State.

In the event that the Russian law "On taxes on profits of enterprises and organisations" or the Irish Corporation Tax ceases to have effect, such enterprise or permanent establishment will be permitted to continue to compute its tax as specified in this paragraph.

2. Each Contracting State shall endeavour to establish procedures to enable taxpayers to receive income without the imposition of withholding taxes where the Agreement provides for taxation only in the State of residence. Where the Agreement provides for taxation in the State where the income arises, each State shall endeavour to establish procedures to enable taxpayers to receive income after deduction of tax at the rate provided for in the Agreement. Where a claim is made by a taxpayer, tax withheld at source in a Contracting State at the rate provided for under domestic law shall be repaid in a timely manner where that tax is withheld at a rate in excess of that provided for under the terms of the Agreement.

The foregoing proposals are acceptable to the Government of the Russian Federation. I have the honour to confirm that Your Excellency's Note and the present reply shall be regarded as constituting an agreement between the two Governments in this matter which shall enter into force at the same time as the entry into force of the Agreement.

I avail myself of this opportunity to renew to Your Excellency the assurance of my highest consideration.

Andrei Vladimirovich Kozyrev

Minister of Foreign Affairs of

the Russian Federation

29 April 1994

GIVEN under the Official Seal of the Government, this 13th day

of December, 1994.

ALBERT REYNOLDS,

Taoiseach.

EXPLANATORY NOTE.

This Order gives the force of law in Ireland to the Agreement with the Russian Federation set out in the Schedule to the Order.

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

For example, items such as business 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, aircraft and land transport vehicles in international traffic and payments of pensions and annuities 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 business 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 Agreement 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 Agreement effectively secures that rentals received by an Irish enterprise in respect of the leasing of ships, aircraft, land transport vehicles or containers used in international traffic will be taxable only in Ireland.

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.

A provision in the Agreement preserves the taxation rights of a State in respect of income and capital gains arising from a drilling operation for the exploration or exploitation of natural resources in the territory of that State where such operation is carried on for more than twelve months.

In the case of dividends flowing between the two countries the Agreement provides for a withholding tax of 10 per cent. This represents a reduction from the current domestic Russian rate of 15 per cent. Under Irish domestic law no withholding tax will in fact be levied on dividends flowing from Ireland to Russia.

Provision is made for safeguarding citizens 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 Agreement and for the exchange of such information between these authorities as is necessary for carrying out the provisions of the Agreement or of the domestic laws of the Contracting States concerning taxes covered by the Agreement.

The Notes exchanged when the Agreement was signed set out agreed proposals in relation to the application of the Agreement. The Notes provide that actual interest, wages and salaries of an enterprise in one country owned or controlled by residents of the other country must be allowed as a deduction when computing the taxable profits of the enterprise. This proposal is based on similar provisions in treaties negotiated by the United States and the United Kingdom with the Russian Federation. The other proposal in the Notes concerns the establishment of procedures to ensure that the treaty rates of withholding tax are applied at source or else taxes applied at rates higher than permitted under the treaty are quickly repaid.

The Agreement will become operative—

Ireland

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

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

Russia

(i) in respect of taxes withheld at source for income paid or transferred starting from the first day of January of the calendar year, following the year in which the Agreement enters into force;

(ii) in respect of other taxes, for taxable periods beginning on or after the first day of January of the calendar year, following the year in which the Agreement enters into force.

3. The competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Agreement.

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 27

Other Tax Privileges

Nothing in this Agreement shall affect the tax privileges of persons for whom they are provided under the general rules of international law or under the provisions of special agreements.

ARTICLE 28

Entry into Force

5. 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 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 a 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 Agreement.

ARTICLE 13

Gains from Alienation of Property

6. For the purposes of the preceding paragraphs of this Article, the profits to be attributed to the permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the contrary.

7. Where profits include items which are dealt with separately in other Articles of this Agreement, then the provisions of those Articles shall not be affected by the provisions of this Article.

ARTICLE 8

Income from International Transport

S.I. No. 428 of 1994.

DOUBLE TAXATION RELIEF (TAXES ON INCOME) (RUSSIAN FEDERATION) 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 by

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