The Gazette 1987

JULY/ A UGUST

GAZETTE

1987

Capital Acquisitions Tax Double Taxa t i on Conven t i on w i t h t he U.S. The Si tus Rules

1946 in the U.K. (S.R. & 0. 1946, No. 1351),. although the dif- ferences are minimal.

Un d er Sec t i on 6 6 of the Cap i tal Acqu i s i t i ons T a x A c t , 1 9 7 6 , the G o v e r nme nt may by O r der dec l are that a r r angemen ts spec i f i ed in the O r der have been ma de w i t h the G o v e r nme nt of any territory outside the State in relation to affording relief f r om doub le taxation in respect of Gift T ax or Inheritance T ax under Irish Leg i s l at ion and any T a x impo s ed under the l aws of that other territory w h i c h is of a similar cha r ac t er or is cha r geab le by reference to dea th or to Gi f ts inter v i vos.

Article III (1) Article III (1) of the Irish conven- tion provides that each country is to ascertain domicile in accordance with its own Law and there is, therefore, always the possibility that there could be a double domicile. The question whether a person is an American citizen is determin- ed exclusively by American law. American nationality is treated the same as domicile, giving the U.S. authority to charge tax on global property. Once a person is a national of the U.S.A., it is im- material if he is not domiciled there from the point of view of Federal Estate Tax; his global estate will be subject to Federal Estate Tax. If he was domiciled in the U.S.A., it is immaterial of which country he was a national. Article IV (2) provides that, for the purpose of tax and aggregation, neither country will take account of property situate outside its territory if the deceased was domiciled in the other country. This Rule, however, does not apply where both countries claim the domicile. The Rule is subject to two ex- ceptions: (a) it will not apply in respect of U.S. Tax in the case of a U.S. citizen dying domiciled in Ireland; or (b) in respect of Irish tax, in the case of property passing under a disposition governed by Irish law (Settled Property). By this means, the ordinary law of the respective states has been maintained.

Two Conventions relating to double taxation are now in force: — (a) with the U.K. under Statutory Instrument No. 279 of 1 978, this Convention applies to Gifts and Inheritances; and (b) with the U.S.A., the prov- isions of the First Schedule to the Finance Act, 1950 being applied to U.S. Federal Estate Tax and Irish Inheritance Tax under Article 1 (2). This Con- vention is considered to apply only to Inheritances. There are various ways in which Double Taxation conventions can work but basically relief is confin- ed to two types: (a) where the ordinary Rules of each independent State app- ly and relief is given for Tax in one State against Tax in the other on property which is doubly taxed i.e. taxed in both States or by providing a special situs code wh i ch will pre- determine where certain pro- perty or type of property is situate and that such proper- ty or type of property will on- ly be subject to Tax in the Country where it is situate. The convention with the U.K. is of the first type, whereas the con- vention with the U.S.A. is a mix of the two types. It is with this latter convention that this Article is con- cerned. The principal features are con- tained in Articles III to V. (a) Articles III (1) and IV confirm the ordinary Rules relating to domicile and territorial scope of the two Taxes. (b)

(b) Article V provides the relief by way of credit for the Tax levied in the country where the property is situate against the tax leviable in the other country.

by Brian A. Bohan, Solicitor

(c) Article III (2) contains the Situs Rules relating to assets where the deceased is domiciled in either Ireland or the U.S.A., or both. It changes the situs of certain classes of property, which can have the e f f ect of avoiding Tax in one or other of the countries. There are, therefore, two types of relief as mentioned before, viz: — (a) Double Taxation relief. (b) Relief by situs. There is no provision in the con- vention for relief against In- heritance or other Death Taxes of the various states of the U.S.A., although unilateral relief could be given under Section 67 of the C.A.T. Act, 1976 for such Taxes. This section might also apply to give relief in respect of Irish Gift Tax and Federal Estate Tax on Gifts which are, otherwise, not dealt with in the convention. The convention in the Finance Act, 1950, is not identical in all respects with the convention bet- ween Great Britain and the U.S. contained in the Double Taxation Relief (Estate Duty) (U.S.A.) Order,

Article III (2) Article III (2) provides a situs code to be applied by both countries

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