DEPARTMENT OF THE TREASURY TECHNICAL EXPLANATION OF THE CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND THE GOVERNMENT OF IRELAND FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME AND CAPITAL GAINS（一） 　　SIGNED AT DUBLIN ON JULY 28, 1997 AND 　　THE PROTOCOL SIGNED AT DUBLIN ON JULY 28, 1997 　　GENERAL EFFECTIVE DATE UNDER ARTICLE 29: 1 JANUARY 1998 　　　　　　　　　　　　　　INTRODUCTION 　　This is a technical explanation of the Convention between the United States and Ireland and the Protocol signed on July 28, 1997 (the "Convention" and "Protocol"). References are made to the Convention between the Government of the United States of America and the Government of Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, signed on September 13, 1949 (the "prior Convention"). The Convention replaces the prior Convention. 　　In connection with the negotiation of the Convention and the Protocol, the negotiators developed and agreed upon an exchange of diplomatic notes. The notes constitute an agreement between the two governments which shall enter into force at the same time as the entry into force of the Convention. These understandings and interpretations are intended to give guidance both to the taxpayers and the tax authorities of both Contracting States in interpreting the relevant provisions of the Convention. 　　Negotiations took into account the U.S. Treasury Department's current tax treaty policy, the Model Income Tax Convention on Income and on Capital, published by the OECD in 1992 and amended in 1994 and 1995 (the "OECD Model") and recent tax treaties concluded by both countries. References to the "U.S. Model" refer to the U.S. Treasury Department's Model Income Tax Convention of September 20, 1996, which was issued after negotiation of the Convention was substantially completed, although prior drafts of the U.S. Model were available and taken into account in the course of negotiations. 　　The Technical Explanation is an official guide to the Convention and Protocol. It reflects the policies behind particular Convention provisions, as well as understandings reached with respect to the application and interpretation of the Convention and Protocol. In the discussions of each Article in this explanation, the relevant portions of the Protocol and notes are discussed. This Technical Explanation has been provided to Ireland. References in the Technical Explanation to "he" or "his" should be read to mean "he or she" and "his or her." TABLE OF ARTICLES Article 1-------------------------------General Scope Article 2-------------------------------Taxes Covered Article 3------------------------------ General Definitions Article 4-------------------------------Residence Article 5------------------------------ Permanent Establishment Article 6------------------------------ Income from Immovable Property -Real Property Article 7------------------------------ Business Profits Article 8------------------------------ Shipping and Air Transport Article 9------------------------------ Associated Enterprises Article 10-----------------------------Dividends Article 11-----------------------------Interest Article 12 ----------------------------Royalties Article 13-----------------------------Capital Gains Article 14 -----------------------------Independent Personal Services Article 15 -----------------------------Dependent Personal Services Article 16 -----------------------------Directors' Fees Article 17-----------------------------Artistes and Sportsmen Article 18 -----------------------------Pensions, Social Security, Annuities,Alimony and Child Support Article 19------------------------------Government Service Article 20------------------------------Students and Trainees Article 21------------------------------Offshore Exploration and Exploitation Activities Article 22------------------------------Other Income Article 23------------------------------Limitation on Benefits Article 24------------------------------Relief from Double Taxation Article 25 -----------------------------Non-Discrimination Article 26------------------------------Mutual Agreement Procedure Article 27 -----------------------------Exchange of Information and Administrative Assistance Article 28------------------------------Diplomatic Agents and Consular Officers Article 29------------------------------Entry into Force Article 30------------------------------Termination ARTICLE 1 General Scope Paragraph 1 　　Paragraph 1 of Article 1 provides that the Convention applies to residents of the United States or Ireland except where the terms of the Convention provide otherwise. Under Article 4 (Residence) a person is generally treated as a resident of a Contracting State if that person is, under the laws of that State, liable to tax therein by reason of his domicile or other similar criteria. If, however, a person is considered a resident of both Contracting States, a single state of residence generally is assigned under Article 4. This definition governs for all purposes of the Convention. 　　Certain provisions are applicable to persons who may not be residents of either Contracting State. For example, Article 19 (Government Service) may apply to an employee of a Contracting State who is resident in neither State. Paragraph 1 of Article 25 (Non- Discrimination) applies to nationals of the Contracting States. Under Article 27 (Exchange of Information and Administrative Assistance), information may be exchanged with respect to residents of third states. Paragraph 2 　　Paragraph 2 states the generally accepted relationship both between the Convention and domestic law and between the Convention and other agreements between the Contracting States (i.e., that no provision in the Convention may restrict any exclusion, exemption, deduction, credit or other benefit accorded by the tax laws of the Contracting States, or by any other agreement between the Contracting States). For example, if a deduction would be allowed under the U.S. Internal Revenue Code (the "Code") in computing the U.S. taxable income of a resident of the Ireland, the deduction also is allowed to that person in computing taxable income under the Convention. Paragraph 2 also means that the Convention may not increase the tax burden on a resident of a Contracting States beyond the burden determined under domestic law. Thus, a right to tax given by the Convention cannot be exercised unless that right also exists under internal law. The relationship between the non-discrimination provisions of the Convention and other agreements is not addressed in paragraph 2 but in paragraph 3. 　　It follows that under the principle of paragraph 2 a taxpayer's liability to U.S. tax need not be determined under the Convention if the Code would produce a more favorable result. A taxpayer may not, however, choose among the provisions of the Code and the Convention in an inconsistent manner in order to minimize tax. For example, assume that a resident of the other Contracting State has three separate businesses in the United States. One is a profitable permanent establishment and the other two are trades or businesses that would earn taxable income under the Code but that do not meet the permanent establishment threshold tests of the Convention. One is profitable and the other incurs a loss. Under the Convention, the income of the permanent establishment is taxable, and both the profit and loss of the other two businesses are ignored. Under the Code, all three would be subject to tax, but the loss would be offset against the profits of the two profitable ventures. The taxpayer may not invoke the Convention to exclude the profits of the profitable trade or business and invoke the Code to claim the loss of the loss trade or business against the profit of the permanent establishment. (See Rev. Rul. 84-17,1984-1 C.B. 308.) If, however, the taxpayer invokes the Code for the taxation of all three ventures, he would not be precluded from invoking the Convention with respect, for example, to any dividend income he may receive from the United States that is not effectively connected with any of his business activities in the United States. 　　Similarly, nothing in the Convention can be used to deny any benefit granted by any other agreement between the United States and Ireland. For example, if certain benefits were provided for military personnel or military contractors under a Status of Forces Agreement between the United States and Ireland, those benefits or protections would be available to residents of the Contracting States regardless of any provisions to the contrary (or silence) in the Convention. Paragraph 3 　　Paragraph 3 specifically relates to non-discrimination obligations of the Contracting States under other agreements. The provisions of paragraph 3 are an exception to the rule provided in paragraph 2 of this Article under which the Convention shall not restrict in any manner any benefit now or hereafter accorded by any other agreement between the Contracting States. 　　Subparagraph (a)(i) of paragraph 3 provides that, notwithstanding any other agreement to which the Contracting States may be parties, a dispute concerning whether a measure is within the scope of this Convention shall be considered only by the competent authorities of the Contracting States, and the procedures under this Convention exclusively shall apply to the dispute. Thus, procedures for dealing with disputes that may be incorporated into trade, investment, or other agreements between the Contracting States shall not apply for the purpose of determining the scope of the Convention. 　　Subparagraph (a)(ii) of paragraph 3 provides that, unless the competent authorities determine that a taxation measure is not within the scope of this Convention, the nondiscrimination obligations of this Convention exclusively shall apply with respect to that measure, except for such national treatment or most-favored-nation ("MFN") obligations as may apply to trade in goods under the General Agreement on Tariffs and Trade ("GATT"). No national treatment or MFN obligation under any other agreement shall apply with respect to that measure. Thus, unless the competent authorities agree otherwise, any national treatment and MFN obligations undertaken by the Contracting States under agreements other than the Convention shall not apply to a taxation measure, with the exception of GATT as applicable to trade in goods. 　　Subparagraph (b) of paragraph 3 defines a "measure" broadly. It would include, for example, a law, regulation, rule, procedure, decision, administrative action or guidance, or any similar provision or action. Paragraph 4 　　Paragraph 4 contains the traditional saving clause found in U.S. tax treaties. The Contracting States reserve their rights, except as provided in paragraph 5, to tax their residents and citizens as provided in their internal laws, notwithstanding any provisions of the Convention to the contrary. For example, if a resident of Ireland performs independent personal services in the United States and the income from the services is not attributable to a fixed base in the United States, Article 14 (Independent Personal Services) would by its terms prevent the United States from taxing the income. If, however, the resident of Ireland is also a citizen of the United States, the saving clause permits the United States to include the remuneration in the worldwide income of the citizen and subject it to tax under the normal Code rules (i.e., without regard to Code section 894(a)). For special foreign tax credit rules applicable to the U.S. taxation of certain U.S. income of its citizens resident in Ireland, see paragraph 3 of Article 24 (Relief from Double Taxation). 　　For purposes of the saving clause, "residence" is determined under Article 4 (Residence). Thus, if an individual who is not a U.S. citizen is a resident of the United States under the Code, and is also a resident of Ireland under its law, and that individual has a permanent home available to him in Ireland and not in the United States, he would be treated as a resident of Ireland under Article 4 and for purposes of the saving clause. The United States would not be permitted to apply its statutory rules to that person if they are inconsistent with the treaty. Thus, an individual who is a U.S. resident under the Internal Revenue Code but who is deemed to be a resident of Ireland under the tie-breaker rules of Article 4 (Residence) would be subject to U.S. tax only to the extent permitted by the Convention. However, the person would be treated as a U.S. resident for U.S. tax purposes other than determining the individual's U.S. tax liability. For example, in determining under Code section 957 whether a foreign corporation is a controlled foreign corporation, shares in that corporation held by the individual would be considered to be held by a U.S. resident. As a result, other U.S. citizens or residents might be deemed to be United States shareholders of a controlled foreign corporation subject to current inclusion of Subpart F income recognized by the corporation. See, Treas. Reg. section 301.7701(b)-7(a)(3). 　　Under paragraph 4 each Contracting State also reserves its right to tax former citizens whose loss of citizenship had as one of its principal purposes the avoidance of tax. The United States generally treats a former citizen as having a principal purpose to avoid tax if 　　(a) the average annual net income tax of such individual for the period of 5 taxable years ending before the date of the loss of status is greater than $100,000, or (b) the net worth of such individual as of such date is $500,000 or more.In the United States, such a former citizen is taxable in accordance with the provisions of section 877 of the Code. Paragraph 5 　　Some provisions are intended to provide benefits to citizens and residents even if they do not exist under internal law. Paragraph 5 sets forth certain exceptions to the saving clause that preserve these benefits for citizens and residents of the Contracting States. Subparagraph (a) lists certain provisions of the Convention that are applicable to all citizens and residents of a Contracting State, despite the general saving clause rule of paragraph 4: (1) Paragraph 2 of Article 9 (Associated Enterprises) provides for correlative adjustments with respect to income tax due on profits reallocated under Article 9. (2) Paragraph 2 of Article 16 (Directors' Fees) requires a Contracting State to treat certain directors' fees as arising in the other Contracting State, even if they would otherwise be treated as arising in the first-mentioned State. (3) Paragraphs 1(b) and 4 of Article 18 (Pensions, Social Security, Annuities, Alimony and Child Support) deal with social security benefits and child support payments, respectively. The inclusion of paragraph 1(b) in the exceptions to the saving clause means, for example, that the grant of exclusive taxing right of social security benefits to the residence country applies to deny to the United States the right to tax its citizens that are residents of Ireland on U.S. social security benefits. The inclusion of paragraph 4, which exempts child support payments from taxation by both Contracting States, means that if a resident of Ireland pays child support to a citizen or resident of the United States, the United States may not tax the recipient. (4) Article 24 (Relief from Double Taxation) confirms the benefit of a credit to citizens and residents of one Contracting State for income taxes paid to the other. (5) Article 25 (Non-Discrimination) requires one Contracting State to grant national treatment to residents and citizens of the other Contracting State in certain circumstances. Excepting this Article from the saving clause requires, for example, that the United States give such benefits to a resident or citizen of Ireland even if that person is a citizen of the United States. (6) Article 26 (Mutual Agreement Procedure) may confer benefits on citizens and residents of the Contracting States. For example, the statute of limitations may be waived for refunds and the competent authorities are permitted to use a definition of a term that differs from the internal law definition. As with the foreign tax credit, these benefits are intended to be granted by a Contracting State to its citizens and residents. 　　Subparagraph (b) of paragraph 5 provides a different set of exceptions to the saving clause. The benefits referred to are all intended to be granted to temporary residents of a Contracting State (for example, in the case of the United States, holders of non-immigrant visas), but not to citizens or to persons who have acquired permanent residence in that State. If beneficiaries of these provisions travel from one of the Contracting States to the other, and remain in the other long enough to become residents under its internal law, but do not acquire permanent residence status (i.e., in the U.S. context, they do not become "green card" holders) and are not citizens of that State, the host State will continue to grant these benefits even if they conflict with the statutory rules. The benefits preserved by this paragraph are the tax treatment of pension fund contributions under paragraph 5 of Article 18 (Pensions, Social Security, Annuities,　Alimony, and Child Support), and the host country exemptions for the following items of　income: government service salaries and pensions under Article 19 (Government Service);　certain income of visiting students and trainees under Article 20 (Students and Trainees); and the　income of diplomatic agents and consular officers under Article 28 (Diplomatic Agents and　Consular Officers). 　　　　　　　　　　　　　　　ARTICLE 2 　　　　　　　　　　　　　　Taxes Covered 　　This Article specifies the U.S. taxes and the taxes of Ireland to which the Convention applies. Unlike Article 2 in the OECD Model, this Article does not contain a general description of the types of taxes that are covered (i.e., income taxes), but only a listing of the specific taxes covered for both of the Contracting States. The taxes specified in Article 2 are the covered taxes for all purposes of the Convention. In most U.S. treaties and the U.S. Model, the nondiscrimination and information exchange provisions apply to a broader class of taxes, including state and local taxes in the case of non-discrimination. The Convention does not do so, however, because of restrictions in Irish law. Paragraph 1 　　Subparagraph 1(a) provides that the United States covered taxes are the Federal income taxes imposed by the Code, except the accumulated earnings tax and personal holding company tax (which are considered penalty taxes), and the excise taxes imposed on insurance premiums paid to foreign insurers (Code section 4371), and with respect to private foundations (Code sections 4940 through 4948). Although they may be regarded as income taxes, social security taxes (Code sections 1401, 3101, 3111 and 3301) are specifically excluded from coverage. 　　Income taxes on social security benefits are covered, however, and are dealt with in subparagraph 1(b) of Article 18 (Pensions, Social Security, Annuities, Alimony and Child Support). U.S. and Irish social security taxes are dealt with in the bilateral Social Security Totalization Agreement, which entered into force on September 1, 1993. State and local taxes in the United States are not covered by the Convention. 　　The Convention applies to the federal excise tax on insurance premiums only to the extent that the risks covered by such premiums are not reinsured, directly or indirectly, with a person not entitled (under this or any other convention to which the United States is a party) to exemption from the tax and, under paragraph 2 of the Protocol, only to the extent that the premiums are subject to the generally applicable tax imposed on insurance companies in the Contracting State in which the insurers are resident. Accordingly, if a company is entitled to benefits under a special tax regime under the laws of a Contracting State that provides for a rate of tax lower than the normal corporate rate of tax, it would not qualify for benefits with respect to the FET. 　　To the extent the Convention provides coverage for the U.S. insurance excise tax, it effectively exempts from the tax Irish companies that insure U.S. risks, subject to the anticonduit rule for reinsurance described above. Under the Code, the tax applies only to premiums that are not effectively connected to an active trade or business in the United States or that are exempt by treaty from net basis U.S. income tax (because they are not attributable to a permanent establishment). Under Article 7 (Business Profits), the United States does not subject the business profits of an Irish enterprise to a tax that is covered by the Convention if the income of the enterprise is not attributable to a permanent establishment that the enterprise has in the United States. In contrast with this Convention, the prior Convention did not cover the insurance excise tax, allowing it to be imposed on premiums paid to Irish insurers if such premiums were not attributable to a permanent establishment of the insurer in the United States. 　　Subparagraph 1(b) provides that the Irish covered taxes are the income tax, the corporation tax and the capital gains tax. Paragraph 2 　　Under paragraph 2, the Convention will apply to any taxes that are identical, or substantially similar, to those enumerated in paragraph 1, and which are imposed in addition to, or in place of, the existing taxes after the date of signature of the Convention. The paragraph also provides that the competent authorities of the Contracting States will notify each other of significant changes in their taxation laws. The use of the term "significant" means that changes must be reported that are of significance to the operation of the Convention. 　　The competent authorities are also obligated to notify each other of official published materials concerning the application of the Convention. This requirement encompasses materials such as technical explanations, regulations, rulings and judicial decisions relating to the Convention.