190. Deputy Pearse Doherty asked the Tánaiste and Minister for Finance the rationale for allowing exemptions to the dividend withholding tax that lead to complexity in the tax code and increase administrative burden on the Revenue Commissioners such as in a case (details supplied) that allows a chain of partnerships to avoid the dividend withholding tax; to provide an example of bona fide commercial purposes for a chain of partnerships; the reason it is necessary to provide them with an exemption to the dividend withholding tax; and if he will make a statement on the matter. [52827/26]

The primary purpose of Dividend Withholding Tax (DWT) is to collect tax at source from dividend payments and other distributions made by Irish resident companies to persons who are chargeable to income tax on such distributions (with a credit allowed for DWT deducted).

There are a number of exemptions from DWT provided for in legislation, including for approved pension schemes and charities which have been granted an exemption from tax. Non-resident persons, who are not chargeable to tax in Ireland in respect of the dividend income concerned are also exempt.  These persons include:

• individuals who are neither resident nor ordinarily resident in the State and who are resident in an EU Member State or in a country with which Ireland has a tax treaty;

• companies which are not resident in Ireland and—

- are resident in another EU Member State or tax treaty country and not controlled by Irish residents;

- are ultimately controlled by a person or persons resident in another EU Member State or tax treaty country; or

- the main shares of which, or the main shares of the parent company or companies of which, are substantially and regularly traded on a recognised stock exchange in an EU Member State or tax treaty country.

The exemptions are not automatic and must be established by the company making the distribution by means of an appropriate declaration of exemption completed by the applicant and, if necessary, accompanied by required certification. Exemption declarations can only be accepted where the company has no reasonable grounds to believe that the declaration (and any accompanying certificates) is not true or incorrect.

I am advised by Revenue that following engagement with tax practitioners through the Tax Administration Liaison Committee (TALC), Revenue updated its guidance to confirm that in certain circumstances distributions may be paid, either directly or indirectly, by an Irish resident company to an Irish partnership or a non-resident partnership, being a partnership that would be treated for income or corporation tax purposes as equivalent to an Irish partnership, without the operation of DWT. An Irish resident company may only make a distribution to a partnership without the operation of DWT where all the following conditions are met:

1. All partners in the relevant partnership would qualify for exemption from DWT if the dividend had been paid to them directly;

2. The partnership is considered to be tax transparent in its jurisdiction of residence (or, where the partnership is not considered to be resident in any jurisdiction, its place of creation) and by all of the jurisdictions where the partners within the partnership are resident, i.e. those partners are treated as being beneficially entitled to the relevant distribution, and where those beneficial owners are not under the control of Irish resident persons;

3. Business is conducted through the partnership for commercial reasons and not for tax avoidance purposes, and

4. The appropriate declarations of exemption with supporting certification for each partner have been put in place.

Where a member of the partnership is itself a partnership, I am further advised that Revenue is prepared to ‘look through’ the second mentioned partnership where the above conditions are met in respect of the second mentioned partnership (and so on where, for bona fide commercial purposes, there are multiple partnerships in an investment chain). However, the conditions above must be met throughout the chain.

An example of where this may apply is where, a distribution is made by an Irish resident company to a partnership in the UK which meets the conditions set out above and where all of the partners in that partnership are individuals resident for tax purposes in the UK.  These individuals would be entitled to an exemption from DWT on a payment made directly to them by an Irish resident company. The same treatment would apply if the distribution from the Irish company was paid through a series of partnerships meeting the conditions set out above before being paid to the individual partners resident in the UK.

The obligation to consider whether DWT must be deducted from a distribution and to deduct tax where the relevant conditions for exemption are not met remains with the Irish resident company making the distribution.

I am informed by Revenue that allowing the non-application of DWT in respect of a distribution made by an Irish resident company to a partnership that meets the above criteria does not facilitate an avoidance of Irish tax because DWT would not apply in circumstances where the partners received a distribution directly from the company, and the partners would not be liable to Irish income tax on the distribution received. If this administrative practice were not available, any DWT deducted would have to be refunded. Therefore, the practice reduces the administrative burden and avoids the necessity for refunds to be issued.