John Perry
Question:264 Mr. Perry asked the Minister for Finance the reason a recipient of social security from the United States is now subject to 25% taxation on his pension; and if he will make a statement on the matter. [11782/01]
Written Answers - Tax on Pensions.
I am advised by the Revenue Commissioners that, as a result of the signing of the new double taxation agreement with the US, Irish resident recipients of US social security pensions became exempt from US withholding tax on such pensions. The effective rate of this withholding tax had been 25.5% of the gross pensions when paid to a non-resident alien, as defined under US law, residing in Ireland. Many representations about the high level of the US withholding tax were received prior to the renegotiation of the tax agreement and the concerns were voiced by the Irish side in the course of the negotiations. In the end, the Irish side was successful in obtaining agreement to an exemption from the US withholding tax for Irish resident recipients.
The agreement on the US side to grant exemption was conditional, however, on the pensions being subject to income tax in Ireland. The US did not want a situation to arise where the pensions would be exempt in both countries. Based on figures provided at the time to the Irish authorities by the US side, it was established that the majority of Irish recipients of such pensions would be net beneficiaries as a result of being liable to tax in Ireland instead of the US. Accordingly, the provisions of Irish income law that exempted US social security pensions from taxation in Ireland, if certain conditions were met, were changed in the 1998 Finance Act. US social security pensions are, therefore, liable to the normal Irish income tax rates of 20% and/or 42% depending on the level of income of the individual concerned. Irish resident recipients of US social security pensions are, of course, entitled to the normal tax-free allowances, credits and reliefs.