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Credit for Double Taxation

Double taxation relief aims to mitigate the hardship which might arise when an event gives rise to a charge to Capital Acquisitions Tax in Ireland and also to a tax of a similar nature in another country. Double taxation can arise where one country imposes tax on worldwide assets by reference to the domicile/residence of the disponer and another country imposes tax because property is situated in its jurisdiction.

Double Taxation can also arise where both countries impose tax by reference to the domicile/residence of the disponer. Accordingly, Ireland, either unilaterally or on a bilateral basis, will make allowance for foreign tax paid on foreign property, subject to certain conditions. There are two Treaties in operation, one with the United Kingdom and one with the United States of America. What follows is a brief outline of the general principles of unilateral relief and relief under the UK and US conventions.

• Unilateral Relief
• UK Double Taxation Relief
• US Double Taxation Relief

Unilateral Relief

Unilateral relief is granted only where there is no double taxation treaty in force. It is granted where a gift or an inheritance of foreign property to or from an Irish resident or ordinarily resident beneficiary or disponer is reduced by the payment of a foreign tax which is similar in nature to estate duty, gift tax or inheritance tax. The relief applies only in respect of tax imposed by a foreign country on property situated in that foreign country. The credit cannot be greater than the Irish tax on the foreign property and can only be given where the same event (i.e. gift or death) gives rise to tax in both countries.

The credit granted is the lesser of -

• the amount of gift/inheritance tax (CAT) payable on the foreign property or
• the amount of foreign tax on the foreign property

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UK Double Taxation Relief

Convention with the UK

This Convention covers Capital Acquisition Tax in Ireland and Inheritance Tax (formerly capital transfer tax) in the UK. The Convention determines taxing rights based on the domicile of the disponer. However the Treaty recognises the right of each country to levy tax according to its own law.

The Capital Acquisitions Tax charge is based on the residence/ordinary residence of either the disponer or beneficiary, while the U.K. charge is based on the domicile of the disponer. The Convention ensures that the country where the property is not situated gives a credit for tax paid in the country where the property is situated. This usually results in the country where the disponer is domiciled giving the credit for the tax paid in the other country, on property situated in that other country. Credit is given only when the same property is taxed in both countries, on the same event. As in the case of unilateral relief, the amount of the credit cannot be greater than the Irish tax on the foreign property.

Who gets the credit?

The credit is given to the person liable to the UK tax who is normally the residuary legatee, i.e. the person who takes the remainder of the estate after all bequests have been distributed and debts and administration costs discharged, who must of course be liable to CAT. Tax on pecuniary legacies, i.e. cash legacies in the U.K. is borne by the residuary legatee. Accordingly, when the amount of the credit to be given in respect of the pecuniary legacy has been calculated, such amount will be offset against the Irish tax, if any, payable by the residuary legatee. This is in addition to a credit for the U.K. tax referable to the residuary legatee’s own benefit. In the event that the residuary legatee pays no Irish tax no credit is given.

Specific Bequest

There is one circumstance where credit for U.K. tax is not allowed against the liability of the residuary legatee. Where a specific bequest of foreign property is made to a beneficiary, that benefit bears its own share of the foreign tax. Therefore, where there is also an Irish CAT charge on the benefit, the credit for U.K. tax is applied against that beneficiary's Irish tax.

Valuation used to calculate credits

As a tax on an estate, U.K. inheritance tax is charged on the valuation of the assets at date of death. As a tax on a benefit, Capital Acquisitions Tax is charged on the valuation of the assets at the valuation date. The valuation date for a benefit can be other than the date of death. As a result of these discrepancies the credit given is, to an extent, a notional credit as it does not always correspond precisely with the U.K. inheritance tax paid. In practice, therefore, both date of death valuations and valuation date valuations are used in calculating the credit for U.K. tax. As the U.K. tax is based on date of death valuations these valuations are used in calculations concerning the U.K. property.

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How to Claim Credit

To claim the credit, a certificate from the relevant tax authority should be obtained certifying the following:

1. The total U.K. inheritance tax attributable to the property in question (exclusive of interest);
2. The property and its value upon which that tax was charged;
3. The date of payment of that tax;
4. That the tax was computed in accordance with the Convention;
5. That the tax is final;
6. That no application for a refund of U.K. inheritance tax is now pending or authorised and that, if hereafter, a refund is made, due notice will be given to the Revenue Commissioners.

This certificate should be retained for six years as in the event of the case being selected for audit, the Commissioners will require sight of it.

The addresses of the relevant authorities in the U.K. are;

England and Wales:
The Capital Taxes Office,
Ferrers House,
Castle Meadow Road,
Nottingham NG2 IBB.

Scotland:
The Capital Taxes Office,
Mulberry House,
16, Picardy Place,
Edinburgh,
EH1 3NB.

Northern Ireland:
The Capital Taxes Office,
Level 3,
Dorchester House,
52-58 Great Victoria Street,
Belfast,
BT2 7QL.

It may not be possible in some cases to obtain the relevant information from the U.K. authorities prior to the CAT filing date, and in that event an estimated amount should be included in the return. The tax can then be adjusted, if necessary, when final figures are available.

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Double Domicile

It is usually the country claiming domicile which gives a credit for foreign tax. In view of the shared common law concept of domicile between Ireland and the U.K. this area does not usually cause difficulties. The U.K. has however the concept of a statutory or deemed domicile. The result is that, in some cases, both jurisdictions may claim to be the disponer's place of domicile.

When this occurs Ireland gives credit for UK tax on UK property and the UK gives credit for Irish tax on Irish property, subject again to the proviso about the amount of the credit being restricted as is mentioned above. However, in the event that there is property which is situated in a third country, the credit is given by the country which has "subsidiary taxing rights".

Further information in relation to the "subsidiary taxing rights" is set out below.

Points to Note

• It should be noted that the UK tax is not deductible as a liability in calculating the amount of CAT payable - it can be used only as a credit against CAT.
• A credit is given only for U.K. tax - no allowance is made for interest or penalty charges.
• Credit is given only when the same property is taxed on the same event in both jurisdictions.
• The credit given is limited to the tax on the benefit at the lower of the U.K. and Irish effective rates. In effect this means that the credit given for U.K. tax cannot be greater than the Irish tax on the same property.
• Any claim for credit (or for a related refund of tax) must be made within six years from the date of the event in respect of which the claim is made.

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Calculation of the Credit

• The following example is for illustration purposes. When you file your CAT return on ROS, the double taxation credits will be calculated for you when you input the relevant figures.

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US Double Taxation Relief

Convention with the US

The Ireland - US Treaty, which was concluded in 1951, is treated now as applying to inheritance tax in Ireland and federal estate tax in the USA. It does not apply to gift tax or to any taxes in the nature of death duties which may be imposed by individual U.S. States, e.g. Californian inheritance tax, however in such cases unilateral relief may apply.

Scope of Irish and US Inheritance Tax

Ireland imposes inheritance tax on worldwide assets where the disponer or beneficiary is resident/ordinarily resident in Ireland, otherwise only assets situated in Ireland are liable to inheritance tax. The U.S. imposes federal estate tax on worldwide assets if the disponer was a US citizen or was domiciled in one of the States of the U.S., otherwise only property situated in the U.S. is liable to federal estate tax (subject to certain exceptions).

However the Convention provides that Ireland cannot tax property outside its territory unless the disponer died domiciled in the State (or the disposition in question was governed by the law of the State) or else died not domiciled (i.e. not resident) in the U.S and this will continue to be the position irrespective of the residency rules. This means that a benefit taken by an Irish resident beneficiary of U.S. situate property from a disponer who is domiciled in the U.S. might appear to be subject to C.A.T. but is in fact not liable under the terms of the Convention. Where either country imposes tax on property situated solely in the other country then the country where the property is not situated gives credit for the tax paid in the other country. Like both unilateral relief, and relief under the UK Double Taxation Treaty, the amount of the credit cannot exceed the amount of inheritance tax on the property which is doubly taxed. In circumstances where the convention does not provide relief, the unilateral provisions of section 107 of the Act may apply.

As the U.S. claims to tax assets wherever situated if the deceased is a U.S citizen at the time of his death, irrespective of the domicile, it often results in both Ireland and the U.S. claiming tax on worldwide assets. In such a case the Convention, if the deceased died domiciled and resident or ordinarily resident in Ireland but a citizen of the U.S. at the date of death, provides that Ireland will allow against its tax on property situated in the U.S. a credit for the U.S. tax payable on that property. The credit given is the lesser of the Irish or U.S. tax on that property. The U.S. on the other hand will allow against its tax on property situated in Ireland a credit - again equal to the lesser of the Ireland or U.S. taxes (see example 8).

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Location of property

The location of property is central to the whole question of the relief and it is here that the convention with the U.S. differs significantly from the convention with the U.K. It contains a code in Article III called the "Situs Code" which is to be applied where the deceased died domiciled in either Ireland or the U.S. (or in both). The code in Article III sets out eleven rules for determining the situs (location) of different classes of property. While it conforms substantially to general law with regard to most classes of property, it differs significantly with regard to the following classes:

• Debts due to the deceased (unless otherwise provided for). It is important to note that debts include bank accounts.
• Moneys payable under an assurance policy or an insurance policy on the life of the disponer.
• Government securities and shares or stock in municipal or government corporations.

These categories of property are deemed to be situated where the disponer was domiciled.

This can result, exceptionally, in property being treated as located in both countries as both countries may claim domicile. When this happens, the credit is split. The credit to be given is based upon the lower of the taxes charged in both jurisdictions and each gives a proportion of that sum as a credit so that the amount of tax payable between the two countries is equal to the greater amount payable in the two countries separately (see example 9).

Note that the situs code is governed by the domicile of the disponer and not by his/her citizenship.

Under the provisions of Article VI any claim for credit (or for a related refund of tax) must be made within six years from the date of the disponer’s death.

Ireland - U.S. Convention: Situs Code: Article III (2)

Class of Property	Situs for purposes of the Convertion
Immovable Property	Place it is located
Tangible moveable property including currency, negotiable bill of exchange promissory notes.	Place where located or if in transit, at the place of destination
Debts due to the deceased, secured or unsecured - includes bank accounts, mortgages, dividends, shares in Government or municipal corporations	Place of domicile
Shares or stock in a corporation except government or municipal	Place where or under the law of which the corporation was created
Policies of insurance and assurance	Place of domicile
Goodwill of business	Place where business carried on
Ships and aircraft and shares thereof	Place of registration
Patents, trademarks and designs	Place of registration
Copy right, franchises and rights of licences to use any copy-righted material, patent, trademark or design	Place where the rights are exercisable
Rights or causes of action ex delicto surviving for the benefit of an estate of a decedent	Place where such rights or causes of action arose
Judgment debt	Place where judgment is recorded

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