|The Competent Authorities of the United
States and Ireland enter into the following agreement (“Agreement”)
concerning the treatment of Common Contractual Funds under the Convention
Between the Government of the United States of America and the Government
of Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with Respect to Taxes on Income and Capital Gains, signed at Dublin
on July 28, 1997 (the “Treaty”) and the Protocol, also signed
at Dublin on July 28, 1997 (the “Protocol”). The Agreement is
entered into under paragraph 3 of Article 26 (Mutual Agreement Procedure).
|It has come to the attention of the Competent
Authorities that difficulties have arisen as to the application of the Treaty
to income received by Irish unit holders in a Common Contractual Fund (“CCF”).
This results from the provisions of Subparagraph 1(d) of Article 4 of the
Treaty and Article 1 of the Protocol.
|The CCF was introduced into law in Ireland
after the Treaty entered into force. Legislation for the establishment in
Ireland of a UCITS CCF was enacted under the UCITS (Undertakings for Collective
Investment in Transferable Securities) Regulations (S.I. 211 of 2003 as amended).
More recently, legislation allowing for the formation of a non-UCITS CCF
in Ireland was passed in June 2005, entitled the Investment Funds, Companies
and Miscellaneous Provisions Act 2005 (the “2005 Act”).
|Taxation provisions governing the UCITS
CCF were introduced in Ireland in the Finance Act 2003. Anticipating of the
passing into law of the 2005 Act, those provisions were amended by Section
44 of the Finance Act 2005 to cover both UCITS and non-UCITS CCFs. Section
44 provides, inter alia, for a new Section 739I in the Taxes Consolidation
Act 1997 (TCA). Under section 739I of the TCA the income and gains of a CCF
are treated as arising or, as the case may be, accruing, to each unit holder
of the CCF in proportion to the value of the units beneficially owned by the
unit holder, as if the relevant income and relevant gains had arisen or, as
the case may be, accrued, to the unit holders in the CCF without passing through
the hands of the CCF.
|The first sentence of Article 1 of the
Protocol provides that for the purposes of the Treaty where a resident of
a Contracting State is entitled to income or gains in respect of an interest
in a person that derives income or gains from the other Contracting State,
any income or gains so derived by such person shall be considered to be income
or gains of such resident to the extent it is treated as such under the taxation
laws of the first-mentioned State. Thus, under the first sentence it would
appear that income received by a unit holder that is a resident of Ireland
in respect of an interest in a CCF should be considered to be income of the
unit holder for purposes of the Treaty.
|However, under the second sentence of
Article 1 of the Protocol, the income will not be treated as the income of
the unit holder for purposes of the Treaty if the CCF is a resident of Ireland
within the meaning of subparagraph 1(d) of Article 4 (Residence) of the Treaty.
Subparagraph 1(d) of Article 4 provides that, in the case of Ireland, a “resident”
includes a Collective Investment Undertaking (“CIU”). The term
“Collective Investment Undertaking” is not however defined in
the Treaty. Under Irish law, a CCF is treated as a CIU. Therefore, a question
has arisen as to whether Irish unit holders in a CCF are entitled to benefits
under the Treaty.
|Paragraph 2 of Article 3 (General Definitions)
of the Treaty provides that any term not defined in the Treaty shall, unless
the context otherwise requires, or the competent authorities agree to a common
meaning pursuant to the provisions of Article 26 (Mutual Agreement Procedure),
be defined by reference to the law of the Contracting States in effect at
the time the Treaty is being applied. The technical explanation of the Treaty
prepared by the Department of the Treasury of the United States explains that
the reference to the “context otherwise requiring” a definition
different from the internal law definition of the Contracting State whose
tax is being imposed refers to a circumstance where the result intended by
the negotiators or by the Contracting States is different from the result
that would obtain under the statutory definition.
|The Competent Authorities agree that in
order to reach the result intended by the Contracting States, a CCF will not
be treated as a resident of Ireland pursuant to paragraph 1(d) of Article
4. Accordingly, under the first sentence of Article 1 of the Protocol, a
unit holder in a CCF will be entitled to benefits under the Treaty, provided
the unit holder is a resident of Ireland that satisfies the requirements of
Article 23 (Limitation on Benefits). In addition, a CCF will not be entitled
to benefits in its own right because it will not be a resident of Ireland.
|Frank Y. Ng Acting United States Competent
||P. F. Mullen Irish Competent Authority