Double Taxation Relief (Ireland) Order 1988

This commentary item was published in Public Information Bulletin Volume 112, Supplement No. 18, May 1989

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Double Taxation Convention With Ireland

Part I - Introduction

The text of the Convention has been published as a schedule to an Order in Council (SR 1988/189) which is available from Government Bookshops.

The Convention came into force on 26 September 1988 with effect in New Zealand for any income year beginning on or after 1 April 1989.

In Ireland it takes effect:

• in respect of income tax and capital gains tax, for any year of assessment beginning on or after 6 April 1989.
• in respect of corporation tax, for any financial year beginning on or after 1 January 1989.

Part II - Notes on the Convention Article by Article

Article 1 - Personal Scope

The convention applies to persons who are residents of New Zealand or Ireland or of both States.

Article 2 - Taxes Covered

The convention covers the following taxes imposed by Ireland:

• income tax;
• corporation tax; and
• capital gains tax.

In New Zealand the convention covers income tax and excess retention tax.

Article 3 - General Definitions

1. Paragraph 1 groups together various general provisions required for the interpretation of terms used in the convention.

"National": Paragraph 1(g)

The term "national" is used in paragraph 2(c) and 2(d) of Article 4 in determining residence status. It is also used in Article 21 Government Service and Article 25 Non-Discrimination.

In New Zealand the term covers any individual who is a New Zealand citizen and any legal person or other entity under the law in force in New Zealand.

In Ireland the term covers any individual who is an Irish citizen and any legal person, association or other entity under the law in force in Ireland.

2. Paragraph 2 is a standard provision. Where a term is not defined it has the meaning applicable under the domestic law of the country applying the convention.

Article 4 - Residence

1. Paragraph 1 defines the meaning of the term "resident of a Contracting State". In effect the defined term is a reference to the domestic law of each country. Whenever the term is used in the convention, the residence of the taxpayer must first be determined in accordance with this Article.

2. Paragraph 2 sets out the tests to be applied to solve the problem of a dual resident individual. Dual residence arises when a taxpayer is resident in both countries by virtue of the domestic law of each country.

3. Paragraph 3 provides that where a company or other legal person is resident in both countries, residence will be where the place of effective management of the enterprise is situated. In this context, New Zealand views the term "effective management" as meaning the practical day to day management, irrespective of where the overriding control is exercised.

In applying the tests to dual residents, as set out in paragraphs 2 and 3, it should be remembered that these tests apply only for the purposes of the convention. If the person resident in New Zealand (domestic law test) becomes for the purposes of the convention a "resident of Ireland" after the tests have been applied, this does not mean that he is regarded as a non-resident for all purposes of New Zealand tax law. For example, he can never be subject to non-resident withholding tax, the reason being that although he is treated as a non-resident for certain purposes of the convention, he is still regarded as being resident in New Zealand under the Income Tax Act. However, it does mean that he is entitled to any benefits granted by the convention as a "resident of Ireland". For example, although New Zealand royalty income derived by him is not subject to non-resident withholding tax, he is liable for New Zealand income tax on the royalty income but qualifies for the 10 percent limitation in the convention.

Article 5 - Permanent Establishment

The Article defines the term "permanent establishment". This concept determines the right of a Contracting State to tax the profits of an "enterprise of the other Contracting State". Due to the inclusion of the words "includes especially" in paragraph 2, the examples cited as constituting a permanent establishment are by no means exhaustive.

The definition of "permanent establishment" is fairly standard, however the following points should be noted:

Paragraph 2(g)

An installation or structure used for the exploration or exploitation of natural resources constitutes a permanent establishment.

Paragraph 3

A building site or construction or installation or assembly project constitutes a permanent establishment if it lasts for more than 6 months.

Article 6 - Exploration and Exploitation Activities

This Article covers activities of enterprises and individuals engaged in the offshore area particularly in relation to exploration and exploitation of natural resources.

1. Paragraph 1 sets out the application of the Article and defines the term "specified activities" as meaning activities carried on in connection with the exploration and exploitation of the sea-bed and subsoil and their natural resources.

2. Paragraph 2 attributes a permanent establishment to an enterprise of a State which is carrying on specified activities in the other State. For example, if an Irish company is carrying on specified activities in New Zealand it is deemed to be carrying on business in New Zealand through a permanent establishment. New Zealand consequently has the right to tax the income, in terms of Article 9. This is the case regardless of the length of time spent in New Zealand.

3. Paragraph 3 covers specified activities performed by an individual who provides services of a professional or independent nature. It attributes a fixed base to an individual who is a resident of one State and performs the specified activities in the other State. For example, a resident of Ireland engaged in specified activities in New Zealand is deemed to be performing the activities from a fixed base in New Zealand. Therefore, in terms of Article 16, New Zealand has the right to tax the income. Again this is the case regardless of the length of time spent in New Zealand.

4. Paragraph 4 covers remuneration derived by a resident of one State employed in the other State in connection with specified activities. The State where the activities are performed has the right to tax the remuneration.

Article 7 - Limitation of Relief

This Article allows the country of source to tax any income which is wholly or partly relieved from tax under the convention if it is not remitted to the other state. It prevents any income from being untaxed in either country.

This article is necessary from the Irish point of view as in the case of investment income, they only tax it when it is remitted to Ireland.

Article 8 - Income from Immovable Property

This Article recognises the internationally accepted practice in relation to income from land or landed property. The Article also applies to such items as rents, natural resource royalties, farming and forestry profits, etc. The principle of the Article is that income derived by a resident of one State from immovable property situated in the other State may be taxed in the State where the immovable property is situated. "Immovable property" is not defined in our general law but the Article provides extensive definition. Ships and aircraft are excluded from the term "immovable property".

Paragraph 4 is a source rule and ensures that the source of income from lease of land or any other interest or rights in land or mineral deposits lies in the country where the property is situated and not where the lease is drawn up or signed.

The Article involves no change in current practice in relation to the income covered, ie, our domestic law applies.

Article 9 - Business Profits

This Article is in many respects a continuation of, and a corollary to, Article 5 on the definition of the concept of permanent establishment. Under Article 9 a Contracting State cannot tax the business profits of an enterprise of the other Contracting State unless it carries on its business through a permanent establishment situated therein. If a permanent establishment exists the Article goes on to lay down a set of rules by reference to which are to be calculated the profits of the permanent establishment.

Before dealing with the salient features of the Article some comment is warranted on the importance of paragraph 8. This is because reference to this Article and Article 5 will not always be necessary to determine the liability of specific types of income. In effect paragraph 8 gives first preference to the other Articles in the Convention. It follows that this Article will only be applicable to business profits which do not belong to the categories of income specifically covered in other Articles of the Convention unless in those Articles specific provision is made to revert to Article 9 in certain given circumstances, eg, paragraph 6 of the Dividend Article, paragraph 4 of the Interest and Royalties Articles.

1. Paragraph 1 expresses the general rule that profits are taxable only in the country of residence unless the enterprise is engaged in business in the other country through a permanent establishment, in which case the other country may tax the business profits of the permanent establishment.

It is important to note that only income attributable directly to the permanent establishment's operations can form part of the establishment's operations. This does not mean that income which is not directly attributable to the establishment's operations escapes liability for tax. For example, the restriction on the rate of tax imposed by paragraphs 1 and 2 of Article 12 and by paragraph 2 of Articles 13 and 14, would still apply if such income did not arise from the permanent establishment's operations.

2. Paragraph 2 contains the normal provision enabling arm's length profits to be attributed to the permanent establishment if necessary.

3. Paragraph 3 expresses the taxpayer's right to deduct from the profits of the permanent establishment the expenses incurred for the purposes of the permanent establishment even if those expenses are incurred outside the country where the permanent establishment is situated.

4. Paragraph 4 provides that where the profits to be attributed to a permanent establishment are determined, not on the basis of separate accounts or by making an estimate of arm's length profit, but simply by apportioning the total profits of the enterprise by reference to various formulae, then such a method may continue to be employed provided it has been customary to adopt such a practice. Such a method differs from those envisaged in paragraph 2 of Article 9, since it contemplates not an attribution of profits on a separate enterprise footing, but an apportionment of total profits. However, in general the profits to be attributed to a permanent establishment should be determined by reference to the establishment's accounts if these reflect the real facts. A method of allocation which is based on apportioning total profits is generally not as appropriate as a method which has regard only to the activities of the permanent establishment and should be used only where it has as a matter of history been customary in the past and is accepted by the Department and taxpayer as being satisfactory.

5. Paragraph 5 precludes the attribution of profits to a permanent establishment by reason of merely purchasing activities carried on by the permanent establishment for the enterprise.

6. Paragraph 6 provides that unless there are good and sufficient reasons to the contrary the profits attributed to a permanent establishment must be determined by the same method each year.

7. Paragraph 7 provides that income from the business of any form of insurance is not subject to the provisions of this Article. Such income may be taxed in accordance with the domestic law of each country.

8. Paragraph 8: refer to initial comments above on this Article.

Article 10 - Shipping and Air Transport

1. Under this Article Profits from operating ships or aircraft in "international traffic" - defined in Article 3(1)(h) are to be taxed only in the country of residence of the enterprise. International shipping and aircraft profits include income from:

• carriage of passengers and cargo;
• sale of passenger tickets on behalf of other enterprises;
• commercial advertising;
• charter fees (but refer paragraph 3 below).

Due to the definition of "international traffic" exemption does not extend to profits derived from coastal traffic. Further, investment income of shipping and air transport enterprises is subject to the treatment ordinarily applied to that class of income, eg, dividends derived would be subject to Article 12.

2. Paragraph 2 extends the provisions of paragraph 1 to profits derived by an enterprise as a member of a pooling agreement or similar kind of arrangement with other enterprises.

3. Paragraph 3 specifically brings within the scope of this Article profits arising from the rental of ships or aircraft or from the use, maintenance, or rental of containers and ancillary equipment provided:

• The ships, aircraft or containers are used in international traffic, and
• the enterprise receiving the profits is in the business of operating ships and aircraft in international traffic, and
• the rental income is incidental to the profits derived from those activities.

It follows that bareboat charter fees will be taxed only in the State of residence of the lessor provided the conditions set out in subparas (a) to (c) above are met.

In the case of container leasing where the conditions in subparas (a) to (c) are not met, the lease payments would come within the scope of Article 14 Royalties, ie, payments for the use of commercial or scientific equipment.

This provision confirms our policy in relation to profits from leasing ships or aircraft on charter fully equipped, manned and used in international traffic. Such profits continue to be treated as coming within the scope of paragraph 1 of the Article.

Article 11 - Associated Enterprises

This Article enables an arm's length profit to be attributed to associated enterprises.

Article 12 - Dividends

1. Paragraph 1 deals with dividends paid by a New Zealand company to a resident of Ireland. The paragraph gives Ireland the right to tax dividends received by its residents. It also allows New Zealand to tax the dividends but the New Zealand tax is limited to 15 percent of the gross amount even though the rate under our domestic law is 30 percent. The limitation is achieved by withholding tax of 15 percent being deducted by the company paying the dividends to residents of Ireland.

2. Paragraph 2 deals with dividends paid by an Irish company to a resident of New Zealand. Under sub-paragraph (a) such dividends may be taxed in New Zealand. Subparagraph (b) provides that where such dividends are taxed in New Zealand, Ireland may also tax but the tax is limited to 15 percent of the aggregate amount of the dividend and the tax credit applicable to the dividend under the imputation system of company/shareholder taxation in force in Ireland.

Subparagraph (c) provides in essence that if the dividend is exempt from New Zealand tax, eg, a New Zealand company deriving dividends from an Irish subsidiary company, the dividend will be exempt from tax in Ireland.

3. Paragraph 3 allows residents of New Zealand who are liable for New Zealand tax on dividends derived from an Irish Company to obtain the benefit of the imputed tax credit on the same basis as Irish residents. The "tax credit" reflects the amount of advance corporation tax (ACT) which has been paid to the Irish Inland Revenue by the company at the time of paying the dividends.

In Ireland the dividend is assessed together with the tax credit on a gross basis and the aggregate amount is subject to tax of up to 15 percent in line with paragraph 2 of the Article.

In the case of a New Zealand resident recipient, where the amount of the tax credit exceeds the Irish tax liability the New Zealand resident may claim a refund of the excess amount from the Irish Inland Revenue by writing to:

Office of the Revenue Commissioner
Claims Branch
Dublin Castle
Dublin 2
IRELAND

The letter should contain:

• Documentary evidence of the tax paid in Ireland;
• Evidence of the individuals entitlement to the income, subject to the claim, and
• a letter from the New Zealand Inland Revenue Department to the effect that the claimant is a resident of New Zealand for the purposes of New Zealand tax.

Example - Irish Assessment of Dividend paid to New Zealand Resident

Description	Amount
Company Profit	100
Corporation Tax	50
Net profit distributed by way of dividend	50
Tax Credit 35/65	26.92
(Advance Corporation Tax)
Income of shareholder	76.92 (credit portion is 27)
Withholding Tax at 15% of 77	11.53
Received by shareholder	65.39

The refund being the difference between 11.53 and 26.92

New Zealand shareholders entitled to the tax credit are liable to Irish tax in accordance with the above example. For New Zealand tax purposes, the tax credit is included with the dividend as assessable income and a credit (15 percent maximum) is allowed for the Irish tax paid.

Paragraph 3(b) has no application in New Zealand as New Zealand Companies are exempt from tax on dividends received (see paragraph 2 above).

4. Paragraph 4 defines "dividends" for the purposes of the Article. In New Zealand the effect is that the term has the meaning given to it by section 4 of the Income Tax Act 1976.

5. Paragraph 6 deals with dividends arising from shares which are attributable to a permanent establishment. It provides that in the State of source the dividends are taxable as part of the profits of the permanent establishment, provided they are paid in respect of holdings forming part of the assets of the permanent establishment or are otherwise attributable to that establishment. In effect this relieves the state of source of the dividends from the 15 percent limitation under the Article.

The rules set out above also apply where the recipient of the dividends has in the other State, for the purpose of performing any of the kinds of independent personal services mentioned in Article 16, a fixed base with which the holding in respect of which the dividends are paid is effectively connected.

Up until 1 April 1982 these qualifications had no effect on the New Zealand tax position because our domestic law provided for a 15 percent final withholding tax in all cases on the gross payment and no Convention can extend the taxing rights under domestic law. However, in view of the change in the New Zealand domestic law from 1 April 1982 the New Zealand tax on dividends paid in respect of shares effectively connected with a permanent establishment will be 30 percent.

6. The main effect of paragraph 7 is that it restricts the application taxes on undistributed profits. For example, New Zealand cannot impose excess retention tax on a privately controlled company which is a "resident of Ireland".

7. Paragraph 8 is an anti avoidance provision. It provides that the limitation of tax at source and the imputation credit will not apply where the shares were acquired primarily for the purpose of gaining a tax advantage through the application of the provisions of this Article.

Article 13 - Interest

1. Paragraph 1 affirms the taxing right of the State in which the recipient of the interest is a resident.

2. Paragraph 2 also affirms the taxing right of the State in which the interest arises but the maximum tax that can be imposed is not to exceed 10 percent of the gross amount of the interest.

New Zealand's tax is therefore limited to 10 percent of gross interest paid to residents of Ireland instead of the usual 15 percent.

3. Paragraph 3 defines "interest" for the purposes of the Article. Income which would, because of a State's domestic law, be classified as a dividend is excluded from the term. Therefore, in New Zealand, for example, interest received by debenture holders under debentures to which section 192 or 195 of the Income Tax Act 1976 applies would be dealt with under the Dividends Article.

4. Paragraph 4 provides that in the State of source interest is taxable as part of the profits of the permanent establishment there owned by a resident of the other State, provided the interest is paid in respect of debt-claims forming part of the assets of the permanent establishment or otherwise attributable to that establishment. In effect this paragraph relieves the State of source of the interest from any limitation under the Article.

The rules set out above also apply where the recipient of the interest has in the other State, for the purpose of performing any of the kinds of independent personal services mentioned in Article 16, a fixed base to which the debt - claim in respect of which the interest is paid is attributable.

These qualifications tie in with the New Zealand domestic law which provides that if a non-resident has a fixed establishment in New Zealand, then interest derived is not subject to non-resident withholding tax but is to be assessed on an annual basis.(Section 310 of the Income Tax Act 1976.)

5. Paragraph 5 is a source rule and precludes argument as to the source of the interest.

The paragraph deals with interest arising through a permanent establishment or fixed base. Where a loan is contracted for the requirements of that establishment and the interest is borne by that establishment, the paragraph determines that the source of the interest is in the Contracting State in which the permanent establishment is situated, leaving aside the place of residence of the owner of that establishment or base.

6. Paragraph 6 is an anti-avoidance provision to ensure that only a reasonable interest payment (eg, arm's-length) is taxed at the reduced rate specified in the Convention.

7. Paragraph 7 is also an anti avoidance provision to stop tax advantage through this Article.

Article 14 - Royalties

1. Paragraph 1 affirms the taxing right of the State in which the recipient of the royalties is a resident.

2. Paragraph 2 also affirms the taxing right of the State in which the royalties arise, but the maximum tax that can be imposed is not to exceed 10 percent of the gross amount of the royalties. New Zealand's tax is therefore limited to 10 percent on gross royalties paid to residents of Ireland instead of the usual 15 percent withheld. In New Zealand the limitation will be achieved by the payer of the royalties deducting withholding tax of 10 percent at the time of payment. In the case of royalties which are subject to annual assessment the tax will be limited to 10 percent of the gross payment.

3. Paragraph 3 defines "royalties" for the purposes of the Article. The term includes lump sum payments and certain rents. However, variable or fixed payments for the working of mineral deposits or other natural resources do not fall within the defined term as they are governed by Article 8.

It should be noted that if a payment is made in the form of rent rather than on a royalty basis and the payment comes within the term "royalties", as defined in the Convention, then the 10 percent maximum on gross applies. However, rental payments do not constitute royalties under our domestic law and there is, therefore, no non-resident withholding tax applicable. Payments of this nature will be subject to an annual assessment on the net amount after expenses and if the tax so levied exceeds 10 percent of the gross rental, a rebate will be given by virtue of the Convention to bring the tax down to 10 percent of gross.

4. Paragraph 4 provides that in the State of source royalties are taxable as part of the profits of the permanent establishment there owned by the recipient which is a resident of the other State, provided the royalties are attributable to that establishment. In effect this relieves the State of source of the royalties from the 10 percent limitation under the Article.

The rules set out above also apply where the recipient of the royalties has in the other State, for the purpose of performing independent personal services, a fixed base to which royalties are attributable.

New Zealand's domestic law in relation to royalties provides for a withholding tax rate of 15 percent final on copyright (cultural) royalties or where the aggregate annual royalty payments do not exceed $1,000, while a minimum final tax applies in all other cases.

5. Paragraphs 5, 6 and 7 - the comments to paragraph 5, 6 and 7 of the Interest Article apply equally here.

Article 15 - Alienation of Property

1. Paragraph 1 concerns income or gains derived from the alienation of immovable property. Income from such alienation may be taxed in the State where the property is situated. For example, if a resident of Ireland sells at a profit immovable property situated in New Zealand the profit can be taxed in New Zealand if the New Zealand domestic law permits that taxation.

2. Paragraph 2 concerns income or gains derived from the sale or disposition of:

• shares in a company which derive their value directly or indirectly from immovable property or;
• an interest in a partnership or trust whose assets consist principally of immovable property or shares as above.

These gains may be taxed in the country where the immovable property is situated. The term "shares" does not include shares quoted or listed on a recognised stock exchange.

3. Paragraph 3 defines the term "a recognised stock exchange".

4. Paragraph 4 deals with income or gains from the alienation of movable property forming part of the business property of a permanent establishment or pertaining to a fixed base used for performing independent personal services. Such income of gains may be taxed in the State where the permanent establishment or fixed base is situated. However, where the movable property consists of shares which are covered by paragraph 2 of this Article, then in the event of sale of the shares the country of residence of the alienator shall have the sole right to tax.

Thus in the case of a New Zealand Permanent Establishment of an Irish company holding shares of this nature, on the sale of those shares the profits will be taxable in Ireland and exempt from tax in New Zealand.

5. Paragraph 5 provides in essence that income or gains from the alienation of ships or aircraft operated in international traffic are taxable solely in the State of residence of the enterprise.

6. Paragraph 6 stipulates that any income or gains from any property not covered by the Article is to be taxable solely in the State of which the alienator is a resident, however, if that State only taxes the income or gains remitted to it, this paragraph shall not apply to the remaining portion.

7. Paragraph 7 provides that where an individual who is resident in one State, and receives income or gains from the other State, then the provisions of paragraph 6 shall not apply if the individual was resident in the other state at any time within 10 years of the alienation of the property. This is an anti-avoidance measure and ties in with the domestic law of Ireland relating to Capital Gains.

8. Paragraph 8 defines the term "gains" in the case of Ireland.

Article 16 - Independent Personal Services

1. This article concerns income from personal services (ie, independent personal services) as distinct from income from dependent personal services (eg, remuneration such as salary or wages) which is dealt with separately under Article 17. Income from independent personal services is taxable only in the State of residence unless the services are performed in the other State and the recipient of the income:

• is present in the other State for a period or periods exceeding in the aggregate 183 days in any period of twelve consecutive months; or
• has a fixed base regularly available to him in the other State for the purpose of performing his activities.

If either of the above exceptions applies the State in which the services are performed also has the right to tax the income therefrom.

The term "fixed base" is intended to cover a centre of activity of a fixed or permanent character, for instance a doctor's consulting room or the office of an architect or lawyer.

2. The Article does not apply to artistes or athletes, who are covered by Article 19.

Article 17 - Dependent Personal Services

1. Paragraph 1 states the general rule that personal services performed by a resident of one of the Contracting States may be taxed in that other Contracting State, only if the services are performed in that other Contracting State.

2. Paragraph 2 states the case where exemption will be given by the State visited. The main requirements are that:

• the recipient of the income is present in the state visited for a period or periods which do not exceed in the aggregate 183 days in any period of twelve consecutive months; and
• the remuneration is paid by an employer not resident in that State; and
• the remuneration is not connected with the activities of a permanent establishment or fixed base which the employer has in that State.

Regarding the 183 day test the term "period of twelve consecutive months" should be noted as the treatment effectively differs from the term "income year" which is used in other treaties.

Where the term "income year" is used for the purposes of the 183 days test each income year is looked at separately in determining the number of days present. Therefore the exemption could apply where a visit of more than 183 days straddles two income years provided the visit does not exceed 183 days in either year.

When applying the "period of twelve consecutive months" criterion it should be remembered that each day means the commencement of a period of 12 months from that particular day. Thus, although a visit may straddle two income years the exemption will not apply if the visit exceeds 183 days over a period of 12 months. For example, an Irish resident who visits New Zealand on 1 November and departs on the following 30 June will not be exempt as he will have been present in New Zealand for more than 183 days in a period of 12 consecutive months.

In this example, it the criterion was an "income year" instead of "period of twelve consecutive months" the visitor would be exempt as at no stage would he be present in New Zealand for more than 183 days in an income year.

When a visitor from Ireland undertakes employment in New Zealand, New Zealand PAYE tax will be required to be deducted from the remuneration paid but will be refunded at the time of departure provided the requirements of the Article are fully met. In this respect a certificate must be obtained, by the person seeking exemption, from the Irish authorities which certifies that that person is resident in Ireland for the purposes of Irish tax.

3. Paragraph 3 provides that remuneration derived from employment aboard a ship or aircraft operating in international traffic may be taxed in the State of residence of the shipping or airline enterprise. This means that if the enterprise is a resident of Ireland then Ireland has the right to tax the remuneration derived by the employee.

Article 18 - Directors' Fees

This Article allows the State of residence of the company paying the fees or other similar payments to have the right to tax such income. The income may also be taxed in the recipient's country of residence which would therefore have to allow credit for tax paid in the country of source.

Article 19 - Artistes and Athletes

1. Paragraph 1 enables the State in which the entertainer or athlete is performing the services to tax the income derived from these personal activities.

2. Paragraph 2 deals with the situation where income for the performance of an entertainer or athlete is not paid or paid in full to the entertainer or athlete himself but to an enterprise providing the services of the entertainer or athlete. The paragraph permits the State in which the performance is given to impose a tax on the profits diverted from the income of the entertainer or athlete to the enterprise where, for instance, the entertainer or athlete has control over or rights to the income thus diverted or has obtained or will obtain some benefit directly or indirectly from that income. Without this paragraph the State where the services are performed would, in such cases, be unable to tax:

• because it would not be personal service income to the entertainer, and
• in the absence of a permanent establishment the payments could not be taxed as business profits in the hands of the other person.

Article 20 - Pensions and Annuities

1. Paragraph 1 gives the State of residence of the recipient exclusive right to tax pensions where they are paid in consideration of past employment. However, this rule is subject to Article 21(2) wherein Government pensions paid in respect of services rendered are taxed exclusively in the State of source but if the recipient is a resident and a national of the other State the pensions are taxable on a residence basis. (See definition of "national" in Article 3.) This means that an Irish Government pension paid to a resident of New Zealand is taxed only in Ireland and exempt in New Zealand unless the recipient is also a national of New Zealand in which case the pension is taxed only in New Zealand and exempt in Ireland.

2. Paragraph 2 states that social security pensions are taxable only in the State paying the pensions, ie, State of source.

3. Paragraph 3 defines the term "annuities".

Article 21 - Government Service

This Article deals with remuneration paid to an individual in respect of services rendered to a State or political subdivision or local authority thereof.

1. Paragraph 1 provides for two situations:

• Remuneration paid by a State in respect of services rendered to it by an individual is taxable solely by that State, ie, the country of origin of the payment.
• However, such remuneration is taxable solely in the State where the services are performed provided those services are performed:
  • by an individual who is a citizen of that State; or
  • by an individual who is a resident of that State and did not become a resident of that State solely for the purpose of performing those services.

For example, if an Irish Government employee is resident in New Zealand, under our domestic law, he is exempt from New Zealand tax on his government salary if he is resident here "solely for the purpose of rendering the services". However, a locally recruited employee of the Irish Government working in New Zealand is not exempt here irrespective of his citizenship if he is resident in New Zealand for a reason other than working for the Irish Government.

2. Paragraph 2 deals with Government Pensions (see explanation to Article 20 in this supplement).

3. Paragraphs 1 and 2 do not apply if the services are performed in connection with a business carried on by the State, or one of its political subdivisions or local authorities, paying the remuneration.

Under paragraph 3 the ordinary rules apply, ie, Article 17 for wages and salaries, Article 18 for directors' fees and Article 20 for pensions. Article 19 is not mentioned because paragraphs 1 and 2 of Article 19 are to apply to remuneration paid to artistes employed by the State irrespective of whether such artistes could be said to be rendering services in connection with business carried on by the State.

Article 22 - Students

This Article exempts from New Zealand tax, maintenance, education or training payments received here from overseas by a student or business apprentice from Ireland. Note:

• The student must have been a resident of Ireland immediately before he comes to New Zealand.
• He must be in New Zealand for the purpose of his education or training.
• There is no time limit on the period spent in New Zealand.
• The exemption is restricted to the payments mentioned, ie, for maintenance.

The converse applies to a New Zealand student or business apprentice going to Ireland.

Article 23 - Other Income

1. This Article provides a general rule relating to income not expressly mentioned in other Articles of the Convention. The effect of the Article is that income derived by a resident of New Zealand is taxed exclusively in New Zealand unless the income is derived from sources in Ireland. If the income is derived from sources in Ireland it may also be taxed there and a credit for the Irish tax is given in New Zealand, should that income be liable for New Zealand tax. The converse will apply in the case of a resident of Ireland. Cases of conflict between two residences are to be determined by reference to Article 4.

2. A secondary effect of the Article is to clarify the situation of income derived from a third country by a person who could be "resident in" both Ireland and New Zealand under the general laws of each country. Under the Convention that person can be a "resident of" only one country. In such a situation the taxing rights are allocated to the country "of" which he is a resident.

Article 24 - Elimination of Double Taxation

This Article contains the rules whereby each State gives credit for the other State's tax when assessing its residents on income derived from sources in the other State.

1. Paragraph 1 contains the rules whereby a resident of New Zealand is allowed a credit for tax paid in Ireland.

2. Paragraph 2(a) contains the rules whereby a resident of Ireland is allowed a credit for tax paid in New Zealand, in addition paragraph 2(b) allows an Irish company deriving dividends from a New Zealand company to, in certain circumstances, claim credit in Ireland for the tax paid in New Zealand by the New Zealand company on the profits out of which the dividends are paid. This is in addition to claiming credit for the 15 percent tax on dividends as per Article 12.

3. Paragraph 3 is a source rule for the purposes of the Article in order to solve any dual source cases which may arise thus facilitating the allowance of a credit.

Article 25 - Non-discrimination

The purpose of this Article is to prevent discrimination on the grounds of nationality.

1. Paragraph 1 establishes the principle that for taxation purposes discrimination on the grounds of nationality is forbidden. The paragraph prevents a State from imposing any more burdensome taxation or connected requirement on nationals of the other State than it imposes on its own nationals in the same circumstances.

2. Paragraph 2 requires non-residents trading through a permanent establishment to be taxed no less favourably than a resident who carries on the same activities.

3. Paragraph 3 is designed to end a particular form of discrimination resulting from the fact that in certain countries the deduction of interest, royalties and other disbursements, allowed without restriction when the recipient is resident, is restricted or even prohibited when he is a non-resident. New Zealand does not discriminate between residents and non-residents in this area.

4. Paragraph 4 prevents discrimination against enterprises which are wholly or partly owned by residents of the other State, eg, a New Zealand subsidiary of an Irish company.

5. Paragraph 5 provides that this Article shall not apply to any provision in taxation laws which:

• is reasonably designed to prevent or defeat the avoidance or evasion of taxes; or
• is in force in Ireland and New Zealand at present and any subsequent laws which have substantially similar purpose or intent.

Provided that for example New Zealand does not give greater benefits to residents or citizens of third countries than to residents of Ireland.

6. Paragraph 6 ensures that each country may distinguish between residents and non-residents. The paragraph makes it clear that the Article does not prevent different tax treatment solely on the basis of residence.

7. Paragraph 7 restricts the scope of the Article to those taxes covered by the Convention (see Article 2).

Article 26 - Mutual Agreement Procedure

Article 27 - Exchange of Information

These are standard Articles and require no further comment.

Article 28 - Diplomatic Agents and Consular Officials

The aim of this Article is to ensure that diplomatic agents or consular officials shall, under the convention, receive no less favourable treatment than that to which they are entitled under international law or under special international agreements.

Article 29 - Entry into Force

The Convention came into force on 26 September 1988 with effect in New Zealand for any income year beginning on or after 1 April 1989.

In Ireland it takes effect:

• in respect of income tax, income levy and capital gains tax, for any year of assessment beginning on or after 6 April 1989;
• in respect of corporation tax, for any financial year beginning on or after 1 January 1989;

Article 30 - Termination

This Article sets out the procedure if either State wishes to terminate the Convention. Unless notice of termination is given in accordance with the Article the Convention continues indefinitely.