I move:
That Dáil Éireann approves the following Order in draft:
Double Taxation Relief (Taxes on Income) (Government of Canada) Order, 1967,
a copy of which Order in draft was laid before Dáil Éireann on the 27th June, 1967.
This motion relates to the implementation in Irish law of a comprehensive agreement with the Government of Canada for the avoidance of double taxation of income. This agreement is to replace the existing one between Ireland and Canada which was signed in 1954 and entered into effect as from the year 1955-56. In this country the law provides that an arrangement entered into with a foreign Government to afford relief from double taxation shall have effect here if the Government makes an Order accordingly. Before the making of such an Order, however, a draft must be laid before Dáil Éireann and a resolution passed approving it.
Deputies will find the text of the agreement scheduled to the draft Order. The usual explanatory note is appended at the end of the Order; but, for the convenience of Deputies, a separate memorandum has also been circulated which explains each of the articles in the agreement in greater detail.
The reason why the existing agreement is being replaced is that the Government of Canada proposed a modification of it to take account of a certain change in Canadian tax law. It was a part of general Canadian policy to have all their tax treaties with other countries modified in this respect. The change relates to the rate of non-residents' withholding tax imposed by Canada on dividends payable to non-resident companies by subsidiary companies resident in Canada. The purpose of the Canadians was to remove any provision in treaties for a 5 per cent rate of withholding tax, or any similar reduced rate, in such cases and to secure that dividends flowing to the other country from Canadian sources in such cases would be charged to Canadian tax at 15 per cent. In conjunction with the withholding tax on intercorporate dividends going abroad, the Canadian Government introduced a special new tax of 15 per cent on the profits earned in Canada by non-resident companies carrying on business through a branch or permanent establishment.
Advantage was taken of this to have another look at the agreement as a whole; and, as a result of negotiations, a new agreement was signed at Ottawa on the 23rd November, 1966. The general scheme of the new agreement is similar to that of the existing one. The main objective is the elimination of double taxation as respects income flowing from one country to the other. In certain cases—such as shipping and air transport profits, pensions and so on —it is provided that the income will be taxable in one only of the two countries, that is, the country of residence of the recipient of the income. Government salaries, however, will normally be taxable by the paying Government only. Where income continues to be chargeable in both countries, double taxation relief will be allowed. In Ireland the Canadian tax is to be allowed as a credit against Irish tax payable in respect of Canadian income while in Canada the Irish tax suffered is to be allowed as a credit against the Canadian tax payable in respect of income arising in Ireland.
There is a provision of the Canadian Income Tax Act under which dividends flowing to Canadian companies from foreign corporations, in which the Canadian parent owns at least 25 per cent of the voting power, are exempt from Canadian company tax. This exemption applies to Irish dividends whether they are subject to deduction of Irish tax in full or are either exempt or partially exempt from deduction of Irish tax by reason of incentive reliefs such as those granted for exports or for enterprises established in Shannon Airport or for certain mining operations. The exemption afforded by the Canadian Income Tax Act will continue to apply so long as it remains on the Statute Book. Article XIV of the new agreement, however, ensures that, irrespective of any amendment cutting down or withdrawing the relief provided by the Canadian Income Tax Act, the exemption will continue in respect of the whole or the part of a dividend qualifying for Irish incentive tax relief so far as the relief is in force on the date of signature and has not been modified since or has been modified only in minor respects so as not to affect its general character.
Article III which is concerned with business profits, includes a special provision, in view of a case decided in Great Britain by the House of Lords, to safeguard certain provisions of Irish law relating to the taxation of foreign life assurance companies. The agreement is to come into force on the date on which instruments of ratification are exchanged. It will then be effective in Ireland as regards income tax for the year of assessment beginning on the 6th April next following the date of ratification and for subsequent years.
