Irish Revenue Explains Estonia DTC Royalty Tax Changes
The Irish Revenue has issued a brief explaining how the implementation of a most favored nation clause in Ireland’s tax treaty with Estonia will affect the tax treatment of royalties.
Ireland’s Double Tax Convention (DTC) with Estonia became effective in 1999. It contains a provision whereby the tax treatment of royalty income under the DTC may be revised if more favorable terms are agreed by Estonia with another member of the OECD.
Revenue said that Estonia has recently agreed such terms with Switzerland, meaning that those terms will apply to the Ireland-Estonia DTC with effect from January 1, 2016.
A protocol to the Estonia-Switzerland double tax agreement provides that royalties are taxed only in the residence state. It also amends the definition of royalties to exclude payments for the use of, or the right to use, industrial, commercial, or scientific equipment. It entered into effect on January 1, 2016.
The Ireland-Estonia DTC has been amended accordingly. As a result, source state taxation no longer applies, and payments for the use of, or the right to use, industrial, commercial, or scientific equipment no longer come within the scope of DTC’s royalties article.
