Ireland and Germany signed a Protocol on 25 May 2010 amending the existing Ireland/Germany Double Tax Agreement ("DTA") with effect from 1 January 2011. A revised DTA was also signed by Ireland and Germany on 30 March 2011 together with a Protocol to the new DTA and a Joint Declaration. These are yet to take effect, but the following provisions will be of particular interest to the Irish regulated funds industry:

  • A UCITS which is established in one contracting state will be treated, for DTA purposes, as an individual who is a resident of that contracting state and as the beneficial owner of the income it receives to the extent that the beneficial interests in the UCITS are owned by "equivalent beneficiaries". An "equivalent beneficiary" means a resident of the contracting state in which the UCITS is established, or any other state with which the contracting state in which the income arises has a DTA which provides (or domestic law provides) for a rate of tax with respect to that item of income that is at least as low as the rate claimed by the UCITS under the Ireland/Germany DTA. Where 95% or more of the beneficial interests in the UCITS are owned by "equivalent beneficiaries", the UCITS will be treated as an individual who is a resident of the contracting state in which it is established and as the beneficial owner of all of the income it receives.
  • A Common Contractual Fund established in Ireland shall not be regarded as a resident of Ireland and shall be treated as fiscally transparent for the purposes of granting tax treaty benefits under the revised Ireland/Germany DTA.
  • Under the existing Ireland/Germany DTA, the rate of dividend withholding tax shall not exceed 15% and, in practice, is typically reduced to 10% on dividends paid by a German resident company to an Irish resident person. However, under the new Ireland/Germany DTA, the rate of dividend withholding tax is reduced to 5% where the beneficiary is a company (other a partnership of a German Real Estate Investment Trust Company) which directly holds at least 10% of the capital of the company paying the dividend. In all other circumstances, the rate of dividend withholding tax shall not exceed 15%.

As the availability of treaty benefits to Irish regulated investment funds continues to be a matter of debate, the clarity brought by these amendments is a welcome development. It is likely however that the changes will place additional administrative burden on administrators in demonstrating the necessary investor profile required to establish entitlement to reduced rates and exemptions under the Ireland/Germany DTA.

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