The Gazette 1987

JULY/ A UGUST

1987

GAZETTE

On the other hand, if a person domiciled in the U.S. owns as part of his Free Estate Irish Government Securities, their situs is deemed under Rule (c) of Article III (2) to be in America, and Inheritance Tax would not be payable on them even though no tax is payable in the U.S. by reason of an exemp t i on threshold. Article IV (3) preserves the right of the Irish Authorities to impose tax on a settlement having Irish proper law. Article V contains the provisions relating to the allowance or credit for tax in the other country. Where either country imposes tax by reason of domicile or, in the case of the U.S. being its national, on property situate solely in the other country, the first country is to give a credit against its tax for the tax imposed on the same pro- perty in the second country, but the credit is not to exceed the amount of the tax on that proper- ty in the first country. For example, where property which is situate in the U.S.A. is taken on the death of a disponer who dies domiciled in Ireland, an allowance against In- heritance Tax is made for the amount of the Federal Estate Tax (up to the amount of the In- heritance Tax) payable in respect of the same property. The same will apply if the domiciles and situa- tion were reversed and, for this purpose, locality or situs is deter- mined in accordance with Article III (2). Article V In paragraph (3) of Article V, if the property is taken under a disposi- tion regulated by Irish law, credit will also be given in Ireland. Article V (2) provides for propor- tionate relief applicable where the disponer is deemed to be domicil- ed in both countries and property taken on his death is treated as situate in both countries. Where this happens, an allowance is to be made by each country on the basis that the duty in each country is to be propor- tionately reduced to such an extent that the total duty payable in both is equal to the greater of the amounts which would otherwise be payable in the t wo countries separately. For example if £400.00 is the amount of the Inheritance

Tax on the doubly taxed property and £600.00 is the amount of the Federal Estate Tax on the property (apart from the Convention) then the credit is as follows:

where the disponer dies domiciled in either or both, but the proviso at the end of the Article limits its operation. The Situs Code is printed in full at the end of this article. Where the property does not fall within the Situs Rules, the locality will be determined according to the law of the country other than that country in which the disponer was domiciled. The proviso in Article III (2) states that if, apart from its Rules, including the last mentioned Rule, any property would: — (a) be situate in the territory of one of the t wo countries, and (b) be liable to duty in that country, then the Rules are not to apply to such property unless, by reason of their application or otherwise, du- ty would be imposed or would, but for some specific exemption, be imposed thereon by the other country. This Supplementary Rule ap- pears to mean that if property, for exmaple, is situated in Ireland under General Law but is deemed under the Situs Rules, to be situated in the U.S.A., the Situs Rules will not apply to that proper- ty unless, by reason of their application or otherwise, duty would be imposed in the U.S.A. on that property, or would be so imposed but for some specific exemption (e.g. initial exemption) on that property. The object of this is to prevent escape of tax in both countries. For example, L. T., an American- domiciled citizen, is life-tenant under his father's (U.S. domiciled) settlement, which contains an Irish bank account. There is no U.S. tax because the life-tenant was neither the settlor nor competent to dispose of the property in settlement; Article III (2) (c) would deem the Bank Account to be situate in the U.S. under normal circum- stances. Because of this, the Account would escape tax in both coun- tries. However, the proviso en- sures that Rule (c), under which the account would be deemed situate in America, does not apply and Irish Inheritance Tax would be payable on the account.

Federal Estate Inheritance Tax Tax

Total

Tax before credit £600.00 Credit £240.00

£400.00 £1,000.00

£160.00

£400.00

(600 x 400)

(400 x 400)

(1000

(1000

Net Tax

£360.00

£240.00

£600.00

N.B. The lesser amount of Tax is always utilised for the purpose of this calculation.

The latter part of Article IV (4) pro- vides for the case where Ireland and the U.S.A. both deem domicile and there is property situate in a third territory which is taxed in that third territory, on the basis of Situs there. For example, the tax on this property before the application of any double taxation relief is as follows: — Tax in Third Territory£200.00 Tax in Ireland £400.00 Tax in U.S.A. £600.00 The Third Territory tax remains at £200.00. Under a Convention with the Third Territory, or under Sec- tion 67 of the C.A.T. Act, 1976, Ireland gives a credit of £200.00 against Inheritance Tax and claims a net amount of £200.00 Tax. The U.S.A. also gives a credit of £200.00 against its tax (under a Convention or unilaterally) and claims a net amount of £400.00 tax. The credit to be given is then: Federal Estate Inheritance Tax Tax £400.00 Credit £130.00 (400 x 200) (600 ) Tax Total £200.00 £600.00 £70.00 £200.00 (200 x 200) (600 )

Net Tax

£270.00

£130.00

£400.00

Third Territory

£200.00 £600.00

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