The tax treatment of royalty payments under the Ireland-Estonia tax treaty has been revised on account of the treaty’s most favored nation clause, Irish Revenue announced May 4.
Beginning January 1, 2016, there is no source country taxation of royalties under the treaty, and, while royalties continue to be taxable in the residence state, payments for the use of, or the right to use, industrial, commercial or scientific equipment are no longer considered to be royalties.
Ireland’s 1997 tax treaty with Estonia calls for taxation of royalties by the residence state and for royalties to be subject withholding tax of either 5 percent or 10 percent. A protocol to that agreement contains a most favored nation clause, though, providing that the tax treatment of royalty income will be revised if more favorable terms are agreed to in a tax treaty between Estonia and another OECD country.
Irish Revenue said that such a treaty between Estonia and Switzerland became effective January 1, causing the terms of the Ireland-Estonia tax treaty to change.
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