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GAZETTE
JULY/
A
UGUST
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
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.
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
(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
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.
(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,
1946 in the U.K. (S.R. & 0. 1946,
No. 1351),. although the dif-
ferences are minimal.
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.
Article III (2)
Article III (2) provides a
situs
code
to be applied by both countries
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