S.I. No. 775/2004 - Double Taxation Relief (Taxes on Income and on Capital) (Republic of Iceland) Order 2004

1. The Governments of the Contracting States shall notify each other that the constitutional requirements for the entry into force of this Convention have been complied with.

2. This Convention shall enter into force on the date of receipt of the later of these notifications and shall thereupon have effect

a) In Iceland

(i) in respect of taxes withheld at source, on income derived on or after 1 January in the calendar year next following the year in which the later notice is given;

(ii) in respect of other taxes on income, and taxes on capital, for taxes chargeable for any tax year beginning on or after 1 January in the calendar year next following the year in which the later notice is given.

b) In Ireland

(i) in respect of income tax and capital gains tax, for any year of assessment beginning on or after 1 January in the calender year next following the year in which the later notice is given;

(ii) in respect of corporation tax, for any financial year beginning on or after 1 January in the calendar year next following the year in which the notice is given.

Article 29

TERMINATION

This Convention shall remain in force until terminated by a Contracting State. Either Contracting State may terminate the Convention, at any time after five years from the date on which the Convention enters into force, through diplomatic channels, by giving notice of termination in writing at least six months before the end of any calendar year. In such event, the Convention shall cease to have effect in both Contracting States

a) In Iceland

(i) in respect of taxes withheld at source, on income derived on or after 1 January in the calendar year next following the year in which the notice is given;

(ii) in respect of other taxes on income, and taxes on capital, for taxes chargeable for any tax year beginning on or after 1 January in the calendar year next following the year in which the notice is given.

b) In Ireland

(i) in respect of income tax and capital gains tax, for any year of assessment beginning on or after 1 January in the calendar year next following the year in which the notice is given;

(ii) in respect of corporation tax, for any financial year beginning on or after 1 January in the calendar year next following the year in which the notice is given.

IN WITNESS WHEREOF the undersigned, duly authorized thereto, have signed this Convention.

Done in duplicate at Dublin on this 17th day of December, 2003 in the English and Icelandic languages, the two texts having equal authenticity.

Tom Parlon

Sverrir Hauker Gunnlaugsson

For Ireland

For the Republic of Iceland

Given under the Official Seal of the Government,

this 7

th

day of December, 2004.

BERTIE AHERN,

Taoiseach.

EXPLANATORY NOTE.

(This note is not part of the Instrument and does not purport to be a legal interpretation.)

This Order gives the force of law to the Convention with Iceland which is set out in the Schedule. The effect of the Convention is summarised below.

This Convention with Iceland, which was signed in Dublin on 17 December 2003, is comprehensive in scope and is based on the OECD Model Convention.

It provides for the allocation of taxing rights between Ireland and the Iceland 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 Iceland, may be taxed in both countries.

In many cases, the Convention awards the taxation right over items of income and gains to the country of residence of the recipient only, for example, for items such as business profits, interest income and gains on movable property, provided such income or gains do not arise through a permanent establishment or fixed base in the country of source, profits from the operation of ships or aircraft engaged in international traffic and non-governmental pensions. In other cases, such as remuneration in respect of services rendered to the Government of either country, the Convention awards the sole taxation right to the country of source.

Where both countries continue to have taxing rights, for example in the case of dividend and royalty income, business profits arising through a permanent establishment which a person resident in one country has in the other country, or in the case of capital gains arising from the disposal of immovable property or shares linked with immovable property, the Convention provides that the country of residence of the recipient of the income or gain will give credit against its tax on the income or gains for the tax paid in the other country on the same income or gains.

With respect to dividend income, the Convention provides for a reduced rate of 5% withholding tax where the recipient is a company that owns 25% of the company paying the dividends; otherwise, taxation in the source state is limited to 15% of the gross dividend. In the case of royalties, provision is made for the exemption from source state taxation for royalties arising from the use of computer software or patent or for information from industrial, commercial or scientific experience and a reduced rate of 10% of the gross payment applies for cultural royalties and technical royalties. Interest payments are taxable only in the country of residence of the recipient.

The Convention also provides 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 doubts or difficulties 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 law of either country in relation to the taxes covered by the Convention.

The Convention will enter into force when each country notifies the other of the completion of its procedures for bringing the Convention into force. It will thereupon have effect in both countries for tax periods beginning in the following year.

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 Convention.

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. Where, under any provision of this Convention, income is or gains are wholly or partly relieved from tax in a Contracting State and, under the laws in force in the other Contracting State, 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 that other State, and not by reference to the full amount thereof, then the relief to be allowed under this Convention in the first-mentioned State shall apply only to so much of the income or gains as is remitted to or received in that other State.

Article 24

NON-DISCRIMINATION

6. The provisions of paragraph 5 shall not affect the right of a Contracting State to levy, according to its law, a tax on gains from the alienation of any property derived by an individual who is a resident of the other Contracting State and has been a resident of the first-mentioned State at any time during the five years immediately preceding the alienation of the property if the property was held by the individual before he became a resident of that other State.

Article 14

INCOME FROM EMPLOYMENT

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 royalties, 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

WHEREAS it is enacted by

sections 826

(1) and

828

of the

Taxes Consolidation Act 1997

(No. 39 of 1997) 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 in respect of income and chargeable gains 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, then subject to section 826 of that Act, the arrangements shall, notwithstanding any enactment, have the force of law

AND WHEREAS it is further enacted by

section 826

(6) of the

Taxes Consolidation Act 1997

that where such an order is proposed to be made, a draft of the order 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 the following 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

sections 826

(1) and

828

of the

Taxes Consolidation Act 1997

(No. 39 of 1997) hereby order as follows