I move:
That Dáil Éireann approves the following Order in draft:
Double Taxation Relief (Taxes on Income) (Japan) Order, 1974
a copy of which Order in draft was laid on the table of Dáil Éireann on the 31st day of May, 1974.
Copies of the draft orders relating to the conventions with Japan and Pakistan for the avoidance of double taxation on income generally were laid before Dáil Éireann on 31st May, 1974.
The conventions have been signed on behalf of the respective Governments. Subsequent to the signing of the conventions two White Papers setting out the terms of the conventions were laid before both Houses of the Oireachtas by the Minister for Foreign Affairs.
In this country the law provides that an arrangement entered into with a foreign Government to afford relief from double taxation in respect of income tax, sur-tax, corporation profits tax and any taxes of a similar nature, shall have the force of law here if the Irish Government makes an order accordingly. Prior to the making of such an order however a draft of the order must be laid before Dáil Éireann and a resolution passed approving it.
Deputies will find the text of the conventions scheduled to the draft orders now before the House. For the convenience of Deputies a separate memorandum has also been circulated with each draft order explaining the effect of the articles in each convention.
The main object of conventions such as these is the avoidance of double taxation on income flowing from one country to a resident of the other country. To this end their provisions secure that such income will be taxable in one only of the two countries, or that if it is taxable in both, the aggregate of tax payable will be appropriately reduced.
The convention with Japan provides that as regards certain classes of income arising to a person resident in one country and not resident in the other double taxation is avoided by confining the right to tax to the country in which the person is resident. This treatment applies as respects trading profits not arising through a "permanent establishment", shipping and air transport profits, professional profits not attributable to a "fixed base", pensions other than Government pensions and certain earnings and receipts of temporary residents, for example, teachers, researchers and apprentices.
Where none of the exemptions referred to applies income arising in one country to a resident of the other will continue to be taxable in both. The latter country will however relieve the double taxation by reducing the tax which would otherwise be payable to it in respect of the income by means of a "credit system".
An important provision in the convention is that, where an Irish company pays a dividend to a Japanese company which has a stake of not less than 25 per cent in the Irish company, the Japanese Revenue will give credit against the Japanese liability for the Irish tax paid by the company on the profits out of which the dividend is paid. In a case where the Irish company has been wholly or partly relieved from tax under the incentive measures designed to promote industrial development in Ireland, the credit given will be the amount of Irish tax which would have been payable if the Irish tax had been charged in full. Thus full "matching credit" is provided on these investments by Japanese companies. Interest and royalty payments arising in one country and payable to a resident of the other country may be taxed in the country of source up to a rate of 10 per cent.
The convention will enter into force on the thirtieth day after exchange of instruments of ratification and have effect as follows:
(a) in Ireland:
(i) as respects income tax (including sur-tax) for any year of assessment beginning on or after the 6th April of the calandar year in which the convention enters into force;
(ii) as respects corporation profits tax for any accounting period beginning on or after the 1st April of the calendar year in which the convention enters into force and for the unexpired portion of any accounting period current at that date.
(b) in Japan:
as respects income for any taxable year beginning on or after the 1st January of the calendar year in which the convention enters into force.
The convention with Pakistan will enter into force upon the exchange of instruments of ratification. It will have effect in Ireland, as respects income tax (including sur-tax), for the year of assessment beginning on 6th April, 1968, and subsequent years of assessment and, as respects corporation profits tax, for any accounting period beginning on or after 1st April, 1968 and for the unexpired portion of any accounting period current at that date. It will be effective in Pakistan as regards income tax and super-tax for any one year of assessment beginning on or after 1st July, 1968.
Each of the conventions will continue in force indefinitely but may be terminated by either this country or the other partner country giving the appropriate notice of termination prescribed by the respective convention.
The provisions of the conventions with Japan and Pakistan are broadly similar to those contained in the conventions which this country has concluded with other countries. In this respect I might mention that conventions are at present in force with Austria, Belgium, Britain, Canada, Cyprus, Denmark, Finland, France, Federal Republic of Germany, Netherlands, Norway, Sweden, Switzerland, the United States of America and Zambia. The main benefit which this country derives from the conclusion of such arrangements is the removal of a disincentive to the investment of foreign capital in Ireland.
I recommend that Dáil Éireann approve these draft orders.
