Dáil Éireann díospóireacht -
Thursday, 11 Mar 1999

Vol. 502 No. 2

Written Answers. - Pension Provisions.

Gerry Reynolds

Ceist:

69 Mr. G. Reynolds asked the Minister for Finance the amount of income he will raise in 1998 and 1999 from Irish residents who are in receipt of a US social security pension through the charges in section 200 of the Taxes Consolidation Act, 1997; the reason the Government agreed the new double taxation convention with the USA; and if he will make a statement on the matter. [7528/99]

Minister for Finance (Mr. McCreevy)

Provisions were included in the new US Double Taxation Convention (Article 18(1)(b)) to exempt US social security pensions paid to residents of Ireland from tax in the US. Such pensions had previously been subject to a final US withholding tax at a rate of 15 per cent up to January 1995 and at an effective rate of 25.5 per cent thereafter. This generally resulted in a much higher rate of tax in the US than would apply if the pensions were taxed only in Ireland.

Although there are exemptions from US withholding tax on pensions in some of the US's older treaties, the exemption obtained for Irish recipients is a first in a modern US treaty. It was only reluctantly conceded on the basis that these pensions would be liable to tax in Ireland, subject to whatever allowances and exemptions applied. The US was concerned not to create a double exemption for such pensions. As a result, section 200 of the Taxes Consolidation Act, 1977, was amended in order to remove any doubt concerning the liability to Irish tax of these pensions.

It is unlikely that any additional revenue was raised in 1998 as a result of this change. It is impossible to make accurate predictions about the yield for future years. This depends on the amount of the pension payments and the particular position of the individual recipients in relation to any other income they have and their Irish tax allowances and exemptions. At the time the convention was entered into, however, it was estimated, on the basis of figures provided by the US, that US tax paid in respect of these pensions was around £5 million and that if Irish tax were paid instead it would be less than half of this, based on an estimate of the effective Irish rates involved.

Ireland's original tax convention with the US came into force in 1951. It was Ireland's oldest and, perhaps, most important treaty. It had, however, become outdated in relation to business needs and the tax policies of both countries. For example, it did not include a capital gains tax article leading to the prospect of double taxation for capital gains. A number of attempts had been made over the years to update the convention and in 1986 a draft text was substantially agreed, but not concluded due to changes in US tax laws and personnel involved in the negotiations. Discussions recommenced in earnest in July, 1995 leading to the new convention which came into force on 1 January 1998.