Irish tax treaty commentators disagree on approach to new negotiations

By Doug Connolly, MNE Tax

Business groups and non-governmental organizations responding to Ireland’s call for comments on its tax treaty policy identified several jurisdictions where new tax agreements could benefit Irish businesses but clashed in their opinions over how Ireland should approach new tax treaties with developing countries.

The comments, published June 21, address questions raised by the Irish Department of Finance in a consultation opened in April regarding Ireland’s tax treaty policy. The consultation asked about gaps in Ireland’s tax treaty network and how the country should negotiate tax treaties with developing countries, among other questions.

Twelve businesses and organizations submitted comments: ActionAid Ireland, Aircraft Leasing Ireland, Christian Aid Ireland, Consultative Committee of Accountancy Bodies – Ireland, Deloitte, Grant Thornton, IBEC, Irish Funds, Irish Tax Institute, KPMG, Oxfam Ireland, and PwC.

Expanding network

Ireland currently has tax treaties with 74 jurisdictions, with 73 of those treaties in effect.

The Irish Tax Institute stated that, although the existing network is broad, “there are also some significant gaps across Latin America, southern Asia and Africa.” It specifically recommended negotiating treaties with Argentina, Brazil, Indonesia, the Philippines, and Taiwan, in light of the large trade flows between Ireland and those countries.

Several existing treaties also need renegotiating due to more favorable terms being offered by the treaty partner to other countries, according to the Irish Tax Institute. These include the treaties with Australia, Japan, and Malaysia.

The Irish business group IBEC also identified gaps in Ireland’s treaty network in southeast Asia, South America, and Africa. It similarly highlighted Argentina, Brazil, Indonesia, and the Philippines, as well as identifying Colombia and Nigeria as potential new treaty partners.

Negotiating with developing countries

There was no consensus with respect to the Irish Department of Finance’s question regarding whether Ireland should more greatly emphasize the UN model tax treaty in negotiations with developing countries.

The Irish Tax Institute suggested that “Ireland should be consistent in its approach to tax treaties and policymakers should follow the OECD Model Tax Convention when negotiating with developing countries, whilst including provisions from the UN Model.”

ActionAid Ireland disagreed, stating that Ireland should take “a pro-development approach to the negotiation of tax treaties by adopting the UN Model Double Taxation Convention between Developed and Developing Countries (the UN Model) as the minimum standard, from which negotiations can begin.”

Action Aid said that basing negotiations on the UN model would ensure developing countries have a fairer balance of tax rights.

Christian Aid Ireland went even further, recommending that Ireland not actively seek new tax treaties with developing countries “given the asymmetric nature of such negotiations and risks involved.” If a developing country seeks a tax treaty with Ireland, Christian Aid said that Ireland should assess the revenue impacts for itself and the treaty partner and share that assessment.

Should Ireland decide to pursue a new tax treaty with a developing country, Christian Aid said that “Ireland should be prepared to accept an initial negotiating text that provides protections of source taxation beyond the OECD and UN models.”

Christian Aid Ireland added that Ireland’s tax treaties with developing countries are very restrictive and limit “average source taxation rights more than any other EU Member State bar Italy and Malta.”