Under the terms of the United States domestic legislation non-resident aliens are now liable to tax on social security payments at a rate of 30 per cent on 85 per cent of the social security payments, i.e. 25.5 per cent overall. Prior to 1 January, 1995 the rate was 30 per cent on one-half of the payment, i.e. 15 per cent overall. The increase is a result of changes in the United States Internal Revenue law.
The existing double taxation convention between Ireland and the United States, which is in existence for over 40 years, does not contain any specific provisions relating to the taxation of social security payments. Italy, Germany and the UK are the only EU countries which have double taxation conventions with the US which include a provision exempting US social security payments from tax in the US. The effect of the provision is to transfer the taxing rights over these payments to the country of residence of the recipient. The conventions do not exempt the payments from tax in these countries. Tax would be payable at the normal rates in the countries in question.
Negotiations on a new convention between Ireland and the United States which had been ongoing during the 1980s were suspended in 1990. When these discussions recommence, this taxation matter will be raised by the Irish side. It is not yet clear at this stage when these discussions will be resumed.