Technical Explanation of Protocol between the US and Ireland… Taxation of Income and Capital, July 28, 1997

DEPARTMENT OF THE TREASURY
TECHNICAL EXPLANATION OF 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
AND
THE PROTOCOL
SIGNED AT DUBLIN ON JULY 28, 1997
INTRODUCTION
This is a technical explanation of the Convention between the United States and Ireland
and the Protocol signed on July 28, 1997 (the “Convention” and “Protocol”). References are
made to 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, signed on September 13, 1949 (the “prior
Convention”). The Convention replaces the prior Convention.
In connection with the negotiation of the Convention and the Protocol, the negotiators
developed and agreed upon an exchange of diplomatic notes. The notes constitute an agreement
between the two governments which shall enter into force at the same time as the entry into force
of the Convention. These understandings and interpretations are intended to give guidance both
to the taxpayers and the tax authorities of both Contracting States in interpreting the relevant
provisions of the Convention.
Negotiations took into account the U.S. Treasury Department's current tax treaty policy,
the Model Income Tax Convention on Income and on Capital, published by the OECD in 1992
and amended in 1994 and 1995 (the "OECD Model") and recent tax treaties concluded by both
countries. References to the "U.S. Model" refer to the U.S. Treasury Department's Model
Income Tax Convention of September 20, 1996, which was issued after negotiation of the
Convention was substantially completed, although prior drafts of the U.S. Model were available
and taken into account in the course of negotiations.

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The Technical Explanation is an official guide to the Convention and Protocol. It reflects
the policies behind particular Convention provisions, as well as understandings reached with
respect to the application and interpretation of the Convention and Protocol. In the discussions of
each Article in this explanation, the relevant portions of the Protocol and notes are discussed. This
Technical Explanation has been provided to Ireland. References in the Technical Explanation to
“he” or “his” should be read to mean “he or she” and “his or her.”
Article 1 (General Scope)
Paragraph 1
Paragraph 1 of Article 1 provides that the Convention applies to residents of the United
States or Ireland except where the terms of the Convention provide otherwise. Under Article 4
(Residence) a person is generally treated as a resident of a Contracting State if that person is,
under the laws of that State, liable to tax therein by reason of his domicile or other similar criteria.
If, however, a person is considered a resident of both Contracting States, a single state of
residence generally is assigned under Article 4. This definition governs for all purposes of the
Convention.
Certain provisions are applicable to persons who may not be residents of either
Contracting State. For example, Article 19 (Government Service) may apply to an employee of a
Contracting State who is resident in neither State. Paragraph 1 of Article 25 (Non-
Discrimination) applies to nationals of the Contracting States. Under Article 27 (Exchange of
Information and Administrative Assistance), information may be exchanged with respect to
residents of third states.
Paragraph 2
Paragraph 2 states the generally accepted relationship both between the Convention and
domestic law and between the Convention and other agreements between the Contracting States
(i.e.
, that no provision in the Convention may restrict any exclusion, exemption, deduction, credit
or other benefit accorded by the tax laws of the Contracting States, or by any other agreement
between the Contracting States). For example, if a deduction would be allowed under the U.S.
Internal Revenue Code (the "Code") in computing the U.S. taxable income of a resident of the
Ireland, the deduction also is allowed to that person in computing taxable income under the
Convention. Paragraph 2 also means that the Convention may not increase the tax burden on a
resident of a Contracting States beyond the burden determined under domestic law. Thus, a right
to tax given by the Convention cannot be exercised unless that right also exists under internal law.
The relationship between the non-discrimination provisions of the Convention and other
agreements is not addressed in paragraph 2 but in paragraph 3.

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It follows that under the principle of paragraph 2 a taxpayer's liability to U.S. tax need not
be determined under the Convention if the Code would produce a more favorable result. A
taxpayer may not, however, choose among the provisions of the Code and the Convention in an
inconsistent manner in order to minimize tax. For example, assume that a resident of the other
Contracting State has three separate businesses in the United States. One is a profitable
permanent establishment and the other two are trades or businesses that would earn taxable
income under the Code but that do not meet the permanent establishment threshold tests of the
Convention. One is profitable and the other incurs a loss. Under the Convention, the income of
the permanent establishment is taxable, and both the profit and loss of the other two businesses
are ignored. Under the Code, all three would be subject to tax, but the loss would be offset
against the profits of the two profitable ventures. The taxpayer may not invoke the Convention to
exclude the profits of the profitable trade or business and invoke the Code to claim the loss of the
loss trade or business against the profit of the permanent establishment. (See Rev. Rul. 84-17,
1984-1 C.B. 308.) If, however, the taxpayer invokes the Code for the taxation of all three
ventures, he would not be precluded from invoking the Convention with respect, for example, to
any dividend income he may receive from the United States that is not effectively connected with
any of his business activities in the United States.
Similarly, nothing in the Convention can be used to deny any benefit granted by any other
agreement between the United States and Ireland. For example, if certain benefits were provided
for military personnel or military contractors under a Status of Forces Agreement between the
United States and Ireland, those benefits or protections would be available to residents of the
Contracting States regardless of any provisions to the contrary (or silence) in the Convention.
Paragraph 3
Paragraph 3 specifically relates to non-discrimination obligations of the Contracting States
under other agreements. The provisions of paragraph 3 are an exception to the rule provided in
paragraph 2 of this Article under which the Convention shall not restrict in any manner any benefit
now or hereafter accorded by any other agreement between the Contracting States.
Subparagraph (a)(i) of paragraph 3 provides that, notwithstanding any other agreement to
which the Contracting States may be parties, a dispute concerning whether a measure is within the
scope of this Convention shall be considered only by the competent authorities of the Contracting
States, and the procedures under this Convention exclusively shall apply to the dispute. Thus,
procedures for dealing with disputes that may be incorporated into trade, investment, or other
agreements between the Contracting States shall not apply for the purpose of determining the
scope of the Convention.
Subparagraph (a)(ii) of paragraph 3 provides that, unless the competent authorities
determine that a taxation measure is not within the scope of this Convention, the
nondiscrimination obligations of this Convention exclusively shall apply with respect to that
measure, except for such national treatment or most-favored-nation ("MFN") obligations as may

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apply to trade in goods under the General Agreement on Tariffs and Trade ("GATT"). No
national treatment or MFN obligation under any other agreement shall apply with respect to that
measure. Thus, unless the competent authorities agree otherwise, any national treatment and
MFN obligations undertaken by the Contracting States under agreements other than the
Convention shall not apply to a taxation measure, with the exception of GATT as applicable to
trade in goods.
Subparagraph (b) of paragraph 3 defines a "measure" broadly. It would include, for
example, a law, regulation, rule, procedure, decision, administrative action or guidance, or any
similar provision or action.
Paragraph 4
Paragraph 4 contains the traditional saving clause found in U.S. tax treaties. The
Contracting States reserve their rights, except as provided in paragraph 5, to tax their residents
and citizens as provided in their internal laws, notwithstanding any provisions of the Convention
to the contrary. For example, if a resident of Ireland performs independent personal services in
the United States and the income from the services is not attributable to a fixed base in the United
States, Article 14 (Independent Personal Services) would by its terms prevent the United States
from taxing the income. If, however, the resident of Ireland is also a citizen of the United States,
the saving clause permits the United States to include the remuneration in the worldwide income
of the citizen and subject it to tax under the normal Code rules (i.e.
, without regard to Code
section 894(a)). For special foreign tax credit rules applicable to the U.S. taxation of certain U.S.
income of its citizens resident in Ireland, see paragraph 3 of Article 24 (Relief from Double
Taxation).
For purposes of the saving clause, "residence" is determined under Article 4 (Residence).
Thus, if an individual who is not a U.S. citizen is a resident of the United States under the Code,
and is also a resident of Ireland under its law, and that individual has a permanent home available
to him in Ireland and not in the United States, he would be treated as a resident of Ireland under
Article 4 and for purposes of the saving clause. The United States would not be permitted to
apply its statutory rules to that person if they are inconsistent with the treaty. Thus, an individual
who is a U.S. resident under the Internal Revenue Code but who is deemed to be a resident of
Ireland under the tie-breaker rules of Article 4 (Residence) would be subject to U.S. tax only to
the extent permitted by the Convention. However, the person would be treated as a U.S. resident
for U.S. tax purposes other than determining the individual’s U.S. tax liability. For example, in
determining under Code section 957 whether a foreign corporation is a controlled foreign
corporation, shares in that corporation held by the individual would be considered to be held by a
U.S. resident. As a result, other U.S. citizens or residents might be deemed to be United States
shareholders of a controlled foreign corporation subject to current inclusion of Subpart F income
recognized by the corporation. See
, Treas. Reg. section 301.7701(b)-7(a)(3).

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Under paragraph 4 each Contracting State also reserves its right to tax former citizens
whose loss of citizenship had as one of its principal purposes the avoidance of tax. The United
States generally treats a former citizen as having a principal purpose to avoid tax if (a) the average
annual net income tax of such individual for the period of 5 taxable years ending before the date
of the loss of status is greater than $100,000, or (b) the net worth of such individual as of such
date is $500,000 or more. In the United States, such a former citizen is taxable in accordance with
the provisions of section 877 of the Code.
Paragraph 5
Some provisions are intended to provide benefits to citizens and residents even if they do
not exist under internal law. Paragraph 5 sets forth certain exceptions to the saving clause that
preserve these benefits for citizens and residents of the Contracting States. Subparagraph (a) lists
certain provisions of the Convention that are applicable to all citizens and residents of a
Contracting State, despite the general saving clause rule of paragraph 4: (1) Paragraph 2 of
Article 9 (Associated Enterprises) provides for correlative adjustments with respect to income tax
due on profits reallocated under Article 9. (2) Paragraph 2 of Article 16 (Directors’ Fees)
requires a Contracting State to treat certain directors’ fees as arising in the other Contracting
State, even if they would otherwise be treated as arising in the first-mentioned State. (3)
Paragraphs 1(b) and 4 of Article 18 (Pensions, Social Security, Annuities, Alimony and Child
Support) deal with social security benefits and child support payments, respectively. The
inclusion of paragraph 1(b) in the exceptions to the saving clause means, for example, that the
grant of exclusive taxing right of social security benefits to the residence country applies to deny
to the United States the right to tax its citizens that are residents of Ireland on U.S. social security
benefits. The inclusion of paragraph 4, which exempts child support payments from taxation by
both Contracting States, means that if a resident of Ireland pays child support to a citizen or
resident of the United States, the United States may not tax the recipient. (4) Article 24 (Relief
from Double Taxation) confirms the benefit of a credit to citizens and residents of one
Contracting State for income taxes paid to the other. (5) Article 25 (Non-Discrimination)
requires one Contracting State to grant national treatment to residents and citizens of the other
Contracting State in certain circumstances. Excepting this Article from the saving clause requires,
for example, that the United States give such benefits to a resident or citizen of Ireland even if
that person is a citizen of the United States. (6) Article 26 (Mutual Agreement Procedure) may
confer benefits on citizens and residents of the Contracting States. For example, the statute of
limitations may be waived for refunds and the competent authorities are permitted to use a
definition of a term that differs from the internal law definition. As with the foreign tax credit,
these benefits are intended to be granted by a Contracting State to its citizens and residents.
Subparagraph (b) of paragraph 5 provides a different set of exceptions to the saving
clause. The benefits referred to are all intended to be granted to temporary residents of a
Contracting State (for example, in the case of the United States, holders of non-immigrant visas),
but not to citizens or to persons who have acquired permanent residence in that State. If
beneficiaries of these provisions travel from one of the Contracting States to the other, and remain

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in the other long enough to become residents under its internal law, but do not acquire permanent
residence status (i.e.
, in the U.S. context, they do not become "green card" holders) and are not
citizens of that State, the host State will continue to grant these benefits even if they conflict with
the statutory rules. The benefits preserved by this paragraph are the tax treatment of pension fund
contributions under paragraph 5 of Article 18 (Pensions, Social Security, Annuities, Alimony, and
Child Support), and the host country exemptions for the following items of income: government
service salaries and pensions under Article 19 (Government Service); certain income of visiting
students and trainees under Article 20 (Students and Trainees); and the income of diplomatic
agents and consular officers under Article 28 (Diplomatic Agents and Consular Officers).
Article 2 (Taxes Covered)
This Article specifies the U.S. taxes and the taxes of Ireland to which the Convention
applies. Unlike Article 2 in the OECD Model, this Article does not contain a general description
of the types of taxes that are covered (i.e.
, income taxes), but only a listing of the specific taxes
covered for both of the Contracting States. The taxes specified in Article 2 are the covered taxes
for all purposes of the Convention. In most U.S. treaties and the U.S. Model, the non-
discrimination and information exchange provisions apply to a broader class of taxes, including
state and local taxes in the case of non-discrimination. The Convention does not do so, however,
because of restrictions in Irish law.
Paragraph 1
Subparagraph 1(a) provides that the United States covered taxes are the Federal income
taxes imposed by the Code, except the accumulated earnings tax and personal holding company
tax (which are considered penalty taxes), and the excise taxes imposed on insurance premiums
paid to foreign insurers (Code section 4371), and with respect to private foundations (Code
sections 4940 through 4948). Although they may be regarded as income taxes, social security
taxes (Code sections 1401, 3101, 3111 and 3301) are specifically excluded from coverage.
Income taxes on social security benefits are covered, however, and are dealt with in subparagraph
1(b) of Article 18 (Pensions, Social Security, Annuities, Alimony and Child Support). U.S. and
Irish social security taxes are dealt with in the bilateral Social Security Totalization Agreement,
which entered into force on September 1, 1993. State and local taxes in the United States are not
covered by the Convention.
The Convention applies to the federal excise tax on insurance premiums only to the extent
that the risks covered by such premiums are not reinsured, directly or indirectly, with a person not
entitled (under this or any other convention to which the United States is a party) to exemption
from the tax and, under paragraph 2 of the Protocol, only to the extent that the premiums are
subject to the generally applicable tax imposed on insurance companies in the Contracting State in
which the insurers are resident. Accordingly, if a company is entitled to benefits under a special

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tax regime under the laws of a Contracting State that provides for a rate of tax lower than the
normal corporate rate of tax, it would not qualify for benefits with respect to the FET.
To the extent the Convention provides coverage for the U.S. insurance excise tax, it
effectively exempts from the tax Irish companies that insure U.S. risks, subject to the anti-conduit
rule for reinsurance described above. Under the Code, the tax applies only to premiums that are
not effectively connected to an active trade or business in the United States or that are exempt by
treaty from net basis U.S. income tax (because they are not attributable to a permanent
establishment). Under Article 7 (Business Profits), the United States does not subject the
business profits of an Irish enterprise to a tax that is covered by the Convention if the income of
the enterprise is not attributable to a permanent establishment that the enterprise has in the United
States. In contrast with this Convention, the prior Convention did not cover the insurance excise
tax, allowing it to be imposed on premiums paid to Irish insurers if such premiums were not
attributable to a permanent establishment of the insurer in the United States.
Subparagraph 1(b) provides that the Irish covered taxes are the income tax, the
corporation tax and the capital gains tax.
Paragraph 2
Under paragraph 2, the Convention will apply to any taxes that are identical, or
substantially similar, to those enumerated in paragraph 1, and which are imposed in addition to, or
in place of, the existing taxes after the date of signature of the Convention. The paragraph also
provides that the competent authorities of the Contracting States will notify each other of
significant changes in their taxation laws. The use of the term "significant" means that changes
must be reported that are of significance to the operation of the Convention.
The competent authorities are also obligated to notify each other of official published
materials concerning the application of the Convention. This requirement encompasses materials
such as technical explanations, regulations, rulings and judicial decisions relating to the
Convention.
Article 3 (General Definitions)
Paragraph 1 defines a number of basic terms used in the Convention. Certain others are
defined in other articles of the Convention. For example, the term "resident of a Contracting
State" is defined in Article 4 (Residence). The term "permanent establishment" is defined in
Article 5 (Permanent Establishment). The terms "dividends," "interest" and "royalties" are defined
in Articles 10, 11 and 12, respectively. The introduction to paragraph 1 makes clear that these
definitions apply for all purposes of the Convention, unless the context requires otherwise. This
latter condition allows flexibility in the interpretation of the treaty in order to avoid unintended
results. Terms that are not defined in the Convention are dealt with in paragraph 2.

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Paragraph 1
Subparagraph 1(a) defines the term "person" to include an individual, an estate, a trust, a
partnership, a company and any other body of persons. The definition is significant for a variety
of reasons. For example, subparagraph 1(a) of Article 4 treats only a "person" as a "resident" that
can qualify for most benefits under the treaty. Also, all "persons" are eligible to claim relief under
Article 26 (Mutual Agreement Procedure).
This definition corresponds to the definition in the U.S. Model, which is more specific but
not substantively different from the corresponding provision in the OECD Model. Unlike the
OECD Model, it specifically includes an estate, a trust, and a partnership. Since, however, the
OECD Model's definition also uses the phrase "and any other body of persons," partnerships
would be included, consistent with paragraph 2 of the Article, to the extent that they are treated
as "bodies of persons" under the law of the Contracting State making the determination.
Furthermore, because the OECD Model uses the term "includes," trusts and estates would be
persons. Under paragraph 2, the meaning of the terms "partnership," "trust" and "estate" would
be determined by reference to the law of the Contracting State whose tax is being applied.
The term "company" is defined in subparagraph 1(b) as a body corporate or an entity
treated as a body corporate for tax purposes. Although the Convention does not add “in the state
in which it is organized,” as does the U.S. Model, the result should be the same, as the
Commentaries to the OECD Model interprets language identical to that of the Convention in a
manner consistent with the U.S. Model.
The terms "enterprise of a Contracting State" and "enterprise of the other Contracting
State" are defined in subparagraph 1(c) as an enterprise carried on by a resident of a Contracting
State and an enterprise carried on by a resident of the other Contracting State. The term "enter-
prise" is not defined in the Convention, nor is it defined in the U.S. Model or the OECD Model or
its Commentaries. Despite the absence of a clear, generally accepted meaning for the term
"enterprise," the term is understood to refer to any activity or set of activities that constitutes a
trade or business.
An enterprise of a Contracting State need not be carried on in that State. It may be
carried on in the other Contracting State or a third state (e.g.
, a U.S. corporation doing all of its
business in Ireland would still be a U.S. enterprise).
Subparagraph 1(d) defines the term "international traffic." The term means any transport
by a ship or aircraft except when the vessel is operated solely between places within a Contracting
State. This definition is applicable principally in the context of Article 8 (Shipping and Air
Transport). The definition in the OECD Model refers to the operator of the ship or aircraft
having its place of effective management in a Contracting State (i.e.
, being a resident of that
State). The Convention, like the U.S. Model, does not include this limitation. The broader
definition combines with paragraphs 2 and 3 of Article 8 to exempt from tax by the source State

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income from the rental of ships, aircraft or containers that is earned both by lessors that are
operators of ships and aircraft and by those lessors that are not (e.g.
, a bank or a container leasing
company).
The exclusion from international traffic of transport solely between places within a
Contracting State means, for example, that carriage of goods or passengers solely between New
York and Chicago would not be treated as international traffic, whether carried by a U.S. or a
foreign carrier. The substantive taxing rules of the Convention relating to the taxation of income
from transport, principally Article 8 (Shipping and Air Transport), therefore, would not apply to
income from such carriage. Thus, if the carrier engaged in internal U.S. traffic were a resident of
Ireland (assuming that were possible under U.S. law), the United States would not be required to
exempt the income from that transport under Article 8. The income would, however, be treated
as business profits under Article 7 (Business Profits), and therefore would be taxable in the United
States only if attributable to a U.S. permanent establishment of the foreign carrier, and then only
on a net basis. The gross basis U.S. tax imposed by section 887 would never apply under the
circumstances described. If, however, goods or passengers are carried by a carrier resident in
Ireland from a non-U.S. port to, for example, New York, and some of the goods or passengers
continue on to Chicago, the entire transport would be international traffic. This would be true if
the international carrier transferred the goods at the U.S. port of entry from a ship to a land
vehicle, from a ship to a lighter, or even if the overland portion of the trip in the United States
was handled by an independent carrier under contract with the original international carrier, so
long as both parts of the trip were reflected in original bills of lading. For this reason, the
Convention, like the U.S. Model refers, in the definition of "international traffic," to "such
transport" being solely between places in the other Contracting State, while the OECD Model
refers to the ship or aircraft being operated solely between such places. The Convention
definition is intended to make clear that, as in the above example, even if the goods are carried on
a different aircraft for the internal portion of the international voyage than is used for the overseas
portion of the trip, the definition applies to that internal portion as well as the external portion.
Finally, a “cruise to nowhere,” i.e.
, a cruise beginning and ending in a port in the same
Contracting State with no stops in a foreign port, would not constitute international traffic.
Subparagraphs 1(e)(i) and (ii) define the term "competent authority" for the United States
and Ireland, respectively. The U.S. competent authority is the Secretary of the Treasury or his
delegate. The Secretary of the Treasury has delegated the competent authority function to the
Commissioner of Internal Revenue, who in turn has delegated the authority to the Assistant
Commissioner (International). With respect to interpretative issues, the Assistant Commissioner
acts with the concurrence of the Associate Chief Counsel (International) of the Internal Revenue
Service.
The term "United States" is defined in subparagraph 1(f) to mean the United States of
America, including the states, the District of Columbia and the territorial sea of the United States.
The term does not include Puerto Rico, the Virgin Islands, Guam or any other U.S. possession or

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territory. The term also explicitly includes certain areas under the sea within the definition of the
United States. For certain purposes, the definition is extended to include the sea bed and subsoil
of undersea areas adjacent to the territorial sea of the United States. This extension applies to the
extent that the United States exercises sovereignty in accordance with international law for the
purpose of natural resource exploration and exploitation of such areas.
The definition of United States produces results consistent with the result that would be
obtained under the sometimes less precise definitions in some U.S. treaties. In the absence of a
precise definition incorporating the continental shelf, the term "United States of America" would
be interpreted by reference to the U.S. internal law definition. Section 638 treats the continental
shelf as part of the United States.
The term “Ireland” is defined in subparagraph 1(g) and also includes the sea bed in
circumstances similar to those in which the sea bed will be considered part of the United States..
Subparagraph 1(h) defines the term “Contracting States” as Ireland and the United States.
The terms “Contracting State,” “one of the Contracting States” and “the other Contracting State”
mean Ireland or
the United States, as the context requires.
The term "national," as it relates to the United States and to Ireland, is defined in
subparagraphs 1(i). This term is relevant for purposes of Articles 19 (Government Service) and
24 (Non-Discrimination). A national of one of the Contracting States is (1) an individual who is a
citizen of that State, and (2) any legal person, association or other entity deriving its status as such
from the law in force in that Contracting State. This definition is closely analogous to that found
in the U.S. and OECD Models.

The inclusion of juridical persons in the definition may have significance in relation to
paragraph 1 of Article 25 (Non-Discrimination), which provides that nationals of one Contracting
State may not be subject in the other to any taxes or connected requirements that are other or
more burdensome than those applicable to nationals of that other State who are in the same
circumstances.
The Convention includes a defined term, “qualified governmental entity,” found in the
U.S. but not the OECD Model. This definition, found in subparagraph 1(j), is relevant for
purposes of Articles 4 (Residence) and 22 (Limitation on Benefits). The term means: (i) the
Government of a Contracting State or of a political subdivision or local authority of the
Contracting State; (ii) A person wholly owned, directly or indirectly, by a governmental entity
described in subparagraph (i), that satisfies certain organizational and funding standards; and (iii) a
pension fund that meets the standards of subparagraphs (i) and (ii) that is constituted and operated
exclusively to administer or provide government service pension benefits described in Article 19
(Government Service). A qualified governmental entity may not engage in any commercial
activity.

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Paragraph 2
Paragraph 2 provides that in the application of the Convention, any term used but not
defined in the Convention will have the meaning that it has under the law of the Contracting State
whose tax is being applied, unless the context requires otherwise. In general, if a term is defined
under both the tax and non-tax laws of a Contracting State, the definition in the tax law will take
precedence over the definition in the non-tax laws. Finally, there also may be cases where the tax
laws of a State contain multiple definitions of the same term. In such a case, the definition used
for purposes of the particular provision at issue, if any, should be used.
If the meaning of a term cannot be readily determined under the law of a Contracting
State, or if there is a conflict in meaning under the laws of the two States that creates difficulties
in the application of the Convention, the competent authorities, as indicated in paragraph 3(f) of
Article 26 (Mutual Agreement Procedure), may establish a common meaning in order to prevent
double taxation or to further any other purpose of the Convention. This common meaning need
not conform to the meaning of the term under the laws of either Contracting State.
Like the U.S. Model, the Convention clarifies that the reference in paragraph 2 to the
internal law of a Contracting State means the law in effect at the time the treaty is being applied,
not the law as in effect at the time the treaty was signed. This use of "ambulatory definitions" is
understood to have been implicit in the OECD Model.
The use of an ambulatory definition, however, may lead to results that are at variance with
the intentions of the negotiators and of the Contracting States when the treaty was negotiated and
ratified. The reference in both paragraphs 1 and 2 to the "context otherwise requiring" a
definition different from the treaty definition, in paragraph 1, or from the internal law definition of
the Contracting State whose tax is being imposed, under paragraph 2, 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 either the paragraph 1 definition or the statutory definition. Thus,
flexibility in defining terms is necessary and permitted.
Article 4 (Residence)
This Article sets forth rules for determining whether a person is a resident of a Contracting
State for purposes of the Convention. As a general matter only residents of the Contracting
States may claim the benefits of the Convention. The treaty definition of residence is to be used
only for purposes of the Convention. The fact that a person is determined to be a resident of a
Contracting State under Article 4 does not necessarily entitle that person to the benefits of the
Convention. In addition to being a resident, a person also must qualify for benefits under Article
23 (Limitation on Benefits) in order to receive benefits conferred on residents of a Contracting
State.

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The determination of residence for treaty purposes looks first to a person's liability to tax
as a resident under the respective taxation laws of the Contracting States. As a general matter, a
person who, under those laws, is a resident of one Contracting State and not of the other need
look no further. That person is a resident for purposes of the Convention of the State in which he
is resident under internal law. If, however, a person is resident in both Contracting States under
their respective taxation laws, the Article proceeds, where possible, to assign a single State of
residence to such a person for purposes of the Convention through the use of tie-breaker rules.
Paragraph 1
The term "resident of a Contracting State" is defined in paragraph 1. Subparagraph (a)
incorporates the definitions of residence in U.S. and Irish law by referring to a resident as a person
who, under the laws of a Contracting State, is subject to tax there by reason of his domicile,
residence, place of management, place of incorporation or any other similar criterion. Thus,
residents of the United States include aliens who are considered U.S. residents under Code
section 7701(b) unless the alien is a “green card” holder not described in the second sentence of
subparagraph (a). Subparagraphs (b) through (d) each address special cases that may arise in the
context of Article 4.
Subparagraph 1(a) specifically provides that a U.S. citizen would generally be treated as a
resident of the United States. However, subparagraph (a) also provides that a U.S. citizen or alien
lawfully admitted for permanent residence (i.e.
, a "green card" holder) will be treated as a resident
of the United States for purposes of the Convention, and, thereby entitled to treaty benefits, only
if he has a substantial presence (see section 7701(b)(3)), permanent home or habitual abode in the
United States. If, however, such an individual is a resident both of the United States and Ireland
under the general rule of paragraph 1(a), whether he is to be treated as a resident of the United
States or of Ireland for purposes of the Convention is determined by the tie-breaker rules of para-
graph 3 of the Article, regardless of how close his nexus to the United States may be. However,
the fact that a U.S. citizen who does not have close ties to the United States may not be treated as
a U.S. resident under the Convention does not alter the application of the saving clause of
paragraph 4 of Article 1 (General Scope) to that citizen. For example, a U.S. citizen who
pursuant to the "citizen/green card holder" rule is not considered to be a resident of the United
States still is taxable on his worldwide income under the generally applicable rules of the Code.
Certain entities that are nominally subject to tax but that in practice rarely pay tax also
would generally be treated as residents and therefore accorded treaty benefits. For example,
RICs, REITs and REMICs are all residents of the United States for purposes of the treaty.
Although the income earned by these entities normally is not subject to U.S. tax in the hands of
the entity, they are taxable to the extent that they do not currently distribute their profits, and
therefore may be regarded as "liable to tax." They also must satisfy a number of requirements
under the Code in order to be entitled to special tax treatment.

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Subparagraph (b) specifies that a qualified governmental entity (as defined in Article 3) of
a State is to be treated as a resident of that State. Although this provision is not contained in
some U.S. treaties, it is generally understood that such entities are to be treated as residents under
all of those treaties. The purpose of including the rule in the Convention, and in the new U.S.
Model, is to make this understanding explicit. Article 4 of the OECD Model was amended in
1995 to adopt a similar approach.
Subparagraph (c) provides that certain tax-exempt entities such as pension funds and
charitable organizations will be regarded as residents regardless of whether they are generally
liable for income tax in the State where they are established. A pension fund established in a
Contracting State will be described in this subparagraph if it is established or sponsored by a
person who is otherwise a resident under Article 4 and it is maintained to administer or provide
retirement or employee benefits, such as health and disability benefits. A charitable or other
exempt organization is a resident if the use of the organization’s assets is limited to the
accomplishment of the purposes serving as the basis for the exemption from tax.
The inclusion of this provision is intended to clarify the generally accepted practice of
treating an entity that would be liable for tax as a resident under the internal law of a state but for
a specific exemption from tax (either complete or partial) as a resident of that state for purposes
of paragraph 1. Thus, a U.S. pension trust, or an exempt section 501(c) organization (such as a
U.S. charity) that is generally exempt from tax under U.S. law is considered a resident of the
United States for all purposes of the treaty.
Subparagraph (d) clarifies that certain investment vehicles are residents of the Contracting
States in which they are created or organized, even though the tax on the income they derive may
be imposed only or primarily at the level of their shareholders, beneficiaries, or owners. Specific
examples of this category given in the Convention include U.S. regulated investment companies,
real estate investment trusts and Irish Collective Investment Undertakings; the competent
authorities may extend this treatment to additional investment entities.
Paragraph 1 of the Protocol addresses special problems presented by fiscally transparent
entities such as partnerships and certain estates and trusts that are not subject to tax at the entity
level. This subparagraph applies to any resident of a Contracting State who is entitled to income
derived through an entity that is treated as fiscally transparent under the laws of either
Contracting State. Entities falling under this description in the United States would include
partnerships, common investment trusts under section 584 and grantor trusts. This paragraph
also applies to U.S. limited liability companies (“LLC’s”) that are treated as partnerships for U.S.
tax purposes.
Paragraph 1 of the Protocol provides that an item of income derived by such a fiscally
transparent entity will be considered to be derived by a resident of a Contracting State if the
resident is treated under the taxation laws of the State where he is resident as deriving the item of
income. For example, if an Irish corporation distributes a dividend to an entity that is treated as

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fiscally transparent for U.S. tax purposes, the dividend will be considered derived by a resident of
the United States only to the extent that the taxation laws of the United States treat one or more
U.S. residents (whose status as U.S. residents is determined, for this purpose, under U.S. tax
laws) as deriving the dividend income for U.S. tax purposes. In the case of a partnership, the
persons who are, under U.S. tax laws, treated as partners of the entity would normally be the
persons whom the U.S. tax laws would treat as deriving the dividend income through the
partnership. Thus, it also follows that persons whom the U.S. treats as partners but who are not
U.S. residents for U.S. tax purposes may not claim a benefit for the dividend paid to the entity
under the U.S.-Ireland Convention. Although these partners are treated as deriving the income
for U.S. tax purposes, they are not residents of the United States for purposes of the treaty. If,
however, the country in which they are treated as resident for tax purposes (as determined under
the laws of that country) has an income tax convention with Ireland, they may be entitled to claim
a benefit under that convention. In contrast, if an entity is organized under U.S. laws and is
classified as a corporation for U.S. tax purposes, dividends paid by an Irish corporation to the
U.S. entity will be considered derived by a resident of the United States since the U.S.
corporation is treated under U.S. taxation laws as a resident of the United States and as deriving
the income.
These results would obtain even if the entity were viewed differently under the tax laws of
Ireland (e.g., as not fiscally transparent in the first example above where the entity is treated as a
partnership for U.S. tax purposes or as fiscally transparent in the second example where the entity
is viewed as not fiscally transparent for U.S. tax purposes). These results also follow regardless
of where the entity is organized, i.e., in the United States, in Ireland, or in a third country. For
example, income from Irish sources received by an entity organized under the laws of Ireland,
which is treated for U.S. tax purposes as a corporation and is owned by a U.S. shareholder who is
a U.S. resident for U.S. tax purposes, is not considered derived by the shareholder of that
corporation even if, under the tax laws of Ireland, the entity is treated as fiscally transparent.
Rather, for purposes of the Convention, the income is treated as derived by the Irish entity. These
results also follow regardless of whether the entity is disregarded as a separate entity under the
laws of one jurisdiction but not the other, such as a single owner entity that is viewed as a branch
for U.S. tax purposes and as a corporation for Irish tax purposes.
This rule also applies to trusts to the extent that they are fiscally transparent in either
Contracting State. For example, if X, a resident of Ireland, creates a revocable trust with the
trustee in a third country and names persons resident in a third country as the beneficiaries of the
trust, X would be treated as the beneficial owner of income derived from the United States under
the Code's rules. However, if the income is not taxed in Ireland, either because Ireland has no
rules comparable to those in sections 671 through 679 or because the trustee is not an Irish
resident, then, under paragraph 1 of the Protocol, the trust's income would not be regarded as
being derived by a resident of Ireland.
The taxation laws of a Contracting State may treat an item of income, profit or gain as
income, profit or gain of a resident of that State even if the resident is not subject to tax on that

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particular item of income, profit or gain. For example, even though Ireland exempts certain
dividends derived by an Irish parent corporation from Irish taxation, such income would be
regarded as income of a resident of Ireland who otherwise derived the income for purposes of
applying Article 10 (Dividends) of the Convention.
Paragraph 2
Paragraph 2 provides that a person who is liable to tax in a Contracting State only in respect
of income from sources within that State or of profits attributable to a permanent establishment in
that State will not be treated as a resident of that Contracting State for purposes of the
Convention. Thus, a consular official of Ireland who is posted in the United States, who may be
subject to U.S. tax on U.S. source investment income, but is not taxable in the United States on
non-U.S. source income under a consular convention, would not be considered a resident of the
United States for purposes of the Convention. (See Code section 7701(b)(5)(B)). Similarly, an
enterprise of Ireland with a permanent establishment in the United States is not, by virtue of that
permanent establishment, a resident of the United States. The enterprise generally is subject to
U.S. tax only with respect to its income that is attributable to the U.S. permanent establishment,
not with respect to its worldwide income, as is a U.S. resident.
Paragraph 3
If, under the laws of the two Contracting States, and, thus, under paragraph 1, an individual
is deemed to be a resident of both Contracting States, a series of tie-breaker rules are provided in
paragraph 3 to determine a single State of residence for that individual. These tests are to be
applied in the order in which they are stated. The first test is based on where the individual has a
permanent home. If that test is inconclusive because the individual has a permanent home
available to him in both States, he will be considered to be a resident of the Contracting State
where his personal and economic relations are closest (i.e., the location of his "center of vital
interests"). If that test is also inconclusive, or if he does not have a permanent home available to
him in either State, he will be treated as a resident of the Contracting State where he maintains an
habitual abode. If he has an habitual abode in both States or in neither of them, he will be treated
as a resident of his Contracting State of citizenship. If he is a citizen of both States or of neither,
the matter will be considered by the competent authorities, who will attempt to agree on a single
State of residence.
Paragraph 4
Paragraph 4 seeks to settle dual-residence issues for persons other than individuals (such as
companies, trusts or estates). A company is treated as resident in the United States if it is created
or organized under the laws of the United States or a political subdivision. If the same test were
used to determine corporate residence under Irish law, dual corporate residence could not occur.
However, under Irish law, a corporation is treated as a resident of Ireland if its place of central
management and control is there. Dual residence, therefore, can arise if a corporation organized

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in the United States is managed in Ireland. Paragraph 4 provides that, if a company is resident in
both the United States and Ireland under paragraph 1, the competent authorities shall endeavor to
agree on one State of residence for purposes of the Convention.
Article 5 (Permanent Establishment)
This Article defines the term "permanent establishment," a term that is significant for several
articles of the Convention. The existence of a permanent establishment in a Contracting State is
necessary under Article 7 (Business Profits) for the taxation by that State of the business profits of
a resident of the other Contracting State. Since the term "fixed base" in Article 14 (Independent
Personal Services) is understood by reference to the definition of "permanent establishment," this
Article is also relevant for purposes of Article 14. Articles 10, 11 and 12 (dealing with dividends,
interest, and royalties, respectively) provide for reduced rates of tax at source on payments of
these items of income to a resident of the other State only when the income is not attributable to a
permanent establishment or fixed base that the recipient has in the source State. The concept is
also relevant in determining which Contracting State may tax certain gains under Article 13
(Capital Gains) and certain "other income" under Article 22 (Other Income).
The Article follows closely both the U.S. and OECD Models. It does not differ significantly
from the definition of a permanent establishment in the prior Convention.
Paragraph 1
The basic definition of the term "permanent establishment" is contained in paragraph 1. As
used in the Convention, the term means a fixed place of business through which the business of an
enterprise is wholly or partly carried on.
Paragraph 2
Paragraph 2 lists a number of types of fixed places of business that constitute a permanent
establishment. This list is illustrative and non-exclusive. According to paragraph 2, the term
permanent establishment includes a place of management, a branch, an office, a factory, a
workshop, and a mine, oil or gas well, quarry or other place of extraction of natural resources.
As indicated in the OECD Commentaries (see
paragraphs 4 through 8), a general principle to be
observed in determining whether a permanent establishment exists is that the place of business
must be “fixed” in the sense that a particular building or physical location is used by the enterprise
for the conduct of its business, and that it must be foreseeable that the enterprise’s use of this
building or other physical location will be more than temporary.
Paragraph 3

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Paragraph 3 provides rules to determine whether a building site or a construction or
installation project constitutes a permanent establishment for the contractor, or installer, etc. An
activity is merely preparatory and does not create a permanent establishment under paragraph 4(e)
unless the site, project, etc. lasts or continues for more than twelve months. This provision differs
from the U.S. Model in that it does not cover offshore drilling rigs. Special rules regarding
exploration and exploitation of natural resources are found in Article 21 (Offshore Exploration
and Exploitation Activities).
The twelve-month test applies separately to each site or project. The twelve-month period
begins when work (including preparatory work carried on by the enterprise) physically begins in a
Contracting State. A series of contracts or projects by a contractor that are interdependent both
commercially and geographically are to be treated as a single project for purposes of applying the
twelve-month threshold test. For example, the construction of a housing development would be
considered as a single project even if each house were constructed for a different purchaser.
If the twelve-month threshold is exceeded, the site or project constitutes a permanent
establishment from the first day of activity. In applying this paragraph, time spent by a sub-
contractor on a building site is counted as time spent by the general contractor at the site for
purposes of determining whether the general contractor has a permanent establishment.
However, for the sub-contractor itself to be treated as having a permanent establishment, the sub-
contractor's activities at the site must last for more than 12 months. If a sub-contractor is on a
site intermittently time is measured from the first day the sub-contractor is on the site until the last
day (i.e.
, intervening days that the sub-contractor is not on the site are counted) for purposes of
applying the 12-month rule.
These interpretations of the Article are based on the Commentary to paragraph 3 of Article
5 of the OECD Model, which contains language almost identical to that in the Convention. These
interpretations are consistent with the generally accepted international interpretation of the
language in paragraph 3 of Article 5 of the Convention.
Paragraph 4
Paragraph 4 contains exceptions to the general rule of paragraph 1, listing a number of
activities that may be carried on through a fixed place of business, but which nevertheless do not
create a permanent establishment. The use of facilities solely to store, display or deliver
merchandise belonging to an enterprise does not constitute a permanent establishment of that
enterprise. The maintenance of a stock of goods belonging to an enterprise solely for the purpose
of storage, display or delivery, or solely for the purpose of processing by another enterprise does
not give rise to a permanent establishment of the first-mentioned enterprise. The maintenance of a
fixed place of business solely for the purpose of purchasing goods or merchandise, or for
collecting information, for the enterprise, or for other activities that have a preparatory or
auxiliary character for the enterprise, such as advertising, or the supply of information do not
constitute a permanent establishment of the enterprise. Thus, as explained in paragraph 22 of the

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OECD Commentaries, an employee of a news organization engaged merely in gathering
information would not constitute a permanent establishment of the news organization.
Finally, subparagraph 4(f) provides that a combination of the activities described in the
other subparagraphs of paragraph 4 will not give rise to a permanent establishment if the
combination results in an overall activity that is of a preparatory or auxiliary character. This
combination rule differs from that in the U.S. Model. In the U.S. Model, any combination of
otherwise excepted activities is deemed not to give rise to a permanent establishment, without the
additional requirement that the combination, as distinct from each constituent activity, be
preparatory or auxiliary. It is assumed that if preparatory or auxiliary activities are combined, the
combination generally will also be of a character that is preparatory or auxiliary. If, however, this
is not the case, a permanent establishment may result from a combination of activities.
Paragraph 5
Paragraphs 5 and 6 specify when activities carried on by an agent on behalf of an enterprise
create a permanent establishment of that enterprise. Under paragraph 5, a dependent agent of an
enterprise is deemed to be a permanent establishment of the enterprise if the agent has and
habitually exercises an authority to conclude contracts that are binding on the enterprise. If,
however, the agent’s activities are limited to those activities specified in paragraph 4 which
would not constitute a permanent establishment if carried on by the enterprise through a fixed
place of business, the agent is not a permanent establishment of the enterprise.
Like the OECD Model, the Convention uses the term “in the name of that enterprise,”
rather than the term “binding on the enterprise,” found in the U.S. Model. As indicated in
paragraph 32 to the OECD Commentaries on Article 5, paragraph 5 of the Article is intended to
encompass persons who have “sufficient authority to bind the enterprise’s participation in the
business activity in the State concerned.” Therefore, the change to the U.S. Model is merely a
clarification and does not result in a substantive difference between the two provisions.
The contracts referred to in paragraph 5 are those relating to the essential business
operations of the enterprise, rather than ancillary activities. For example, if the agent has no
authority to conclude contracts in the name of the enterprise with its customers for, say, the sale
of the goods produced by the enterprise, but it can enter into service contracts in the name of the
enterprise for the enterprise's business equipment used in the agent's office, this contracting
authority would not fall within the scope of the paragraph, even if exercised regularly.
Paragraph 6
Under paragraph 6, an enterprise is not deemed to have a permanent establishment in a
Contracting State merely because it carries on business in that State through an independent
agent, including a broker or general commission agent, if the agent is acting in the ordinary course
of his business as an independent agent. Thus, there are two conditions that must be satisfied: the

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agent must be both legally and economically independent of the enterprise, and the agent must be
acting in the ordinary course of its business in carrying out activities on behalf of the enterprise.
Whether the agent and the enterprise are independent is a factual determination. Among the
questions to be considered are the extent to which the agent operates on the basis of instructions
from the enterprise. An agent that is subject to detailed instructions regarding the conduct of its
operations or comprehensive control by the enterprise is not legally independent.
In determining whether the agent is economically independent, a relevant factor is the extent
to which the agent bears business risk. Business risk refers primarily to risk of loss. An
independent agent typically bears risk of loss from its own activities. In the absence of other
factors that would establish dependence, an agent that shares business risk with the enterprise, or
has its own business risk, is economically independent because its business activities are not
integrated with those of the principal. Conversely, an agent that bears little or no risk from the
activities it performs is not economically independent and therefore is not described in
paragraph 6.
Another relevant factor in determining whether an agent is economically independent is
whether the agent has an exclusive or nearly exclusive relationship with the principal. Such a
relationship may indicate that the principal has economic control over the agent. A number of
principals acting in concert also may have economic control over an agent. The limited scope of
the agent’s activities and the agent’s dependence on a single source of income may indicate that
the agent lacks economic independence. It should be borne in mind, however, that exclusivity is
not in itself a conclusive test: an agent may be economically independent notwithstanding an
exclusive relationship with the principal if it has the capacity to diversify and acquire other clients
without substantial modifications to its current business and without substantial harm to its
business profits. Thus, exclusivity should be viewed merely as a pointer to further investigation of
the relationship between the principal and the agent. Each case must be addressed on the basis of
its own facts and circumstances.
Paragraph 7
Paragraph 7 clarifies that a company that is a resident of a Contracting State is not deemed
to have a permanent establishment in the other Contracting State merely because it controls, or is
controlled by, a company that is a resident of that other Contracting State, or that carries on
business in that other Contracting State. The determination whether a permanent establishment
exists is made solely on the basis of the factors described in paragraphs 1 through 6 of the Article.
Whether a company is a permanent establishment of a related company, therefore, is based solely
on those factors and not on the ownership or control relationship between the companies.
Article 6 (Income from Immovable Property (Real Property))

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Paragraph 1
The first paragraph of Article 6 states the general rule that income of a resident of a
Contracting State derived from immovable property (real property) situated in the other
Contracting State may be taxed in the Contracting State in which the property is situated. The
paragraph specifies that income from real property includes income from agriculture and forestry
as in the U.S. and OECD Models. Given the availability of the net election in paragraph 3 of the
Protocol, taxpayers generally should be able to obtain the same tax treatment in the situs country
regardless of whether the income is treated as business profits or real property income. Paragraph
3 clarifies that the income referred to in paragraph 1 also means income from any use of real
property, including, but not limited to, income from direct use by the owner (in which case
income may be imputed to the owner for tax purposes) and rental income from the letting of real
property.
This Article does not grant an exclusive taxing right to the situs State; the situs State is
merely given the primary right to tax. The Article does not impose any limitation in terms of rate
or form of tax on the situs State, except that, as provided in paragraph 3 of the Protocol, the situs
State must allow the taxpayer an election to be taxed on a net basis. Under that provision, a
resident of one Contracting State that derives real property income from the other may elect, for
any taxable year, to be subject to tax in that other State on a net basis, as though the income were
attributable to a permanent establishment in that other State. The election may be terminated with
the consent of the competent authority of the situs State. In the United States, revocation will be
granted in accordance with the provisions of Treas. Reg. section 1.871-10(d)(2).
Paragraph 2
The term "immovable property (real property)" is defined in paragraph 2 by reference to the
internal law definition in the situs State. It is to be understood from the parenthetical use of the
term "real property" in the title to the Article and in paragraphs 1 and 2 that the term is
synonymous with the term “immovable property” which is used in the OECD Model and by many
other countries. In the case of the United States, the term has the meaning given to it by Reg. §
1.897-1(b).
Paragraph 3
Paragraph 3 makes clear that all forms of income derived from the exploitation of real
property are taxable in the Contracting State in which the property is situated. In the case of a net
lease of real property, if a net election has not been made, the gross rental payment (before
deductible expenses incurred by the lessee) is treated as income from the property. Income from
the disposition of an interest in real property, however, is not considered "derived" from real
property and is not dealt with in this article. The taxation of that income is addressed in Article
13 (Capital Gains). Also, the interest paid on a mortgage on real property and distributions by a
U.S. Real Estate Investment Trust are not dealt with in Article 6. Such payments would fall

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under Articles 10 (Dividends), 11 (Interest) or 13 (Capital Gains). Finally, dividends paid by a
United States Real Property Holding Corporation are not considered to be income from the
exploitation of real property: such payments would fall under Article 10 (Dividends) or 13
(Capital Gains).
Paragraph 4
Paragraph 4 specifies that the basic rule of paragraph 1 (as elaborated in paragraph 3)
applies to income from real property of an enterprise and to income from real property used for
the performance of independent personal services. This clarifies that the situs country may tax the
real property income (including rental income) of a resident of the other Contracting State in the
absence of attribution to a permanent establishment or fixed base in the situs State. This provision
represents an exception to the general rule under Articles 7 (Business Profits) and 14
(Independent Personal Services) that income must be attributable to a permanent establishment or
fixed base, respectively, in order to be taxable in the situs state.
Article 7 (Business Profits)
This Article provides rules for the taxation by a Contracting State of the business profits of
an enterprise of the other Contracting State. Throughout Article 7, business profits are referred
to simply as “profits,” consistent with the OECD Model and many other U.S. income tax treaties.
The term as used here means profits from a business.
Paragraph 1
Paragraph 1 states the general rule that business profits of an enterprise of one Contracting
State may not be taxed by the other Contracting State unless the enterprise carries on business in
that other Contracting State through a permanent establishment (as defined in Article 5
(Permanent Establishment)) situated there. When that condition is met, the State in which the
permanent establishment is situated may tax the enterprise, but only on a net basis and only on the
income that is attributable to the permanent establishment. This paragraph is identical to
paragraph 1 of Article 7 of the U.S. and OECD Models.
Paragraph 4 of the Protocol incorporates into the Convention the rule of Code section
864(c)(6). Like the Code section on which it is based, paragraph 4 provides that any income or
gain attributable to a permanent establishment or a fixed base during its existence is taxable in the
Contracting State where the permanent establishment or fixed base is situated, even if the
payment of that income or gain is deferred until after the permanent establishment or fixed base
ceases to exist. This rule applies with respect to paragraphs 1 and 2 of Article 7 (Business
Profits), paragraph 6 of Article 10 (Dividends), paragraph 3 of Articles 11 (Interest), 12 (Royal-
ties) and 13 (Gains), Article 14 (Independent Personal Services) and paragraph 2 of Article 22
(Other Income).

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The effect of this rule can be illustrated by the following example. Assume a company that
is a resident of the other Contracting State and that maintains a permanent establishment in the
United States winds up the permanent establishment's business and sells the permanent
establishment's inventory and assets to a U.S. buyer at the end of year 1 in exchange for an
interest-bearing installment obligation payable in full at the end of year 3. Despite the fact that
Article 13's threshold requirement for U.S. taxation is not met in year 3 because the company has
no permanent establishment in the United States, the United States may tax the deferred income
payment recognized by the company in year 3.
Paragraph 2
Paragraph 2 provides rules for the attribution of business profits to a permanent
establishment. The Contracting States will attribute to a permanent establishment the profits that
it would have earned had it been an independent enterprise engaged in the same or similar
activities under the same or similar circumstances. This language incorporates the arm's-length
standard for purposes of determining the profits attributable to a permanent establishment. The
computation of business profits attributable to a permanent establishment under this paragraph is
subject to the rules of paragraph 3 for the allowance of expenses incurred for the purposes of
earning the profits.
The “attributable to” concept of paragraph 2 is analogous but not entirely equivalent to the
“effectively connected” concept in Code section 864(c). The profits attributable to a permanent
establishment may be from sources within or without a Contracting State. This provision differs
from the rule in the prior Convention, which does not include the "attributable to" concept and
therefore does not allow the United States to tax non-U.S.-source income of a U.S. permanent
establishment of an Irish enterprise.
Paragraph 3
Paragraph 3 follows paragraph 3 of Article 7 of the U.S. Model. It is in substance the
same as paragraph 3 of Article 7 of the OECD Model, although it is in some respects more
detailed. This paragraph provides that, in determining the business profits of a permanent
establishment, deductions shall be allowed for the expenses incurred for the purposes of the
permanent establishment, ensuring that business profits will be taxed on a net basis. This rule is
not limited to expenses incurred exclusively for the purposes of the permanent establishment, but
includes a reasonable allocation of expenses incurred for the purposes of the enterprise as a
whole, or that part of the enterprise that includes the permanent establishment. Deductions are to
be allowed regardless of which accounting unit of the enterprise books the expenses, so long as
they are incurred for the purposes of the permanent establishment. For example, a portion of the
interest expense recorded on the books of the home office in one State may be deducted by a
permanent establishment in the other if properly allocable thereto.

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The paragraph specifies that the expenses that may be considered to be incurred for the
purposes of the permanent establishment include expenses for research and development, interest
and other similar expenses, as well as a reasonable amount of executive and general administrative
expenses. This rule permits (but does not require) each Contracting State to apply the type of
expense allocation rules provided by U.S. law (such as in Treas. Reg. sections 1.861-8 and 1.882-
5).
Paragraph 3 does not permit a deduction for expenses charged to a permanent establishment
by another unit of the enterprise. Thus, a permanent establishment may not deduct a royalty
deemed paid to the head office. Similarly, a permanent establishment may not increase its
business profits by the amount of any notional fees for ancillary services performed for another
unit of the enterprise, but also should not receive a deduction for the expense of providing such
services, since those expenses would be incurred for purposes of a business unit other than the
permanent establishment.
Paragraph 4
Paragraph 4 corresponds to paragraph 4 of Article 7 of the OECD Model and provides that
a Contracting State in certain circumstances may determine the profits attributable to a permanent
establishment on the basis of an apportionment of the total profits of the enterprise. A total
profits method may be employed by a Contracting State if it has been customary in that State to
use the method even though the figure may differ to some extent from a separate enterprise
method so long as the result is in accordance with the principles of Article 7 (i.e., the application
of the arm’s length standard). Although this paragraph is not included in the U.S. Model, this is
not a substantive difference, because the result provided by paragraph 4 is consistent with the rest
of Article 7.
The U.S. view is that paragraphs 2 and 3 of Article 7 authorize the use of total profits
methods independently of paragraph 4 of Article 7 of the OECD Model because total profits
methods are acceptable methods for determining the arm’s length profits of affiliated enterprises
under Article 9. Accordingly, it is understood that, under paragraph 2 of the Convention, it is
permissible to use methods other than separate accounting to estimate the arm's-length profits of a
permanent establishment where it is necessary to do so for practical reasons, such as when the
affairs of the permanent establishment are so closely bound up with those of the head office that it
would be impossible to disentangle them on any strict basis of accounts. Any such approach, like
any approach used under paragraph 4, is acceptable only if it approximates the result that would
be achieved under an approach based on separate accounting. This view is confirmed by the
OECD Commentaries on paragraphs 2 and 3 of Article 7.
Paragraph 5
Paragraph 5 provides that no business profits can be attributed to a permanent establishment
merely because it purchases goods or merchandise for the enterprise of which it is a part. This

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paragraph is identical to paragraph 5 of Article 7 of the OECD Model. This rule applies only to
an office that performs functions for the enterprise in addition to purchasing. The income
attribution issue does not arise if the sole activity of the permanent establishment is the purchase
of goods or merchandise because such activity does not give rise to a permanent establishment
under Article 5 (Permanent Establishment). A common situation in which paragraph 5 is relevant
is one in which a permanent establishment purchases raw materials for the enterprise's manufac-
turing operation conducted outside the United States and sells the manufactured product. While
business profits may be attributable to the permanent establishment with respect to its sales
activities, no profits are attributable to it with respect to its purchasing activities.
Paragraph 6
Paragraph 6 provides that the business profits attributed to a permanent establishment
include only those derived from that permanent establishment’s assets or activities. Paragraph 1
of the diplomatic notes further explains that the assets of a permanent establishment include any
property or rights used by or held by or for such permanent establishment. This rule is consistent
with the “asset-use” and “business activities” test of Code section 864(c)(2). The OECD Model
does not expressly provide such a limitation, although it generally is understood to be implicit in
paragraph 1 of Article 7 of the OECD Model. This provision makes it clear that the limited force
of attraction rule of Code section 864(c)(3) does not apply under the Convention.
This paragraph also tracks paragraph 6 of Article 7 of the OECD Model, providing that
profits shall be determined by the same method of accounting each year, unless there is good
reason to change the method used. This rule assures consistent tax treatment over time for
permanent establishments. It limits the ability of both the Contracting State and the enterprise to
change accounting methods to be applied to the permanent establishment. It does not, however,
restrict a Contracting State from imposing additional requirements, such as the rules under Code
section 481, to prevent amounts from being duplicated or omitted following a change in
accounting method.
Paragraph 7
The term "profits" is understood generally to mean income derived from any trade or
business. In accordance with this broad definition, the term "profits" includes income attributable
to notional principal contracts and other financial instruments to the extent that the income is
attributable to a trade or business of dealing in such instruments, or is otherwise related to a trade
or business (as in the case of a notional principal contract entered into for the purpose of hedging
currency risk arising from an active trade or business). Any other income derived from such
instruments is, unless specifically covered in another article, dealt with under Article 22 (Other
Income).
The paragraph states the longstanding U.S. view that income earned by an enterprise from
the furnishing of personal services is business profits. Thus, a consulting firm resident in one

-25 -
State whose employees perform services in the other State through a permanent establishment
may be taxed in that other State on a net basis under Article 7, and not under Article 14
(Independent Personal Services), which applies only to individuals. The salaries of the employees
would be subject to the rules of Article 15 (Dependent Personal Services).
The paragraph also specifies that the term "profits" includes income derived by an enterprise
from the rental of tangible movable property. The use of the term “tangible movable property”
follows the OECD Model and reflects no substantive difference from the term “tangible personal
property” used in the U.S. Model. The inclusion of income derived by an enterprise from the
rental of tangible movable property in business profits means that such income earned by a
resident of a Contracting State can be taxed by the other Contracting State only if the income is
attributable to a permanent establishment maintained by the resident in that other State, and, if the
income is taxable, it can be taxed only on a net basis. Income from the rental of tangible movable
property that is not derived in connection with a trade or business is dealt with in Article 22
(Other Income).
Paragraph 8
Paragraph 8 coordinates the provisions of Article 7 and other provisions of the Convention.
Under this paragraph, when business profits include items of income that are dealt with separately
under other articles of the Convention, the provisions of those articles will, except when they
specifically provide to the contrary, take precedence over the provisions of Article 7. For
example, the taxation of dividends will be determined by the rules of Article 10 (Dividends), and
not by Article 7, except where, as provided in paragraph 6 of Article 10, the dividend is
attributable to a permanent establishment or fixed base. In the latter case the provisions of
Articles 7 or 14 (Independent Personal Services) apply. Thus, an enterprise of one State deriving
dividends from the other State may not rely on Article 7 to exempt those dividends from tax at
source if they are not attributable to a permanent establishment of the enterprise in the other
State. By the same token, if the dividends are attributable to a permanent establishment in the
other State, the dividends may be taxed on a net income basis at the source State’s full corporate
tax rate, rather than on a gross basis under Article 10 (Dividends).
As provided in Article 8 (Shipping and Air Transport), income derived from shipping and
air transport activities in international traffic described in that Article is taxable only in the country
of residence of the enterprise regardless of whether it is attributable to a permanent establishment
situated in the source State.
Relation to Other Articles
This Article is subject to the saving clause of paragraph 4 of Article 1 (General Scope) of
the Model. Thus, if a citizen of the United States who is a resident of Ireland under the treaty
derives business profits from the United States that are not attributable to a permanent
establishment in the United States, the United States may, subject to the special foreign tax credit

-26 -
rules of paragraph 3 of Article 24 (Relief from Double Taxation), tax those profits,
notwithstanding the provision of paragraph 1 of this Article which would exempt the income from
U.S. tax.
The benefits of this Article are also subject to Article 23 (Limitation on Benefits). Thus, an
enterprise of Ireland that derives income effectively connected with a U.S. trade or business may
not claim the benefits of Article 7 unless the resident carrying on the enterprise qualifies for such
benefits under Article 23.
Article 8 (Shipping and Air Transport)
This Article governs the taxation of profits from the operation of ships and aircraft in
international traffic. The term "international traffic" is defined in subparagraph 1(d) of Article 3
(General Definitions).
Paragraph 1
Paragraph 1 provides that profits derived by an enterprise of a Contracting State from the
operation in international traffic of ships or aircraft are taxable only in that Contracting State.
Because paragraph 8 of Article 7 (Business Profits) defers to Article 8 with respect to shipping
income, such income derived by a resident of one of the Contracting States may not be taxed in
the other State even if the enterprise has a permanent establishment in that other State. Thus, if a
U.S. airline has a ticket office in Ireland, Ireland may not tax the airline's profits attributable to
that office under Article 7. Since entities engaged in international transportation activities
normally will have many permanent establishments in a number of countries, the rule avoids
difficulties that would be encountered in attributing income to multiple permanent establishments
if the income were covered by Article 7 (Business Profits).
Paragraph 2
The income from the operation of ships or aircraft in international traffic that is exempt
from tax under paragraph 1 is defined in paragraph 2. This paragraph is not found in the OECD
Model, but the effect of the paragraph is generally consistent with the description of the scope of
Article 8 in the Commentary to Article 8 of the OECD Model. Most of the income items that are
described in paragraph 2 are described in the OECD Commentary as being included within the
scope of the exemption in paragraph 1. Unlike the OECD Model, however, paragraph 2 also
covers non-incidental bareboat leasing. See
, paragraph 5 of the OECD Commentaries.
In addition to income derived directly from the operation of ships and aircraft in
international traffic, this definition also includes certain items of rental income that are closely
related to those activities. First, income of an enterprise of a Contracting State from the rental of
ships or aircraft on a full basis (i.e.
, with crew) when such ships or aircraft are used in interna-

-27 -
tional traffic is income of the lessor from the operation of ships and aircraft in international traffic
and, therefore, is exempt from tax in the other Contracting State under paragraph 1. Also,
paragraph 2 encompasses income from the lease of ships or aircraft on a bareboat basis (i.e.
,
without crew), either when the ships or aircraft are operated in international traffic by the lessee,
or when the income is incidental to other income of the lessor from the operation of ships or
aircraft in international traffic. As discussed above, of these classes of rental income, only non-
incidental, bareboat lease income is not covered by Article 8 of the OECD Model.
Paragraph 2 also clarifies, consistent with the Commentary to Article 8 of the OECD
Model, that income earned by an enterprise from the inland transport of property or passengers
within either Contracting State falls within Article 8 if the transport is undertaken as part of the
international transport of property or passengers by the enterprise. Thus, if a U.S. shipping
company contracts to carry property from Ireland to a U.S. city and, as part of that contract, it
transports the property by truck from its point of origin to an airport in Ireland (or it contracts
with a trucking company to carry the property to the airport), the income earned by the U.S.
shipping company from the overland leg of the journey would be taxable only in the United
States. Similarly, Article 8 also would apply to income from lighterage undertaken as part of the
international transport of goods.
Finally, certain non-transport activities that are an integral part of the services performed by
a transport company are understood to be covered in paragraph 1, though they are not specified
in paragraph 2. These include, for example, the performance of some maintenance or catering
services by one airline for another airline, if these services are incidental to the provision of those
services by the airline for itself. Income earned by concessionaires, however, is not covered by
Article 8. These interpretations of paragraph 1 also are consistent with the Commentary to
Article 8 of the OECD Model.
Paragraph 3
Under this paragraph, profits of an enterprise of a Contracting State from the use,
maintenance or rental of containers (including equipment for their transport) that are used for the
transport of goods in international traffic are exempt from tax in the other Contracting State. This
result obtains under paragraph 3 regardless of whether the recipient of the income is engaged in
the operation of ships or aircraft in international traffic, and regardless of whether the enterprise
has a permanent establishment in the other Contracting State. Only income from the use,
maintenance or rental of containers that is incidental to other income from international traffic is
covered by Article 8 of the OECD Model.
Paragraph 4
This paragraph clarifies that the provisions of paragraphs 1 and 3 also apply to profits
derived by an enterprise of a Contracting State from participation in a pool, joint business or
international operating agency. This refers to various arrangements for international cooperation

-28 -
by carriers in shipping and air transport. For example, airlines from two countries may agree to
share the transport of passengers between the two countries. They each will fly the same number
of flights per week and share the revenues from that route equally, regardless of the number of
passengers that each airline actually transports. Paragraph 4 makes clear that with respect to each
carrier the income dealt with in the Article is that carrier's share of the total transport, not the
income derived from the passengers actually carried by the airline. This paragraph corresponds to
paragraph 4 of Article 8 of the OECD Model.
Relation to Other Articles
The taxation of gains from the alienation of ships, aircraft or containers is not dealt with in
this Article but in paragraph 4 of Article 13 (Capital Gains).
As with other benefits of the Convention, the benefit of exclusive residence country taxation
under Article 8 is available to an enterprise only if it is entitled to benefits under Article 23
(Limitation on Benefits).
This Article also is subject to the saving clause of paragraph 4 of Article 1 (General Scope)
of the Model. Thus, if a citizen of the United States who is a resident of Ireland derives profits
from the operation of ships or aircraft in international traffic, notwithstanding the exclusive
residence country taxation in paragraph 1 of Article 8, the United States may, subject to the
special foreign tax credit rules of paragraph 3 of Article 24 (Relief from Double Taxation), tax
those profits as part of the worldwide income of the citizen. (This is an unlikely situation,
however, because non-tax considerations (e.g.
, insurance) generally result in shipping activities
being carried on in corporate form.)
Article 9 (Associated Enterprises)
This Article incorporates in the Convention the arm's-length principle reflected in the U.S.
domestic transfer pricing provisions, particularly Code section 482. It provides that when related
enterprises engage in a transaction on terms that are not arm's-length, the Contracting States may
make appropriate adjustments to the taxable income and tax liability of such related enterprises to
reflect what the income and tax of these enterprises with respect to the transaction would have
been had there been an arm's-length relationship between them.
Paragraph 1

This paragraph is essentially the same as its counterpart in the OECD Model. It addresses
the situation where an enterprise of a Contracting State is related to an enterprise of the other
Contracting State, and there are arrangements or conditions imposed between the enterprises in
their commercial or financial relations that are different from those that would have existed in the
absence of the relationship. Under these circumstances, the Contracting States may adjust the

-29 -
income (or loss) of the enterprise to reflect what it would have been in the absence of such a
relationship.
The paragraph identifies the relationships between enterprises that serve as a prerequisite to
application of the Article. As the Commentary to the OECD Model makes clear, the necessary
element in these relationships is effective control, which is also the standard for purposes of
section 482. Thus, the Article applies if an enterprise of one State participates directly or
indirectly in the management, control, or capital of the enterprise of the other State. Also, the
Article applies if any third person or persons participate directly or indirectly in the management,
control, or capital of enterprises of different States. For this purpose, all types of control are
included, i.e.
, whether or not legally enforceable and however exercised or exercisable.
The fact that a transaction is entered into between such related enterprises does not, in and
of itself, mean that a Contracting State may adjust the income (or loss) of one or both of the
enterprises under the provisions of this Article. If the conditions of the transaction are consistent
with those that would be made between independent persons, the income arising from that trans-
action should not be subject to adjustment under this Article.
Similarly, the fact that associated enterprises may have concluded arrangements, such as
cost sharing arrangements or general services agreements, is not in itself an indication that the two
enterprises have entered into a non-arm's-length transaction that should give rise to an adjustment
under paragraph 1. Both related and unrelated parties enter into such arrangements (e.g.
, joint
venturers may share some development costs). As with any other kind of transaction, when
related parties enter into an arrangement, the specific arrangement must be examined to see
whether or not it meets the arm's-length standard. In the event that it does not, an appropriate
adjustment may be made, which may include modifying the terms of the agreement or re-
characterizing the transaction to reflect its substance.
It is understood that the "commensurate with income" standard for determining appropriate
transfer prices for intangibles, added to Code section 482 by the Tax Reform Act of 1986, was
designed to operate consistently with the arm's-length standard. The implementation of this
standard in the section 482 regulations is in accordance with the general principles of paragraph 1
of Article 9 of the Convention, as interpreted by the OECD Transfer Pricing Guidelines.
It is understood that nothing in paragraph 1 limits the rights of the Contracting States to
apply their internal law provisions relating to adjustments between related parties. They also
reserve the right to make adjustments in cases involving tax evasion or fraud. Such adjustments --
the distribution, apportionment, or allocation of income, deductions, credits or allowances -- are
permitted even if they are different from, or go beyond, those authorized by paragraph 1 of the
Article, as long as they accord with the general principles of paragraph 1, i.e.
, that the adjustment
reflects what would have transpired had the related parties been acting at arm's length. For
example, while paragraph 1 explicitly allows adjustments of deductions in computing taxable
income, it does not deal with adjustments to tax credits. It does not, however, preclude such

-30 -
adjustments if they can be made under internal law. The OECD Model reaches the same result.
See paragraph 4 of the Commentaries to Article 9.
This Article also permits tax authorities to deal with thin capitalization issues. They may, in
the context of Article 9, scrutinize more than the rate of interest charged on a loan between
related persons. They also may examine the capital structure of an enterprise, whether a payment
in respect of that loan should be treated as interest, and, if it is treated as interest, under what
circumstances interest deductions should be allowed to the payor. Paragraph 2 of the
Commentaries to Article 9 of the OECD Model, together with the U.S. observation set forth in
paragraph 15, sets forth a similar understanding of the scope of Article 9 in the context of thin
capitalization.
Paragraph 2
When a Contracting State has made an adjustment that is consistent with the provisions of
paragraph 1, and the other Contracting State agrees that the adjustment was appropriate to reflect
arm's-length conditions, that other Contracting State is obligated to make a correlative adjustment
(sometimes referred to as a “corresponding adjustment”) to the tax liability of the related person
in that other Contracting State. Although the OECD Model does not specify that the other
Contracting State must agree with the initial adjustment before it is obligated to make the
correlative adjustment, the Commentary makes clear that the paragraph is to be read that way.
As explained in the OECD Commentaries, Article 9 leaves the treatment of "secondary
adjustments" to the laws of the Contracting States. When an adjustment under Article 9 has been
made, one of the parties will have in its possession funds that it would not have had at arm's
length. The question arises as to how to treat these funds. In the United States the general
practice is to treat such funds as a dividend or contribution to capital, depending on the
relationship between the parties. Under certain circumstances, the parties may be permitted to
restore the funds to the party that would have the funds at arm's length, and to establish an
account payable pending restoration of the funds. See
, Rev. Proc. 65-17, 1965-1 C.B. 833.
The Contracting State making a secondary adjustment will take the other provisions of the
Convention, where relevant, into account. For example, if the effect of a secondary adjustment is
to treat a U.S. corporation as having made a distribution of profits to its parent corporation in
Ireland, the provisions of Article 10 (Dividends) will apply, and the United States may impose a 5
percent withholding tax on the dividend. Also, if under Article 24, Ireland generally gives a credit
for taxes paid with respect to such dividends, it would also be required to do so in this case.
The competent authorities are authorized by paragraph 2 to consult, if necessary, to resolve
any differences in the application of these provisions. For example, there may be a disagreement
over whether an adjustment made by a Contracting State under paragraph 1 was appropriate.

-31 -
If a correlative adjustment is made under paragraph 2, it is to be implemented, pursuant to
paragraph 2 of Article 26 (Mutual Agreement Procedure), notwithstanding any time limits or
other procedural limitations in the law of the Contracting State making the adjustment. If a
taxpayer has entered a closing agreement (or other written settlement) with the United States
prior to bringing a case to the competent authorities, the U.S. competent authority will endeavor
only to obtain a correlative adjustment from Ireland. See
, Rev. Proc. 96-13, 1996-13 I.R.B. 31,
Section 7.05.
Relationship to Other Articles
The saving clause of paragraph 4 of Article 1 (General Scope) does not apply to paragraph
2 of Article 9 by virtue of the exceptions to the saving clause in paragraph 5(a) of Article 1.
Thus, even if the statute of limitations has run, a refund of tax can be made in order to implement
a correlative adjustment. Statutory or procedural limitations, however, cannot be overridden to
impose additional tax, because paragraph 2 of Article 1 provides that the Convention cannot
restrict any statutory benefit.
Article 10 (Dividends)
Article 10 provides rules for the taxation of dividends paid by a resident of one Contracting
State to a beneficial owner that is a resident of the other Contracting State. The article provides
for full residence country taxation of such dividends and a limited source-State right to tax. The
Article contains two alternatives for the taxation of dividends, depending on whether Ireland
continues to allow a tax credit to individual shareholders in respect of dividends from a
corporation which is a resident of Ireland. Article 10 also provides rules for the imposition of a
tax on branch profits by the State of source.
Paragraph 1
The right of a shareholder's country of residence to tax dividends arising in the source
country is preserved by paragraph 1, which permits a Contracting State to tax its residents on
dividends paid to them by a resident of the other Contracting State. For dividends from any other
source paid to a resident, Article 22 (Other Income) grants the residence country exclusive taxing
jurisdiction (other than for dividends attributable to a permanent establishment or fixed base in the
other State).
Paragraph 2
The State of source may also tax dividends beneficially owned by a resident of the other
State, subject to the limitations in paragraph 2. Generally, the source State's tax is limited to 15
percent of the gross amount of the dividend paid. If, however, the beneficial owner of the
dividends is a company resident in the other State that holds at least 10 percent of the voting

-32 -
shares of the company paying the dividend, then the source State's tax is limited to 5 percent of
the gross amount of the dividend. Indirect ownership of voting shares (through tiers of
corporations) and direct ownership of non-voting shares are not taken into account for purposes
of determining eligibility for the 5 percent direct dividend rate. Shares are considered voting
shares if they provide the power to elect, appoint or replace any person vested with the powers
ordinarily exercised by the board of directors of a U.S. corporation.
The benefits of paragraph 2 may be granted at the time of payment by means of reduced
withholding at source. It also is consistent with the paragraph for tax to be withheld at the time
of payment at full statutory rates, and the treaty benefit to be granted by means of a subsequent
refund.
Paragraph 2 does not affect the taxation of the profits out of which the dividends are paid.
The taxation by a Contracting State of the income of its resident companies is governed by the
internal law of the Contracting State, subject to the provisions of paragraph 4 of Article 25 (Non-
Discrimination).
The term “beneficial owner” is not defined in the Convention, and is, therefore, defined as
under the internal law of the country imposing tax (i.e.
, the source country). The beneficial owner
of the dividend for purposes of Article 10 is the person to which the dividend income is
attributable for tax purposes under the laws of the source State. Thus, if a dividend paid by a
corporation that is a resident of one of the States (as determined under Article 4 (Residence)) is
received by a nominee or agent that is a resident of the other State on behalf of a person that is
not a resident of that other State, the dividend is not entitled to the benefits of this Article.
However, a dividend received by a nominee on behalf of a resident of that other State would be
entitled to benefits. These limitations are confirmed by paragraph 12 of the OECD Commentaries
to Article 10. See also, paragraph 24 of the OECD Commentaries to Article 1 (General Scope).
Companies holding shares through fiscally transparent entities such as partnerships are
considered for purposes of this paragraph to hold their proportionate interest in the shares held by
the intermediate entity. As a result, companies holding shares through such entities may be able
to claim the benefits of subparagraph (a) under certain circumstances. The lower rate applies
when the company's proportionate share of the shares held by the intermediate entity meets the 10
percent voting stock threshold. Whether this ownership threshold is satisfied may be difficult to
determine and often will require an analysis of the partnership or trust agreement.
Paragraph 3
Paragraph 3 applies where, as at the present time, an individual resident in Ireland is entitled
to a credit in respect of dividends paid by a corporation that is a resident of Ireland. So long as
this system remains in force, only paragraph 3, and not paragraph 2, shall apply to such dividends.

-33 -
The tax credit referred to in Paragraph 3 is allowed pursuant to Ireland’s system of
integrating corporate and shareholder taxation. Under the system adopted by Ireland, “advance
corporation tax” (“ACT”) is collected at the corporate level upon a distribution of dividends by
the corporation. This tax is treated both as an advance payment of a portion of the corporate
income tax, and also as a payment by an individual Irish resident shareholder in partial or
complete satisfaction of his personal tax liabilities on the dividend. Paragraph 3 provides a
mechanism by which United States shareholders of an Irish corporation will receive the benefits of
the shareholder credits which have heretofore not been granted to United States residents.
In the case of United States shareholders other than corporations which control at least 10
percent of the voting stock of the Irish resident corporation, the Irish refund will equal the full
credit payable to an individual resident in Ireland, less 15 percent of the aggregate amount of the
dividend and the Irish credit. For United States tax purposes, the Irish credit shall be treated as
additional gross income and the 15 percent withholding tax will be considered a tax on the
shareholder. At current rates of tax, the result is as follows:
Dividend$ 79.00
Irish credit 21.00
Gross dividend 100.00
Irish withholding tax 15.00
U.S. foreign tax credit 15.00

With respect to dividends paid by a corporation resident in Ireland to a United States
corporation which either alone or together with one or more associated corporations controls,
directly or indirectly, at least 10 percent of the voting stock of the Irish resident that is paying the
dividend, the shareholder will not be entitled to a tax credit, but the dividend will be exempt from
Irish taxation at the shareholder level. For these purposes, two companies shall be deemed to be
associated if one is controlled directly or indirectly by the other or both are controlled directly or
indirectly by a third company.

Paragraph 4
Paragraph 4 provides rules that modify the maximum rates of tax at source provided in
paragraph 2 in particular cases. The first sentence of paragraph 4 denies the lower direct
investment withholding rate of paragraph 2(a) for dividends paid by a U.S. Regulated Investment
Company (RIC) or a U.S. Real Estate Investment Trust (REIT). The second sentence denies the
benefits of both subparagraphs (a) and (b) of paragraph 2 to dividends paid by REITs in certain
circumstances, allowing them to be taxed at the U.S. statutory rate (30 percent). The United
States limits the source tax on dividends paid by a REIT to the 15 percent rate when the beneficial
owner of the dividend is an individual resident of the other State that owns a less than 10 percent
interest in the REIT. These exceptions to the general rules of paragraph 2 have been part of U.S.
tax treaty policy since 1988.

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The denial of the 5 percent withholding rate at source to all RIC and REIT shareholders,
and the denial of the 15 percent rate to all but small individual shareholders of REITs is intended
to prevent the use of these entities to gain unjustifiable source taxation benefits for certain
shareholders resident in the other Contracting State. For example, a corporation resident in
Ireland that wishes to hold a diversified portfolio of U.S. corporate shares may hold the portfolio
directly and pay a U.S. withholding tax of 15 percent on all of the dividends that it receives.
Alternatively, it may acquire a diversified portfolio by purchasing shares in a RIC. Since the RIC
may be a pure conduit, there may be no U.S. tax costs to interposing the RIC in the chain of
ownership. Absent the special rule in paragraph 2, use of the RIC could transform portfolio
dividends, taxable in the United States under the Convention at 15 percent, into direct investment
dividends taxable at only 5 percent.
Similarly, a resident of Ireland directly holding U.S. real property would pay U.S. tax either
at a 30 percent rate on the gross income or at graduated rates on the net income (up to 39.6
percent in the case of individuals and up to 35 percent in the case of corporations). As in the
preceding example, by placing the real property in a REIT, the investor could transform real
estate income into dividend income, taxable at the rates provided in Article 10, significantly
reducing the U.S. tax burden that otherwise would be imposed. To prevent this circumvention of
U.S. rules applicable to real property, most REIT shareholders are subject to 30 percent tax at
source. However, since a relatively small individual investor might be subject to a U.S. tax of 15
percent of the net income even if he earned the real estate income directly, individuals who hold
less than a 10 percent interest in the REIT remain taxable at source at a 15 percent rate.
Paragraph 5
Paragraph 5 defines the term dividends broadly and flexibly. The definition is intended to
cover all arrangements that yield a return on an equity investment in a corporation as determined
under the tax law of the state of source, as well as arrangements that might be developed in the
future.
The term dividends includes income from shares, or other rights that are not treated as debt
under the law of the source State. The term also includes income that is subjected to the same tax
treatment as income from shares by the law of the State of source. Thus, a constructive dividend
that results from a non-arm's length transaction between a corporation and a related party is a
dividend. In the case of the United States the term dividend includes amounts treated as a
dividend under U.S. law upon the sale or redemption of shares or upon a transfer of shares in a
reorganization. See
, e.g., Rev. Rul. 92-85, 1992-2 C.B. 69 (sale of foreign subsidiary’s stock to
U.S. sister company is a deemed dividend to extent of subsidiary's and sister's earnings and
profits). Further, a distribution from a U.S. publicly traded limited partnership, which is taxed as
a corporation under U.S. law, is a dividend for purposes of Article 10. However, a distribution by
a limited liability company is not taxable by the United States under Article 10, provided the
limited liability company is not characterized as an association taxable as a corporation under U.S.
law.

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Under U.S. law, a payment denominated as interest that is made by a thinly capitalized
corporation may be treated as a dividend to the extent that the debt is recharacterized as equity
under the laws of the source State. Paragraph 5 of the Protocol provides that the term
“dividends” does not include interest that is recharacterized as dividends because it is paid to a
non-resident company, except to the extent that it exceeds an arm’s length amount. This rule is
not intended to limit the ability of the United States to apply its thin capitalization rules, which
apply without regard to the identity of the beneficial owner of the income. Rather, it is to deal
with the situation where all interest paid to non-resident companies is treated as dividends without
regard to whether the payor is thinly capitalized or the amount of the payment is other than an
arm’s length amount.
Paragraph 6
Paragraph 6 excludes from the general source country limitations under paragraph 2
dividends paid with respect to holdings that form part of the business property of a permanent
establishment or a fixed base. Such dividends will be taxed on a net basis using the rates and rules
of taxation generally applicable to residents of the State in which the permanent establishment or
fixed base is located, as modified by the Convention. An example of dividends paid with respect
to the business property of a permanent establishment would be dividends derived by a dealer in
stock or securities from stock or securities that the dealer held for sale to customers.
Paragraph 7
Paragraph 7 permits a State to impose a branch profits tax on a company resident in the
other State. The tax is in addition to other taxes permitted by the Convention.
A State may impose a branch profits tax on a company if the company has income attrib-
utable to a permanent establishment in that State, derives income from real property in that State
that is taxed on a net basis under Article 6, or realizes gains taxable in that State under paragraph
1 of Article 13. The tax is limited, however, to the aforementioned items of income that are
included in the "dividend equivalent amount" in the case of the United States, and the amount that
would be distributed as a dividend if earned by a subsidiary rather than a branch, in the case of
Ireland.
Paragraph 7 permits the United States generally to impose its branch profits tax on a
corporation resident in Ireland to the extent of the corporation's (i) business profits that are
attributable to a permanent establishment in the United States (ii) income that is subject to
taxation on a net basis because the corporation has elected under section 882(d) of the Code to
treat income from real property not otherwise taxed on a net basis as effectively connected
income and (iii) gain from the disposition of a United States Real Property Interest, other than an
interest in a United States Real Property Holding Corporation. The United States may not
impose its branch profits tax on the business profits of a corporation resident in the other State
that are effectively connected with a U.S. trade or business but that are not attributable to a

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permanent establishment and are not otherwise subject to U.S. taxation under Article 6 or para-
graph 1 of Article 13.
The term "dividend equivalent amount" used in paragraph 7 has the same meaning that it
has under section 884 of the Code, as amended from time to time, provided the amendments are
consistent with the purpose of the branch profits tax. Generally, the dividend equivalent amount
for a particular year is the income described above that is included in the corporation's effectively
connected earnings and profits for that year, after payment of the corporate tax under Articles 6, 7
or 13, reduced for any increase in the branch's U.S. net equity during the year and increased for
any reduction in its U.S. net equity during the year. U.S. net equity is U.S. assets less U.S.
liabilities. See
, Treas. Reg. section 1.884-1. The dividend equivalent amount for any year approx-
imates the dividend that a U.S. branch office would have paid during the year if the branch had
been operated as a separate U.S. subsidiary company. This is analogous to the amount that
Ireland may tax under subparagraph (b).
Paragraph 8
Paragraph 8 provides that the branch profits tax permitted by paragraph 7 shall not be
imposed at a rate exceeding the direct investment dividend withholding rate of five percent.
Relation to Other Articles
Notwithstanding the foregoing limitations on source country taxation of dividends, the
saving clause of paragraph 3 of Article 1 permits the United States to tax dividends received by its
residents and citizens, subject to the special foreign tax credit rules of paragraph 3 of Article 24
(Relief from Double Taxation), as if the Convention had not come into effect.
The benefits of this Article are also subject to the provisions of Article 23 (Limitation on
Benefits). Thus, if a resident of Ireland is the beneficial owner of dividends paid by a U.S.
corporation, the shareholder must qualify for treaty benefits under at least one of the tests of
Article 23 in order to receive the benefits of this Article.
Article 11 (Interest)
Article 11 specifies the taxing jurisdictions over interest income of the States of source and
residence and defines the terms necessary to apply the article.
Paragraph 1
This paragraph grants to the State of residence the exclusive right, subject to exceptions
provided in paragraph 3 of Article 11 and paragraph 6 of the Protocol, to tax interest beneficially
owned by its residents and arising in the other Contracting State.

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The term “beneficial owner” is not defined in the Convention, and is, therefore, defined as
under the internal law of the country imposing tax (i.e.
, the source country). The beneficial owner
of interest for purposes of Article 11 is the person to which the interest income is attributable for
tax purposes under the laws of the source State. Thus, if interest arising in one of the States is
received by a nominee or agent that is a resident of the other State on behalf of a person that is
not a resident of that other State, the interest is not entitled to the benefits of this Article.
However, interest received by a nominee on behalf of a resident of that other State would be
entitled to benefits. These limitations are confirmed by paragraph 8 of the OECD Commentaries
to Article 11. See also, paragraph 24 of the OECD Commentaries to Article 1 (General Scope).
Paragraph 6 of the Protocol provides anti-abuse exceptions to the source-country
exemption in paragraph 1 for two classes of interest payments.
The first exception deals with so-called "contingent interest." Under this provision interest
arising in the United States that is determined by reference to the profits of the issuer or to the
profits of one of its associated enterprises, and paid to a resident of the other State may be taxed
by the United States according to its domestic laws, but if the beneficial owner is a resident of the
other Contracting State, the gross amount of the interest may be taxed at a rate not exceeding the
rate prescribed in subparagraph b) of paragraph 2 of Article 10 (Dividends).
The second exception is consistent with the policy of Code sections 860E(e) and 860G(b)
that excess inclusions with respect to a real estate mortgage investment conduit (REMIC) should
bear full U.S. tax in all cases. Without a full tax at source foreign purchasers of residual interests
would have a competitive advantage over U.S. purchasers at the time these interests are initially
offered. Also, absent this rule the U.S. fisc would suffer a revenue loss with respect to mortgages
held in a REMIC because of opportunities for tax avoidance created by differences in the timing
of taxable and economic income produced by these interests.
Paragraph 2
The term "interest" as used in Article 11 is defined in paragraph 2 to include, inter
alia,
income from debt claims of every kind, whether or not secured by a mortgage. Penalty charges
for late payment of taxes are excluded from the definition of interest. Interest that is paid or
accrued subject to a contingency is within the ambit of Article 11. This includes income from a
debt obligation carrying the right to participate in profits. The term does not, however, include
amounts that are treated as dividends under Article 10 (Dividends).
The term interest also includes amounts subject to the same tax treatment as income from
money lent under the law of the State in which the income arises. Thus, for purposes of the
Article, amounts that the United States will treat as interest include (i) the difference between the
issue price and the stated redemption price at maturity of a debt instrument, i.e., original issue
discount (OID), which may be wholly or partially realized on the disposition of a debt instrument
(section 1273), (ii) amounts that are imputed interest on a deferred sales contract (section 483),

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(iii) amounts treated as OID under the stripped bond rules (section 1286), (iv) amounts treated as
original issue discount under the below-market interest rate rules (section 7872), (v) a partner's
distributive share of a partnership's interest income (section 702), (vi) the interest portion of
periodic payments made under a "finance lease" or similar contractual arrangement that in
substance is a borrowing by the nominal lessee to finance the acquisition of property, (vii)
amounts included in the income of a holder of a residual interest in a REMIC (section 860E),
because these amounts generally are subject to the same taxation treatment as interest under U.S.
tax law, and (viii) embedded interest with respect to notional principal contracts.
Paragraph 3
Paragraph 3 provides an exception to the exclusive residence taxation rule of paragraph 1 in
cases where the beneficial owner of the interest carries on business through a permanent estab-
lishment in the State of source or performs independent personal services from a fixed base
situated in that State and the interest is attributable to that permanent establishment or fixed base.
In such cases the provisions of Article 7 (Business Profits) or Article 14 (Independent Personal
Services) will apply and the State of source will retain the right to impose tax on such interest
income.
In the case of a permanent establishment or fixed base that once existed in the State but that
no longer exists, the provisions of paragraph 3 also apply, by virtue of paragraph 4 of the
Protocol, to interest that would be attributable to such a permanent establishment or fixed base if
it did exist in the year of payment or accrual. See the Technical Explanation of paragraph 1 of
Article 7.
Paragraph 4
Paragraph 4 provides a source rule for interest. Under this paragraph, interest is deemed to
arise in a Contracting State when the payor is a resident of that State, or the payor, whether a
resident of a Contracting State or not, has in that Contracting State a permanent establishment or
fixed base in connection with which the indebtedness on which the interest paid was incurred and
such interest is borne by such permanent establishment or fixed base. This source rule
corresponds to paragraph 5 of Article 11 of the OECD Model.
Paragraph 5
Paragraph 5 provides that in cases involving special relationships between persons, Article
11 applies only to that portion of the total interest payments that would have been made absent
such special relationships (i.e.
, an arm's-length interest payment). Any excess amount of interest
paid remains taxable according to the laws of the United States and the other Contracting State,
respectively, with due regard to the other provisions of the Convention. Thus, if the excess
amount would be treated under the source country's law as a distribution of profits by a

-39 -
corporation, such amount could be taxed as a dividend rather than as interest, but the tax would
be subject, if appropriate, to the rate limitations of paragraph 2 of Article 10 (Dividends).
The term "special relationship" is not defined in the Convention. In applying this paragraph
the United States considers the term to include the relationships described in Article 9, which in
turn corresponds to the definition of "control" for purposes of section 482 of the Code.
This paragraph does not address cases where, owing to a special relationship between the
payer and the beneficial owner or between both of them and some other person, the amount of the
interest is less than an arm's-length amount. In those cases a transaction may be characterized to
reflect its substance and interest may be imputed consistent with the definition of interest in
paragraph 2. The United States would apply section 482 or 7872 of the Code to determine the
amount of imputed interest in those cases.
Paragraph 6
Paragraph 6 provides that the excess of the amount deductible by a permanent establishment
in the United States of a company which is a resident of Ireland over the interest actually paid by
such permanent establishment, as those amounts are determined pursuant to the laws of the
United States, shall be treated as interest beneficially owned by a resident of Ireland. Thus, the
Article 11 exemption from source country taxation will generally prevent the United States from
collecting the excess interest tax imposed by section 884(f) of the Code on a resident of Ireland.
This provision generally is not included in U.S. tax treaties because it is the result provided by
U.S. law when interest is exempt from tax at source and therefore does not need to be stated in
the treaty.

Relation to Other Articles
Notwithstanding the foregoing limitations on source country taxation of interest, the saving
clause of paragraph 4 of Article 1 permits the United States to tax its residents and citizens,
subject to the special foreign tax credit rules of paragraph 3 of Article 24 (Relief from Double
Taxation), as if the Convention had not come into force.
As with other benefits of the Convention, the benefits of exclusive residence State taxation
of interest under paragraph 1 of Article 11, or limited source taxation under paragraph 6 of the
Protocol, are available to a resident of the other State only if that resident is entitled to those
benefits under the provisions of Article 23 (Limitation on Benefits).
Article 12 (Royalties)
Article 12 specifies the taxing jurisdiction over royalties of the States of residence and
source and defines the terms necessary to apply the article.

-40 -
Paragraph 1
Paragraph 1 grants to the state of residence of the beneficial owner of royalties the
exclusive right to tax royalties arising in the other Contracting State, subject to exceptions
provided in paragraph 3 (for royalties taxable as business profits and independent personal
services).
The term “beneficial owner” is not defined in the Convention, and is, therefore, defined as
under the internal law of the country imposing tax (i.e., the source country). The beneficial owner
of royalties for purposes of Article 12 is the person to which the royalty income is attributable for
tax purposes under the laws of the source State. Thus, if royalties arising in one of the States is
received by a nominee or agent that is a resident of the other State on behalf of a person that is
not a resident of that other State, the royalties are not entitled to the benefits of this Article.
However, royalties received by a nominee on behalf of a resident of that other State would be
entitled to benefits. These limitations are confirmed by paragraph 4 of the OECD Commentaries
to Article 12. See also, paragraph 24 of the OECD Commentaries to Article 1 (General Scope).
Paragraph 2
The term "royalties" as used in Article 12 is defined in paragraph 2 to include payments of
any kind received as a consideration for the use of, or the right to use, any copyright of a literary,
artistic, scientific or other work; for the use of, or the right to use, any patent, trademark, design
or model, plan, secret formula or process, or other like right or property; or for information
concerning industrial, commercial, or scientific experience. It does not include income from
leasing personal property. Like the U.S., but unlike the OECD, Model, paragraph 1 does not
refer to an amount “paid” to a resident of the other Contracting State. The deletion of this term is
intended to eliminate any inference that an amount must actually be paid to the resident before it is
subject to the provisions of Article 12. Under paragraph 1, an amount that is accrued but not paid
also would fall within Article 12.
The term royalties is defined in the Convention and therefore is generally independent of
domestic law. Certain terms used in the definition are not defined in the Convention, but these
may be defined under domestic tax law. For example, the term "secret process or formulas" is
found in the Code, and its meaning has been elaborated in the context of sections 351 and 367.
See Rev. Rul. 55-17, 1955-1 C.B. 388; Rev. Rul. 64-56, 1964-1 C.B. 133; Rev. Proc. 69-19,
1969-2 C.B. 301.
Consideration for the use or right to use cinematographic films, or works on film, tape, or
disks in radio or television broadcasting is specifically included in the definition of royalties. It is
intended that subsequent technological advances in the field of radio and television broadcasting
will not affect the inclusion of payments relating to the use of such means of reproduction in the
definition of royalties.

-41 -
If an artist who is resident in one Contracting State records a performance in the other
Contracting State, retains a copyrighted interest in a recording, and receives payments for the
right to use the recording based on the sale or public playing of the recording, then the right of
such other Contracting State to tax those payments is governed by Article 12. See
Boulez v.
Commissioner, 83 T.C. 584 (1984), aff'd, 810 F.2d 209 (D.C. Cir. 1986).
Computer software generally is protected by copyright laws around the world. While not
explicitly stated, it is mutually understood that, under the Convention, consideration received for
the use or the right to use computer software is treated either as royalties or as business profits,
depending on the facts and circumstances of the transaction giving rise to the payment. It is also
understood that payments received in connection with the transfer of so-called “shrink-wrap”
computer software are treated as business profits.
The term "royalties" also includes gain derived from the alienation of any right or property
that would give rise to royalties, to the extent the gain is contingent on the productivity, use, or
further alienation thereof. Gains that are not so contingent are dealt with under Article 13
(Capital Gains).
The term "industrial, commercial, or scientific experience" (sometimes referred to as
"know-how") has the meaning ascribed to it in paragraph 11 of the Commentary to Article 12 of
the OECD Model Convention. Consistent with that meaning, the term may include information
that is ancillary to a right otherwise giving rise to royalties, such as a patent or secret process.
Know-how also may include, in limited cases, technical information that is conveyed
through technical or consultancy services. It does not include general educational training of the
user's employees, nor does it include information developed especially for the user, for example, a
technical plan or design developed according to the user's specifications. Thus, as provided in
paragraph 11 of the Commentaries to Article 12 of the OECD Model, the term “royalties” does
not include payments received as consideration for after-sales service, for services rendered by a
seller to a purchaser under a guarantee, or for pure technical assistance.
The term “royalties” also does not include payments for professional services (such as arc-
hitectural, engineering, legal, managerial, medical, or software development services). For
example, income from the design of a refinery by an engineer (even if the engineer employed
know-how in the process of rendering the design) or the production of a legal brief by a lawyer is
not income from the transfer of know-how taxable under Article 12, but is income from services
taxable under either Article 14 (Independent Personal Services) or Article 15 (Dependent
Personal Services). Professional services may be embodied in property that gives rise to royalties,
however. Thus, if a professional contracts to develop patentable property and retains rights in the
resulting property under the development contract, subsequent license payments made for those
rights would be royalties.
Paragraph 3

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This paragraph provides an exception to the rule of paragraph 1 that gives the state of
residence exclusive taxing jurisdiction in cases where the beneficial owner of the royalties carries
on business through a permanent establishment in the state of source or performs independent
personal services from a fixed base situated in that state and the royalties are attributable to that
permanent establishment or fixed base. In such cases the provisions of Article 7 (Business Prof-
its) or Article 14 (Independent Personal Services) will apply.
The provisions of paragraph 4 of the Protocol apply to this paragraph. For example, royalty
income that is attributable to a permanent establishment or a fixed base and that accrues during
the existence of the permanent establishment or fixed base, but is received after the permanent
establishment or fixed base no longer exists, remains taxable under the provisions of Articles 7
(Business Profits) or 14 (Independent Personal Services), respectively, and not under this Article.

Paragraph 4
Paragraph 4 provides that in cases involving special relationships between the payor and
beneficial owner of royalties, Article 12 applies only to the extent the royalties would have been
paid absent such special relationships (i.e.
, an arm's-length royalty). Any excess amount of
royalties paid remains taxable according to the laws of the two Contracting States with due regard
to the other provisions of the Convention. If, for example, the excess amount is treated as a
distribution of corporate profits under domestic law, such excess amount will be taxed as a
dividend rather than as royalties, but the tax imposed on the dividend payment will be subject to
the rate limitations of paragraph 2 of Article 10 (Dividends).
Paragraph 5
Paragraph 5 is not found in the U.S. or OECD Models. It limits the extent to which one
State may tax royalties paid by a resident of the other State. Subparagraphs (a) and (b) of
paragraph 5 permit taxation of such royalties when they are paid to a resident of the first-
mentioned State (subparagraph (a)), or when they are attributable to a permanent establishment or
fixed base situated in that first-mentioned State (subparagraph (b)). Even without these two
subparagraphs, these taxing rights could be exercised under the Convention by the State of
residence of the State in which the permanent establishment or fixed base is located, under the
saving clause of paragraph 4 of Article 1 (General Scope), Article 7 (Business Profits) or Article
15 (Independent Personal Services).
Subparagraphs (c) and (d) deal with taxation by one State of a royalty paid by a resident of
the other State to a resident of a third State for the use of an intangible in the first-mentioned
State. Subparagraph (c) provides that if a royalty is borne by a permanent establishment or fixed
base located in one of the States, and the contract in connection with which the royalty was paid
was concluded in connection with that permanent establishment or fixed base, the State where the
permanent establishment or fixed base is located may tax the royalty if it is not paid to a resident

-43 -
of the other State. The rate of the tax imposed on the royalty may be limited by reference to the
tax treaty, if any, in force between the taxing State and the third State. Thus, for example, if a
new process is developed by a Canadian company and licensed for use in the United States by a
U.S. permanent establishment of an Irish company, assuming that the royalties are paid by the
branch, and deducted by it for U.S. tax purposes, then under U.S. law the Irish resident (i.e. the
U.S. permanent establishment) is required to withhold U.S. tax on the royalty at a 10 percent rate,
the rate applicable to royalties under the U.S.-Canada treaty. This result would also obtain absent
the explicit statement in subparagraph 5(c) because the royalty is U.S. source under U.S. law, and
it is not covered by the exemption in paragraph 1 of Article 12 since it would not be beneficially
owned by a Irish resident.
Subparagraph (d) provides an additional case in which a State may tax royalties paid by a
resident of the other state to a third-country resident. Under Code section 861(a)(4), and
implicitly under the U.S. Model, any royalty paid for the use of an intangible in the United States,
regardless of the residence of the payor, is U.S. source, which, subject to any limitations in the tax
treaty, if any, between the United States and the country of residence of the beneficial owner, may
be taxed by the United States. Under the Convention, however, in addition to the circumstances
described in subparagraph (c), one State may tax a royalty paid by a resident of the other State
only if (1) it is for the use of a property in the first-mentioned State, (2) it is not paid to a resident
of that other State, (3) the payor of the royalty has also received a royalty in respect of the use of
a property in the first-mentioned State, and that royalty is either paid by a resident of that first-
mentioned State or borne by a permanent establishment or fixed base situated in that State, and
(4) the use of the intangible is not a component part of or directly related to the active conduct of
a trade or business in which the payor (i.e. the resident of the other State) is engaged. The last
requirement is to be interpreted in accordance with paragraph 3 of Article 23 (Limitation on
Benefits). For example, a Canadian resident licenses a patent for a process used in the automotive
industry to a resident of Ireland, who in turn sub-licenses the patent to an automobile producer in
the United States. The U.S. producer pays a royalty to the resident of Ireland for the use of the
patent in the United States, and the Irish resident, in turn, pays a royalty to the Canadian resident
for that same U.S. use of the patent. The royalty paid by the Irish resident to the resident of
Canada would be exempt from U.S. tax under the provisions of paragraph 1 of Article 12. The
royalty paid by the Irish resident to the resident of Canada, however, would be subject to U.S. tax
under subparagraph (d). The rate would be set at 10 percent, under the provisions of the U.S.-
Canada treaty. If, on the other hand, the Irish resident was also engaged in automobile
production, the royalty paid by the Irish resident to the Canadian resident would not be subject to
U.S. taxation.
Relation to Other Articles
Notwithstanding the foregoing limitations on source country taxation of royalties, the
saving clause of paragraph 4 of Article 1 (General Scope) permits the United States to tax its
residents and citizens, subject to the special foreign tax credit rules of paragraph 3 of Article 24
(Relief from Double Taxation), as if the Convention had not come into force.

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As with other benefits of the Convention, the benefits of exclusive residence State taxation
of royalties under paragraph 1 of Article 12 are available to a resident of the other State only if
that resident is entitled to those benefits under Article 23 (Limitation on Benefits).
Article 13 (Capital Gains)
Article 13 assigns either primary or exclusive taxing jurisdiction over gains from the
alienation of property to the State of residence or the State of source and defines the terms neces-
sary to apply the Article.
Paragraph 1
Paragraph 1 of Article 13 preserves the non-exclusive right of the State of source to tax
gains attributable to the alienation of real property situated in that State. The paragraph therefore
permits the United States to apply section 897 of the Code to tax gains derived by a resident of
the other Contracting State that are attributable to the alienation of real property situated in the
United States (as defined in paragraph 2). Gains attributable to the alienation of real property
include gain from any other property that is treated as a real property interest within the meaning
of paragraph 2. Although Ireland uses the term “immovable property”, it is to be understood
from the parenthetical use of “real property” that the two terms are synonymous.
Paragraph 2
This paragraph identifies the real property, gains from which are subject to the rule of
paragraph 1. It includes real property referred to in Article 6 (i.e.
, an interest in the real property
itself), a "United States real property interest" (when the United States is the other Contracting
State under paragraph 1), and an equivalent interest in real property situated in Ireland. The
OECD Model does not refer to real property interests other than the real property itself, and the
United States has entered a reservation on this point with respect to the OECD Model, reserving
the right to apply its tax under FIRPTA to all real estate gains encompassed by that provision.

Under section 897(c) of the Code the term "United States real property interest" includes
shares in a U.S. corporation that owns sufficient U.S. real property interests to satisfy an asset-
ratio test on certain testing dates. The term also includes certain foreign corporations that have
elected to be treated as US corporations for this purpose. Section 897(i). In applying paragraph
1 the United States will look through distributions made by a REIT. Accordingly, distributions
made by a REIT are taxable under paragraph 1 of Article 13 (not under Article 10 (Dividends))
when they are attributable to gains derived from the alienation of real property.
Paragraph 3

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Paragraph 3 of Article 13 deals with the taxation of certain gains from the alienation of
movable property forming part of the business property of a permanent establishment that an
enterprise of a Contracting State has in the other Contracting State or of movable property per-
taining to a fixed base available to a resident of a Contracting State in the other Contracting State
for the purpose of performing independent personal services. This also includes gains from the
alienation of such a permanent establishment (alone or with the whole enterprise) or of such fixed
base. Such gains may be taxed in the State in which the permanent establishment or fixed base is
located.
A resident of the other Contracting State that is a partner in a partnership doing business
in the United States generally will have a permanent establishment in the United States as a result
of the activities of the partnership, assuming that the activities of the partnership rise to the level
of a permanent establishment. Rev. Rul. 91-32, 1991-1 C.B. 107. Further, under paragraph 3,
the United States generally may tax a partner's distributive share of income realized by a
partnership on the disposition of movable property forming part of the business property of the
partnership in the United States.
In the case of a permanent establishment or fixed base that once existed in a Contracting
State but that no longer exists, the provisions of paragraph 3 also apply, by virtue of paragraph 4
of the Protocol, to gain that would be attributable to such permanent establishment or fixed base
if it did exist in the year of payment or accrual.
Paragraph 4
This paragraph limits the taxing jurisdiction of the state of source with respect to gains
from the alienation of ships, aircraft, or containers operated in international traffic or movable
property pertaining to the operation of such ships, aircraft, or containers. Under paragraph 4
when such income is derived by an enterprise of a Contracting State it is taxable only in that
Contracting State. Notwithstanding paragraph 3, the rules of this paragraph apply even if the
income is attributable to a permanent establishment maintained by the enterprise in the other
Contracting State. This result is consistent with the general rule under Article 8 (Shipping and
Air Transport) that confers exclusive taxing rights over international shipping and air transport
income on the state of residence of the enterprise deriving such income.
Paragraph 5
Paragraph 5 grants to the State of residence of the alienator the exclusive right to tax
gains from the alienation of property other than property referred to in paragraphs 1 through 4.
For example, gain derived from shares, other than shares described in paragraphs 2 or 3, debt
instruments and various financial instruments, may be taxed only in the State of residence, to the
extent such income is not otherwise characterized as income taxable under another article (e.g.
,
Article 10 (Dividends) or Article 11 (Interest)). Similarly gain derived from the alienation of
tangible personal property, other than tangible personal property described in paragraph 3, may be

-46 -
taxed only in the State of residence of the alienator. Gain derived from the alienation of any
property, such as a patent or copyright, that produces income taxable under Article 12 (Royalties)
is taxable under Article 12 and not under this article, provided that such gain is of the type
described in paragraph 2(b) of Article 12 (i.e.
, it is contingent on the productivity, use, or disposi-
tion of the property). Thus, under either article such gain is taxable only in the State of residence
of the alienator. Sales by a resident of a Contracting State of real property located in a third state
are not taxable in the other Contracting State, even if the sale is attributable to a permanent
establishment located in the other Contracting State.
Relation to Other Articles
Notwithstanding the foregoing limitations on taxation of certain gains by the State of
source, the saving clause of paragraph 4 of Article 1 (General Scope) permits the United States to
tax its citizens and residents as if the Convention had not come into effect. Thus, any limitation in
this Article on the right of the United States to tax gains does not apply to gains of a U.S. citizen
or resident. The benefits of this Article are also subject to the provisions of Article 23 (Limitation
on Benefits). Thus, only a resident of a Contracting State that satisfies one of the conditions in
Article 23 is entitled to the benefits of this Article.
Article 14 (Independent Personal Services)
The Convention deals in separate articles with different classes of income from personal
services. Article 14 deals with the general class of income from independent personal services and
Article 15 deals with the general class of income from dependent personal services. Articles 16
through 20 provide exceptions and additions to these general rules for directors' fees (Article 16);
performance income of artistes and sportsmen (Article 17); pensions in respect of personal service
income, social security benefits, annuities, alimony, and child support payments (Article 18);
government service salaries and pensions (Article 19); and certain income of students and trainees
(Article 20).
Paragraph 1
Paragraph 1 of Article 14 provides the general rule that an individual who is a resident of a
Contracting State and who derives income from performing professional services or other
activities of an independent character will be exempt from tax in respect of that income by the
other Contracting State. The income may be taxed in the other Contracting State only if the
services are performed there and the income is attributable to a fixed base that is regularly
available to the individual in that other State for the purpose of performing his services. Like the
U.S. Model, paragraph 7 of the Protocol states that the income taxable under Article 14 shall be
determined under the principles of paragraph 3 of Article 7. Thus, all relevant expenses, including
expenses not incurred in the Contracting State where the fixed base is located, must be allowed as

-47 -
deductions in computing the net income from services subject to tax in the Contracting State
where the fixed base is located.

Income derived by persons other than individuals or groups of individuals from the
performance of independent personal services is not covered by Article 14. Such income
generally would be business profits taxable in accordance with Article 7 (Business Profits).
Income derived by employees of such persons generally would be taxable in accordance with
Article 15 (Dependent Personal Services).
The term "fixed base" is not defined in the Convention, but its meaning is understood to be
similar, but not identical, to that of the term "permanent establishment," as defined in Article 5
(Permanent Establishment). The term "regularly available" also is not defined in the Convention.
Whether a fixed base is regularly available to a person will be determined based on all the facts
and circumstances. In general, the term encompasses situations where a fixed base is at the
disposal of the individual whenever he performs services in that State. It is not necessary that the
individual regularly use the fixed base, only that the fixed base be regularly available to him. For
example, a U.S. resident partner in a law firm that has offices in Ireland would be considered to
have a fixed base regularly available to him in Ireland if the law firm had an office in Ireland that
was available to him whenever he wished to conduct business in Ireland, regardless of how
frequently he conducted business in Ireland. On the other hand, an individual who had no office
in Ireland and occasionally rented a hotel room to serve as a temporary office would not be
considered to have a fixed base regularly available to him.
It is not necessary that the individual actually use the fixed base. It is only necessary that
the fixed base be regularly available to him. For example, if an individual has an office in the other
State that he can use if he chooses when he is present in the other State, that fixed base will be
considered to be regularly available to him regardless of whether he conducts his activities there.
This Article applies to income derived by a partner resident in the Contracting State that is
attributable to personal services of an independent character performed in the other State through
a partnership that has a fixed base in that other Contracting State. Income which may be taxed
under this Article includes all income attributable to the fixed base in respect of the performance
of the personal services carried on by the partnership (whether by the partner himself, other
partners in the partnership, or by employees assisting the partners) and any income from activities
ancillary to the performance of those services (for example, charges for facsimile services).
Income that is not derived from the performance of personal services and that is not ancillary
thereto (for example, rental income from subletting office space), will be governed by other
Articles of the Convention.
The application of Article 14 to a service partnership may be illustrated by the following
example: a partnership formed in the Contracting State has five partners (who agree to split
profits equally), four of whom are resident and perform personal services only in the Contracting
State at Office A, and one of whom performs personal services from Office B, a fixed base in the

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other State. In this case, the four partners of the partnership resident in the Contracting State may
be taxed in the other State in respect of their share of the income attributable to the fixed base,
Office B. The services giving rise to income which may be attributed to the fixed base would
include not only the services performed by the one resident partner, but also, for example, if one
of the four other partners came to the other State and worked on an Office B matter there, the
income in respect of those services also. As noted above, this would be the case regardless of
whether the partner from the Contracting State actually visited or used Office B when performing
services in the other State.
Paragraph 4 of the Protocol refers to Article 14. That rule clarifies that income that is
attributable to a permanent establishment or a fixed base, but that is deferred and received after
the permanent establishment or fixed base no longer exists, may nevertheless be taxed by the State
in which the permanent establishment or fixed base was located. Thus, under Article 14, income
derived by an individual resident of a Contracting State from services performed in the other
Contracting State and attributable to a fixed base there may be taxed by that other State even if
the income is deferred and received after there is no longer a fixed base available to the resident in
that other State.
Paragraph 2
Paragraph 2, which follows the OECD Model, notes that the term “professional services”
includes independent scientific, literary, artistic, educational or teaching activities, as well as the
independent activities of physicians, lawyers, engineers, architects, dentists, and accountants.
That list, however, is not exhaustive. The term includes all personal services performed by an
individual for his own account, whether as a sole proprietor or a partner, where he receives the
income and bears the risk of loss arising from the services. The taxation of income of an
individual from those types of independent services which are covered by Articles 16 through 20
is governed by the provisions of those articles. For example, taxation of the income of a
professional musician would be governed by Article 17 (Artistes and Athletes) rather than Article
14.
Relation to Other Articles
If an individual resident of Ireland who is also a U.S. citizen performs independent
personal services in the United States, the United States may, by virtue of the saving clause of
paragraph 4 of Article 1 (General Scope) tax his income without regard to the restrictions of this
Article, subject to the special foreign tax credit rules of paragraph 3 of Article 24 (Relief from
Double Taxation).
Article 15 (Dependent Personal Services)

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Article 15 apportions taxing jurisdiction over remuneration derived by a resident of a
Contracting State as an employee between the States of source and residence.
Paragraph 1
The general rule of Article 15 is contained in paragraph 1. Remuneration derived by a
resident of a Contracting State as an employee may be taxed by the State of residence, and the
remuneration also may be taxed by the other Contracting State to the extent derived from
employment exercised (i.e., services performed) in the other Contracting State. Paragraph 1 also
provides that the more specific rules of Articles 16 (Directors' Fees), 18 (Pensions, Social
Security, Annuities, Alimony and Child Support), and 19 (Government Service) apply in the case
of employment income described in one of these articles. Thus, even though the State of source
has a right to tax employment income under Article 15, it may not have the right to tax that
income under the Convention if the income is described, e.g.
, in Article 18 (Pensions, Social
Security, Annuities, Alimony and Child Support) and is not taxable in the State of source under
the provisions of that article.
Like the OECD Model, Article 15 of the Convention applies to "salaries, wages and other
similar remuneration." Although the U.S. Model deletes the word “similar”, this is meant merely
as a clarification that Article 15 applies to any form of compensation for employment, including
payments in kind, regardless of whether the remuneration is "similar" to salaries and wages.
Consistently with section 864(c)(6), Article 15 also applies regardless of the timing of
actual payment for services. Thus, a bonus paid to a resident of a Contracting State with respect
to services performed in the other Contracting State with respect to a particular taxable year
would be subject to Article 15 for that year even if it was paid after the close of the year.
Similarly, an annuity received for services performed in a taxable year would be subject to Article
15 despite the fact that it was paid in subsequent years. In either case, whether such payments
were taxable in the State where the employment was exercised would depend on whether the tests
of paragraph 2 were satisfied. Consequently, a person who receives the right to a future payment
in consideration for services rendered in a Contracting State would be taxable in that State even if
the payment is received at a time when the recipient is a resident of the other Contracting State.
Paragraph 2
Paragraph 2 sets forth an exception to the general rule that employment income may be
taxed in the State where it is exercised. Under paragraph 2, the State where the employment is
exercised may not tax the income from the employment if three conditions are satisfied: (a) the
individual is present in the other Contracting State for a period or periods not exceeding 183 days
in any 12-month period that begins or ends during the relevant (i.e.
, the year in which the services
are performed) calendar year; (b) the remuneration is paid by, or on behalf of, an employer who is
not a resident of that other Contracting State; and (c) the remuneration is not borne as a
deductible expense by a permanent establishment or fixed base that the employer has in that other

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State. In order for the remuneration to be exempt from tax in the source State, all three
conditions must be satisfied. This exception is identical to that set forth in the U.S. and OECD
Models.
The 183-day period in condition (a) is to be measured using the "days of physical
presence" method. Under this method, the days that are counted include any day in which a part
of the day is spent in the host country. (Rev. Rul. 56-24, 1956-1 C.B. 851.) Thus, days that are
counted include the days of arrival and departure; weekends and holidays on which the employee
does not work but is present within the country; vacation days spent in the country before, during
or after the employment period, unless the individual's presence before or after the employment
can be shown to be independent of his presence there for employment purposes; and time during
periods of sickness, training periods, strikes, etc., when the individual is present but not working.
If illness prevented the individual from leaving the country in sufficient time to qualify for the
benefit, those days will not count. Also, any part of a day spent in the host country while in
transit between two points outside the host country is not counted. These rules are consistent
with the description of the 183-day period in paragraph 5 of the Commentary to Article 15 in the
OECD Model.
Conditions (b) and (c) are intended to ensure that a Contracting State will not be required
to allow a deduction to the payor for compensation paid and at the same time to exempt the
employee on the amount received. Accordingly, if a foreign person pays the salary of an
employee who is employed in the host State, but a host State corporation or permanent
establishment reimburses the payor with a payment that can be identified as a reimbursement,
neither condition (b) nor (c), as the case may be, will be considered to have been fulfilled.
The reference to remuneration "borne by" a permanent establishment or fixed base is
understood to encompass all expenses that economically are incurred and not merely expenses
that are currently deductible for tax purposes. Accordingly, the expenses referred to include
expenses that are capitalizable as well as those that are currently deductible. Further, salaries paid
by residents that are exempt from income taxation may be considered to be borne by a permanent
establishment or fixed base notwithstanding the fact that the expenses will be neither deductible
nor capitalizable since the payor is exempt from tax.
Paragraph 3
Paragraph 3 contains a special rule applicable to remuneration for services performed by a
resident of a Contracting State as an employee aboard a ship or aircraft operated in international
traffic. Such remuneration may be taxed only in the State of residence of the employee if the
services are performed as a member of the regular complement of the ship or aircraft. The
"regular complement" includes the crew. In the case of a cruise ship, for example, it may also
include others, such as entertainers, lecturers, etc., employed by the shipping company to serve on
the ship throughout its voyage. The use of the term "regular complement" is intended to clarify
that a person who exercises his employment as, for example, an insurance salesman while aboard

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a ship or aircraft is not covered by this paragraph. This paragraph is inapplicable to persons dealt
with in Article 14 (Independent Personal Services).
The comparable paragraph in the OECD Model provides that such income may be taxed
(on a non-exclusive basis) in the Contracting State in which the place of effective management of
the employing enterprise is situated. The Convention, like the U.S. Model, does not adopt this
rule because the United States exercises its taxing jurisdiction over an employee only if the
employee is a U.S. citizen or resident, or the services are performed by the employee in the United
States. Tax cannot be imposed simply because an employee works for an enterprise that is a
resident of the United States. The U.S. Model ensures that, given U.S. law, each employee will
be subject to one level of tax.
Relation to Other Articles
If a U.S. citizen who is resident in Ireland performs services as an employee in the United
States and meets the conditions of paragraph 2 for source country exemption, he nevertheless is
taxable in the United States by virtue of the saving clause of paragraph 4 of Article 1 (General
Scope), subject to the special foreign tax credit rule of paragraph 3 of Article 24 (Relief from
Double Taxation).
Article 16 (Directors' Fees)
This Article provides that directors’ fees and other similar payments derived by a resident
of a Contracting State in his capacity as a member of the board of directors of a company resident
in the other Contracting State may be taxed in the State where the income arises. Such income
will be deemed to arise in the Contracting State in which the company is resident except to the
extent that such fees are paid in respect of attendance at meetings held in the State of residence of
the director. So, for example, if a U.S. resident receives annual compensation for performing his
duties as a director of an Irish company, and all of the company’s board meetings are held outside
the United States (whether in Ireland or elsewhere), all of the compensation would be deemed to
arise in, and therefore could be taxed by, Ireland. If, however, the director attended any meetings
in the United States, any amount received with respect to attendance at such meetings would be
deemed to arise in the United States, and therefore would be taxable only in the United States.
The result under this rule is similar to that under the OECD Model provision, but differs from the
U.S. Model, under which the State of residence of the corporation may tax nonresident directors
with no time or dollar threshold, but only with respect to remuneration for services actually
performed in that State.
The rule of Article 16 is an exception to the more general rules of Article 14 (Independent
Personal Services) and Article 15 (Dependent Personal Services). Thus, for example, in
determining whether a director's fee paid to a non-employee director is subject to tax in the

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country of residence of the corporation, it is not relevant to establish whether the fee is
attributable to a fixed base in that State.
Relation to Other Articles
The sourcing rule in paragraph 2 of this Article is exempt from the saving clause of
paragraph 4 of Article 1 (General Scope) by reason of subparagraph 5(a) of Article 1. For
example, if a U.S. resident is a director of an Irish company, the United States must treat the fees
received by that resident in his capacity as a director as Irish source income, except to the extent
that those fees are paid in respect of attendance at a board meeting held in the United States.
Thus, fees that may be attributable to the director’s services performed within the United States
but that are not paid in respect of meetings held in the United States would be treated as U.S.
source income under the Code but are treated as Irish source income under the Convention for
purposes of applying the foreign tax credit limitations of section 904 of the Code.
Article 17 (Artistes and Sportsmen)
This Article deals with the taxation in a Contracting State of artistes (i.e.
, performing
artists and entertainers) and sportsmen resident in the other Contracting State from the
performance of their services as such. The Article applies both to the income of an entertainer or
sportsman who performs services on his own behalf and one who performs services on behalf of
another person, either as an employee of that person, or pursuant to any other arrangement. The
rules of this Article take precedence, in some circumstances, over those of Articles 14
(Independent Personal Services) and 15 (Dependent Personal Services).
This Article applies only with respect to the income of performing artists and sportsmen.
Others involved in a performance or athletic event, such as producers, directors, technicians,
managers, coaches, etc., remain subject to the provisions of Articles 14 and 15. In addition,
except as provided in paragraph 2, income earned by juridical persons is not covered by
Article 17.
Paragraph 1
Paragraph 1 describes the circumstances in which a Contracting State may tax the
performance income of an entertainer or sportsman who is a resident of the other Contracting
State. Under the paragraph, income derived by an individual resident of a Contracting State from
activities as an entertainer or sportsman exercised in the other Contracting State may be taxed in
that other State if the amount of the gross receipts derived by the performer exceeds $20,000 (or
its equivalent in Irish pounds) for the taxable year. The $20,000 includes expenses reimbursed to
the individual or borne on his behalf. If the gross receipts exceed $20,000, the full amount, not
just the excess, may be taxed in the State of performance.

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The OECD Model provides for taxation by the country of performance of the
remuneration of entertainers or sportsmen with no dollar or time threshold. This treaty introduces
the dollar threshold test to distinguish between two groups of entertainers and athletes -- those
who are paid very large sums of money for very short periods of service, and who would,
therefore, normally be exempt from host country tax under the standard personal services income
rules, and those who earn relatively modest amounts and are, therefore, not easily distinguishable
from those who earn other types of personal service income. The United States has entered a
reservation to the OECD Model on this point.
Tax may be imposed under paragraph 1 even if the performer would have been exempt
from tax under Articles 14 (Independent Personal Services) or 15 (Dependent Personal Services).
On the other hand, if the performer would be exempt from host-country tax under Article 17, but
would be taxable under either Article 14 or 15, tax may be imposed under either of those Articles.
Thus, for example, if a performer derives remuneration from his activities in an independent
capacity, and the remuneration is not attributable to a fixed base, he may be taxed by the host
State in accordance with Article 17 if his remuneration exceeds $20,000 annually, despite the fact
that he generally would be exempt from host State taxation under Article 14. However, a
performer who receives less than the $20,000 threshold amount and therefore is not taxable under
Article 17, nevertheless may be subject to tax in the host country under Articles 14 or 15 if the
tests for host-country taxability under those Articles are met. For example, if an entertainer who
is an independent contractor earns $19,000 of income in a State for the calendar year, but the
income is attributable to a fixed base regularly available to him in the State of performance, that
State may tax his income under Article 14. This interpretation is consistent with the prevailing
understanding under Article 17 of other U.S. tax treaties, but has been clarified by amendments to
the text of paragraph 1 in the U.S. Model and this Convention.
Since it frequently is not possible to know until year-end whether the income an
entertainer or sportsman derived from a performance in a Contracting State will exceed $20,000,
nothing in the Convention precludes that Contracting State from withholding tax during the year
and refunding after the close of the year if the taxability threshold has not been met.
Article 17 applies to all income connected with a performance by the entertainer, such as
appearance fees, award or prize money, and a share of the gate receipts. This interpretation is
consistent with paragraph 9 of the OECD Commentaries on Article 17. Income derived from a
Contracting State by a performer who is a resident of the other Contracting State from other than
actual performance, such as royalties from record sales and payments for product endorsements,
is not covered by this Article, but by other articles of the Convention, such as Article 12
(Royalties) or Article 14 (Independent Personal Services). For example, if an entertainer receives
royalty income from the sale of live recordings, the royalty income would be exempt from source
country tax under Article 12, even if the performance was conducted in the source country,
although he could be taxed in the source country with respect to income from the performance
itself under this Article if the dollar threshold is exceeded.

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In determining whether income falls under Article 17 or another article, the controlling
factor will be whether the income in question is predominantly attributable to the performance
itself or other activities or property rights. For instance, a fee paid to a performer for
endorsement of a performance in which the performer will participate would be considered to be
so closely associated with the performance itself that it normally would fall within Article 17.
Similarly, a sponsorship fee paid by a business in return for the right to attach its name to the
performance would be so closely associated with the performance that it would fall under Article
17 as well. As indicated in paragraph 9 of the Commentaries to Article 17 of the OECD Model, a
cancellation fee would not be considered to fall within Article 17 but would be dealt with under
Article 7, 14 or 15.
As explained in paragraph 4 of the Commentaries to Article 17 of the OECD Model,
where an individual fulfills a dual role as performer and non-performer (such as a player-coach or
an actor-director), but his role in one of the two capacities is negligible, the predominant character
of the individual's activities should control the characterization of those activities. In other cases
there should be an apportionment between the performance-related compensation and other
compensation.
Consistently with Article 15 (Dependent Personal Services), Article 17 also applies
regardless of the timing of actual payment for services. Thus, a bonus paid to a resident of a
Contracting State with respect to a performance in the other Contracting State with respect to a
particular taxable year would be subject to Article 17 for that year even if it was paid after the
close of the year.
Paragraph 2
Paragraph 2 is intended to deal with the potential for abuse when a performer's income
does not accrue directly to the performer himself, but to another person. Foreign performers
commonly perform in the United States as employees of, or under contract with, a company or
other person.
The relationship may truly be one of employee and employer, with no abuse of the tax
system either intended or realized. On the other hand, the "employer" may, for example, be a
company established and owned by the performer, which is merely acting as the nominal income
recipient in respect of the remuneration for the performance (a “star company”). The performer
may act as an "employee," receive a modest salary, and arrange to receive the remainder of the
income from his performance in another form or at a later time. In such case, absent the
provisions of paragraph 2, the income arguably could escape host-country tax because the
recipient earns business profits but has no permanent establishment in that country. The
performer may largely or entirely escape host-country tax by receiving only a small salary in the
year the services are performed, perhaps small enough to place him below the dollar threshold in
paragraph 1. The performer might arrange to receive further payments in a later year, when he is

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not subject to host-country tax, perhaps as deferred salary payments, dividends or liquidating
distributions.

Paragraph 2 seeks to prevent this type of abuse while at the same time protecting the
taxpayers' rights to the benefits of the Convention when there is a legitimate employee-employer
relationship between the performer and the person providing his services. Under paragraph 2,
when the income accrues to a person other than the performer, and the performer or related
persons participate, directly or indirectly, in the receipts or profits of that other person, the
income may be taxed in the Contracting State where the performer's services are exercised,
without regard to the provisions of the Convention concerning business profits (Article 7) or
independent personal services (Article 14). Thus, even if the "employer" has no permanent
establishment or fixed base in the host country, its income may be subject to tax there under the
provisions of paragraph 2. Taxation under paragraph 2 is on the person providing the services of
the performer. This paragraph does not affect the rules of paragraph 1, which apply to the
performer himself. The income taxable by virtue of paragraph 2 is reduced to the extent of salary
payments to the performer, which fall under paragraph 1.
For purposes of paragraph 2, income is deemed to accrue to another person (i.e.
, the
person providing the services of the performer) if that other person has control over, or the right
to receive, gross income in respect of the services of the performer. Direct or indirect
participation in the profits of a person may include, but is not limited to, the accrual or receipt of
deferred remuneration, bonuses, fees, dividends, partnership income or other income or
distributions.
Paragraph 2 does not apply if it is established that neither the performer nor any persons
related to the performer participate directly or indirectly in the receipts or profits of the person
providing the services of the performer. Assume, for example, that a circus owned by a U.S.
corporation performs in Ireland, and promoters of the performance in Ireland pay the circus,
which, in turn, pays salaries to the circus performers. The circus is determined to have no
permanent establishment in Ireland. Since the circus performers do not participate in the profits
of the circus, but merely receive their salaries out of the circus' gross receipts, the circus is
protected by Article 7 and its income is not subject to host-country tax. Whether the salaries of
the circus performers are subject to host-country tax under this Article depends on whether they
exceed the $20,000 threshold in paragraph 1.
Since pursuant to Article 1 (General Scope) the Convention only applies to persons who
are residents of one of the Contracting States, if the star company is not a resident of one of the
Contracting States, then taxation of the income is not affected by Article 17 or any other
provision of the Convention.
This exception from paragraph 2 for non-abusive cases is not found in the OECD Model.
The United States has entered a reservation to the OECD Model on this point.

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Relationship to other articles
This Article is subject to the provisions of the saving clause of paragraph 4 of Article 1
(General Scope). Thus, if an entertainer or a sportsman who is resident in Ireland is a citizen of
the United States, the United States may tax all of his income from performances in the United
States without regard to the provisions of this Article, subject, however, to the special foreign tax
credit provisions of paragraph 3 of Article 24 (Relief from Double Taxation). In addition, benefits
of this Article are subject to the provisions of Article 23 (Limitation on Benefits).
Article 18 (Pensions, Social Security, Annuities, Alimony and Child Support)
This Article deals with the taxation of private (i.e.
, non-government service) pensions and
annuities, social security benefits, alimony and child support payments and with the tax treatment
of contributions to pension plans.
Subparagraph 1 (a)
Subparagraph 1 (a) provides that pensions and other similar remuneration derived and
beneficially owned by a resident of a Contracting State in consideration of past employment are
taxable only in the State of residence of the beneficiary. Although the Convention does not make
explicit the fact that the term “pensions and other similar remuneration” includes both periodic
and single sum payments, it is understood that this would be the case under the domestic law of
both Contracting States. The treatment of such payments under the Convention is essentially the
ame as under the 1951 Convention. The term “pensions and other similar remuneration” is
intended to encompass payments made by all private retirement plans and arrangements in
consideration of past employment, regardless of whether they are qualified plans under U.S. law,
including plans and arrangements described in section 457 or 414(d) of the Internal Revenue
Code. It also includes an Individual Retirement Account.
Pensions in respect of government service are not covered by this paragraph. They are
covered either by subparagraph 1 (b) of this Article, if they are in the form of social security
benefits, or by paragraph 2 of Article 19 (Government Service). Thus, Article 19 covers section
457, 401(a) and 403(b) plans established for government employees. If a pension in respect of
government service is not covered by Article 19 solely because the services were rendered in
connection with a business, the pension is covered by this Article.
Subparagraph 1(b)
The treatment of social security benefits is dealt with in subparagraph 1(b). This
subparagraph provides that payments made by one of the Contracting States under the provisions
of its social security or similar legislation to a resident of the other Contracting State will be

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taxable only in the other Contracting State. This subparagraph applies to social security beneficia-
ries whether they have contributed to the system as private sector or Government employees.
The reference to “provisions of the social security” legislation is not restricted to old age
pensions but refers to all sorts of social security benefits, including benefits granted in kind and
payments made as compensation for work-related diseases or accidents. Paragraph 2 of the
diplomatic notes explains that the phrase “similar legislation” is intended to refer to United States
tier 1 Railroad Retirement benefits.
Paragraph 2
Under paragraph 2, annuities that are derived and beneficially owned by a resident of a
Contracting State are taxable only in that State. An annuity, as the term is used in this paragraph,
means a stated sum paid periodically at stated times during a specified number of years or for life,
under an obligation to make the payment in return for adequate and full consideration (other than
for services rendered). An annuity received in consideration for services rendered would be
treated as deferred compensation and generally taxable in accordance with Article 15 (Dependent
Personal Services).
Paragraphs 3 and 4
Paragraphs 3 and 4 deal with alimony and child support payments. Both alimony, under
paragraph 3, and child support payments, under paragraph 4, are defined as periodic payments
made pursuant to a written separation agreement or a decree of divorce, judicial separation,
separate maintenance, or compulsory support. Paragraph 3, however, deals only with payments
of that type that are deductible to the payor. Under that paragraph, alimony paid by a resident of
a Contracting State to a resident of the other Contracting State is taxable under the Convention
only in the State of residence of the recipient. Paragraph 4 deals with those periodic payments
that are for the support of a child and that are not covered by paragraph 3 (i.e.
, those payments
that are not deductible to the payor). These types of payments by a resident of a Contracting
State to a resident of the other Contracting State may not be taxed by either Contracting State.
Paragraphs 5 and 6
Paragraphs 5 and 6 deals with cross-border pension contributions in order to remove
barriers to the flow of personal services between the Contracting States that could otherwise
result from a failure of the two Contracting States' laws regarding the deductibility of pension
contributions to mesh properly. Many countries allow deductions or exclusions to their residents
for contributions, made by them or on their behalf, to resident pension plans, but do not allow
deductions or exclusions for payments made to plans resident in another country, even if the
structure and legal requirements of such plans in the two countries are similar.

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Paragraph 5 provides for deductions (or exclusions) from the taxable income of an
individual in one State for contributions paid by that individual to a pension plan in the other State
if certain conditions are satisfied. Paragraph 5 also provides that payments made to such a plan by
or on behalf of the individual’s employer are deductible from the profits of the employer in that
State and are not considered part of the taxable income of the individual. The benefits granted by
a State under this paragraph (i.e.
, the deductibility of contributions) are limited to the benefits
allowed by that State to its own residents for contributions to a pension plan recognized for tax
purposes by that State.
Where the United States is the host country, the exclusion of employee contributions from
the employee’s income under this paragraph is limited to elective contributions not in excess of
the amount specified in section 402(g). Deduction of employer contributions is subject to the
limitations of sections 415 and 404. The section 404 limitation on deductions would be calculated
as if the individual were the only employee covered by the plan.
The benefits of this paragraph are allowed to an individual who is present in one of the
Contracting States to perform either dependent or independent personal services. Subparagraph
5(a) provides that the individual can receive the benefits of this paragraph only if he was
contributing to the plan in his home country, or to a similar plan that was replaced by the plan to
which he is contributing, before coming to the host country. The allowance of a successor plan
would apply if, for example, the employer has been taken over by another corporation that
replaces the existing plan with its own plan, rolling membership in the old plan over into the new
plan.
Subparagraph 5 (b) limits the duration of the benefit by restricting eligibility to individuals
who have performed personal services in the host country for a cumulative period not exceeding
five calendar years.

In addition, Subparagraph 5 (c) provides that the host-country competent authority must
determine that the pension plan to which a contribution is made in the home country of the
individual generally corresponds to a plan recognized for tax purposes in the host country. It is
understood that United States plans eligible for the benefits of paragraph 5 include qualified plans
under section 403(a), individual retirement plans (including individual retirement plans that are
part of a simplified employee pension plan that satisfies section 408(k), IRAs and section 408(p)
accounts), section 403(a) qualified annuity plans, individual retirement accounts, and section
403(b) plans.
The benefits under paragraph 5 are limited to the benefits that the host country accords,
under its law, to the host country plan most similar to the home country plan, even if the home
country would have afforded greater benefits under its law. Thus, for example, if the host country
has a cap on contributions equal to, say, five percent of the remuneration, and the home country
has a seven percent cap, the deduction is limited to five percent, even though if the individual had
remained in his home country he would have been allowed to take the larger deduction.

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Paragraph 6
Paragraph 6 is included in the Convention because Ireland continues to maintain a
remittance system of taxation for individuals who are resident but not domiciled in Ireland. Such
persons are subject to tax in Ireland on non-Irish source income only to the extent the income or
chargeable gains are remitted to the Irish resident. Paragraph 6 limits the deductibility from an
individual’s taxable income provided under paragraph 5 for contributions to a foreign pension
plan in cases in which the host State taxes only so much of that individual’s income as is remitted
to or received by the individual in that State. In such a case, the deduction that would otherwise
be permitted under paragraph 5 is reduced by a proportion equal to the proportion of the
individual’s income that is untaxed in that State because it was not remitted to or received by the
individual in that State.
Domicile is a legal concept that is not necessarily related to residence. An individual
receives a domicile of origin at birth. The individual may change that domicile by physically
relocating with the intention of changing his domicile.
Relation to other Articles
Paragraphs 1, 2, and 3 of Article 18 are subject to the saving clause of paragraph 4 of
Article 1 (General Scope). Thus, a U.S. citizen who is resident in Ireland, and receives either a
pension, social security, annuity or alimony payment from the United States, may be subject to
U.S. tax on the payment, notwithstanding the rules in those three paragraphs that give the State of
residence of the recipient the exclusive taxing right. Paragraph 4 is excepted from the saving
clause by virtue of paragraph 5(a) of Article 1. Thus, the United States will allow U.S. citizens
and residents the benefits of paragraph 4. By virtue of paragraph 5(b) of Article 1, paragraph 5 is
excepted from the saving clause with respect to individuals who are residents of a Contracting
State but are neither citizens nor permanent residents of that State.
Article 19 (Government Service)
Paragraph 1
Subparagraphs (a) and (b) of paragraph 1 deal with the taxation of government
compensation (other than a pension addressed in paragraph 2). Subparagraph (a) provides that
remuneration paid by one of the States or its political subdivisions or local authorities to any
individual who is rendering services to that State, political subdivision or local authority is exempt
from tax by the other State. Under subparagraph (b), such payments are, however, taxable
exclusively in the other State (i.e., the host State) if the services are rendered in that other State
and the individual is a resident of that State who is either a national of that State or a person who
did not become resident of that State solely for purposes of rendering the services.

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This paragraph follows the OECD Model, but differs from the U.S. Model, in applying
only to government employees and not to independent contractors engaged by governments to
perform services for them.
Paragraph 2
Paragraph 2 deals with the taxation of a pension paid by, or out of funds created by, one
of the States or a political subdivision or a local authority thereof to an individual in respect of
services rendered to that State or subdivision or authority. Subparagraph (a) provides that such a
pension is taxable only in that State. Subparagraph (b) provides an exception under which such a
pension is taxable only in the other State if the individual is a resident of, and a national of, that
other State. Pensions paid to retired civilian and military employees of a Government of either
State are intended to be covered under paragraph 2. When benefits paid by a State in respect of
services rendered to that State or a subdivision or authority are in the form of social security
benefits, however, those payments are covered by subparagraph 1(b) of Article 18 (Pensions,
Social Security, Annuities, Alimony and Child Support). As a general matter, the result will differ
depending upon whether Article 18 or 19 applies, since social security benefits are generally
taxable exclusively by the residence country while government pensions are generally taxable
exclusively by the source country. The result will be the same only when the payment is made to
a citizen and resident of the other Contracting State, who is not also a citizen of the paying State.
In such a case, government pensions become taxable only in the residence country and social
security benefits continue to be taxable only in the residence country.
Paragraph 3
Paragraph 3 specifies that paragraphs 1 and 2 do not apply to remuneration and pensions
paid for services performed in connection with a business carried on by a Contracting State or a
political subdivision or local authority thereof. In such cases, the remuneration and pensions are
subject instead to the provisions of Articles 14 (Independent Personal Services), 15 (Dependent
Personal Services), 16 (Director's Fees), 17 (Artistes and Sportsmen), or 18 (Pensions, Social
Security, Annuities, Alimony and Child Support). This language conforms to the OECD model.
Article 20 (Students and Trainees)
This Article provides rules for host-country taxation of visiting students, apprentices or
business trainees. Persons who meet the tests of the Article will be exempt from tax in the State
that they are visiting with respect to designated classes of income. Several conditions must be
satisfied in order for an individual to be entitled to the benefits of this Article.
First, the visitor must have been, either at the time of his arrival in the host State or
immediately before, a resident of the other Contracting State.

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Second, the purpose of the visit must be the full-time education or training of the visitor.
Thus, if the visitor comes principally to work in the host State but also is a part-time student, he
would not be entitled to the benefits of this Article, even with respect to any payments he may
receive from abroad for his maintenance or education, and regardless of whether or not he is in a
degree program. Whether a student is to be considered full-time will be determined by the rules
of the educational institution at which he is studying. Similarly, a person who visits the host State
for the purpose of obtaining business training and who also receives a salary from his employer
for providing services would not be considered a trainee and would not be entitled to the benefits
of this Article.
Third, a student must be studying at a recognized educational institution. (This
requirement does not apply to business trainees or apprentices.) An educational institution is
understood to be an institution that normally maintains a regular faculty and normally has a
regular body of students in attendance at the place where the educational activities are carried on.
An educational institution will be considered to be recognized if it is accredited by an authority
that generally is responsible for accreditation of institutions in the particular field of study.
The host-country exemption in the Article applies only to payments received by the
student, apprentice or business trainee for the purpose of his maintenance, education or training
that arise outside the host State. A payment will be considered to arise outside the host State if
the payor is located outside the host State. Thus, if an employer from the U.S. sends an employee
to Ireland for training, the payments the trainee receives from abroad from his employer for his
maintenance or training while he is present in the host State will be exempt from host-country tax.
In all cases substance over form should prevail in determining the identity of the payor.
Consequently, payments made directly or indirectly by the U.S. person with whom the visitor is
training, but which have been routed through a non-host-country source, such as, for example, a
foreign bank account, should not be treated as arising outside the United States for this purpose.
In the case of an apprentice or business trainee, the benefits of the Article will extend only
for a period of one year from the time that the visitor first arrives in the host country. If,
however, an apprentice or trainee remains in the host country for a second year, thus losing the
benefits of the Article, he would not retroactively lose the benefits of the Article for the first year.
The saving clause of paragraph 4 of Article 1 (General Scope) does not apply to this
Article with respect to an individual who is neither a citizen of the host State nor has been
admitted for permanent residence there. The saving clause, however, does apply with respect to
citizens and permanent residents of the host State. Thus, a U.S. citizen who is a resident of
Ireland and who visits the United States as a full-time student at an accredited university will not
be exempt from U.S. tax on remittances from abroad that otherwise constitute U.S. taxable
income. A person, however, who is not a U.S. citizen, and who visits the United States as a
student and remains long enough to become a resident under U.S. law, but does not become a
permanent resident (i.e.
, does not acquire a green card), will be entitled to the full benefits of the
Article.

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Article 21 (Offshore Exploration and Exploitation Activities)
This Article deals exclusively with the taxation of activities carried on by a resident of one
of the Contracting States on the continental shelf of the other Contracting State in connection
with the exploration or exploitation of the natural resources of the shelf, principally activities
connected with exploration for oil by offshore drilling rigs. In the U.S. and OECD Models, the
income from these activities is subject to the standard rules found in the other Articles of the
Convention (e.g.
, the business profits and personal services articles). Other U.S. treaties with
countries bordering on the North Sea (e.g., Norway, the United Kingdom and the Netherlands),
however, have articles dealing with offshore activities. Several recent Irish treaties and the Irish
model treaty also contain such provisions. The prior Convention had no similar provision. The
normal business profits and personal services provisions, therefore, applied under the prior
Convention to offshore income.
Paragraph 1
Paragraph 1 states that the provisions of Article 21 apply, notwithstanding any other
provision of the Convention, to activities carried on offshore in connection with the exploration or
exploitation of the sea bed and subsoil and their natural resources situated in a Contracting State.
These activities are referred to as “exploration activities” and “exploitation activities”
respectively. Although there are no explicit references to other articles, the implicit references are
principally to Articles 5 (Permanent Establishment), 7 (Business Profits), 14 (Independent
Personal Services) and 15 (Dependent Personal Services). For example, if a drilling rig of a U.S.
enterprise is present on the continental shelf of Ireland for 10 months and would, therefore, not
constitute a permanent establishment because of the 12-month construction site rule of paragraph
3 of Article 5, the rig would, nevertheless, be deemed to be a permanent establishment under
paragraph 2 of this Article.
Paragraphs 2 and 3
Paragraphs 2 and 3 provide the basic rules for determining when an enterprise is deemed
to have a permanent establishment as a result of offshore activities. The general rule is that all
exploitation activities give rise to a permanent establishment, while exploration activities create a
permanent establishment only if they continue for a period of 120 days in a twelve-month period.
Paragraph 2 provides that, subject to the exception of paragraph 3, an enterprise of one
Contracting State carrying on exploration activities or exploitation activities in the other
Contracting State will be deemed to be carrying on business through a permanent establishment
situated there.
Paragraph 3 provides that an enterprise of a Contracting State carrying on exploration
activities in the other Contracting State will not constitute a permanent establishment unless the
activities are carried on there for a period or periods aggregating more than 120 days within any

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period of twelve months. Paragraph 3 also provides rules for aggregating the activities of related
parties for purposes of determining whether the threshold has been met. If the enterprise carrying
on the offshore activities is associated with another enterprise, and that associated enterprise is
carrying on substantially similar exploration activities there, the former enterprise shall be deemed
to be carrying on all such activities, except to the extent that those activities are carried on at the
same time. For purposes of this rule, an enterprise is associated with another if one participates
directly or indirectly in the management, control or capital of the other or if the same persons
participate directly or indirectly in the management, control or capital of both enterprises.
Ireland agrees, in Paragraph 8 of the Protocol, to limit the “balancing charge” that
otherwise would apply upon the cessation of offshore activities. Under Ireland’s domestic law, a
balancing charge may be levied upon the termination of a permanent establishment to tax deemed
gain on the assets of the permanent establishment. Where a permanent establishment is deemed to
exist by virtue of Article 21, the Protocol provision limits the balancing charge so that it is
imposed only to the extent that the person carrying on the activities has claimed accelerated
capital allowances (depreciation). Normal capital allowances would be allowed and would not be
subject to recapture through a balancing charge. Since Ireland currently has no accelerated
capital allowances, the Protocol provision currently prevents Ireland from imposing any balancing
charges upon the termination of offshore activity where a permanent establishment is deemed to
exist by virtue of Article 21.
Paragraphs 4 and 5
Paragraphs 4 and 5 provide thresholds with respect to offshore activities consisting of
personal services that are similar to the thresholds in paragraphs 2 and 3. Paragraph 4 provides
that income derived by a resident of a Contracting State carrying on exploitation activities in the
other Contracting State that consist of professional services or other activities of an independent
character will be deemed to be attributable to a fixed base in the other Contracting State. That is
also true with respect to services of an independent character that constitute exploration activities,
but only if the activities are performed in the other Contracting State for a period or periods in
excess of 120 days within a twelve-month period.
Paragraph 5 contains the rules for the taxation of employment income connected with
offshore activities. It provides for a broader host-country taxing right than does Article 15
(Dependent Personal Services). Under paragraph 5, salaries and other remuneration of a resident
of one Contracting State derived from an employment in connection with offshore activities
carried on through a permanent establishment in the other may be taxed by the other State.
Paragraph 5 contains no special rule regarding the taxation of persons employed on ships, etc., in
connection with offshore activities. Under Article 15, the presence of a permanent establishment
is not sufficient to subject the employee to host country taxation. Under paragraph 5 of Article
21, however, an employee merely needs to be engaged in offshore activities carried on in
connection with an Irish permanent establishment engaged in offshore activities in Ireland to be

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subject to tax, regardless of who pays his salary and whether it is deductible in Ireland, and
regardless of the amount of time he has spent in, or off the shore of, Ireland.
Relation to other Articles
As with any benefit of the Convention, an enterprise or individual claiming a benefit under
this Article must be entitled to the benefit under the provisions of Article 23 (Limitation on
Benefits).
Article 22 (Other Income)
Article 22 generally assigns taxing jurisdiction over income not dealt with in the other
Articles (Articles 6 through 20) of the Convention to the State of residence of the beneficial
owner of the income and defines the terms necessary to apply the article. An item of income is
"dealt with" in another Article if it is the type of income described in the Article and it has its
source in a Contracting State. For example, all royalty income that arises in a Contracting State
and that is beneficially owned by a resident of the other Contracting State is "dealt with" in Article
12 (Royalties).
Examples of items of income covered by Article 22 include income from gambling,
punitive (but not compensatory) damages, covenants not to compete, and income from certain
financial instruments to the extent derived by persons not engaged in the trade or business of
dealing in such instruments (unless the transaction giving rise to the income is related to a trade or
business, in which case it is dealt with under Article 7 (Business Profits)). The Article also applies
to items of income that are not dealt with in the other articles because of their source or some
other characteristic. For example, Article 11 (Interest) addresses only the taxation of interest
arising in a Contracting State. Interest arising in a third State that is not attributable to a
permanent establishment, therefore, is subject to Article 22.
Distributions from partnerships and distributions from trusts are not generally dealt with
under Article 22 because partnership and trust distributions generally do not constitute income.
Under the Code, partners include in income their distributive share of partnership income
annually, and partnership distributions themselves generally do not give rise to income. Also,
under the Code, trust income and distributions have the character of the associated distributable
net income and therefore would generally be covered by another article of the Convention. See
Code section 641 et
seq.
Paragraph 1
The general rule of Article 22 is contained in paragraph 1. Items of income not dealt with
in other articles and beneficially owned by a resident of a Contracting State will be taxable only in
the State of residence. This exclusive right of taxation applies whether or not the residence State
exercises its right to tax the income covered by the Article.

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This paragraph differs in one respect from the OECD Model, but is consistent with the
current U.S. Model, by referring to "items of income beneficially owned by a resident of a
Contracting State" rather than simply "items of income of a resident of a Contracting State." This
is not a substantive change. It is intended merely to make explicit the implicit understanding in
other treaties that the exclusive residence taxation provided by paragraph 1 applies only when a
resident of a Contracting State is the beneficial owner of the income. This should also be under-
stood from the phrase "income of a resident of a Contracting State." The addition of a reference
to beneficial ownership merely removes any possible ambiguity. Thus, source taxation of income
not dealt with in other articles of the Convention is not limited by paragraph 1 if it is nominally
paid to a resident of the other Contracting State, but is beneficially owned by a resident of a third
State.
Paragraph 2
This paragraph provides an exception to the general rule of paragraph 1 for income, other
than income from real property, that is attributable to a permanent establishment or fixed base
maintained in a Contracting State by a resident of the other Contracting State. The taxation of
such income is governed by the provisions of Articles 7 (Business Profits) and 14 (Independent
Personal Services). Therefore, income arising outside the United States that is attributable to a
permanent establishment maintained in the United States by a resident of Ireland generally would
be taxable by the United States under the provisions of Article 7. This would be true even if the
income is sourced in a third State.
There is an exception to this general rule with respect to income a resident of a
Contracting State derives from real property located outside the other Contracting State (whether
in the first-mentioned Contracting State or in a third State) that is attributable to the resident's
permanent establishment or fixed base in the other Contracting State. In such a case, only the
first-mentioned Contracting State (i.e.
, the State of residence of the person deriving the income)
and not the host State of the permanent establishment or fixed base may tax that income. This
special rule for foreign-situs property is consistent with the general rule, also reflected in Article 6
(Income from Immovable Property (Real Property)), that only the situs and residence States may
tax real property and real property income. Even if such property is part of the property of a
permanent establishment or fixed base in a Contracting State, that State may not tax if neither the
situs of the property nor the residence of the owner is in that State.
Relation to Other Articles
This Article is subject to the saving clause of paragraph 4 of Article 1 (General Scope).
Thus, the United States may tax the income of a resident of Ireland that is not dealt with
elsewhere in the Convention, if that resident is a citizen of the United States. The Article is also
subject to the provisions of Article 23 (Limitation on Benefits). Thus, if a resident of Ireland
earns income that falls within the scope of paragraph 1 of Article 22, but that is taxable by the

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United States under U.S. law, the income would be exempt from U.S. tax under the provisions of
Article 22 only if the resident satisfies one of the tests of Article 23 for entitlement to benefits.
Article 23 (Limitation on Benefits)
Purpose of Limitation on Benefits Provisions
The United States views an income tax treaty as a vehicle for providing treaty benefits to
residents of the two Contracting States. This statement begs the question of who is to be treated
as a resident of a Contracting State for the purpose of being granted treaty benefits. The
Commentaries to the OECD Model authorize a tax authority to deny benefits, under substance-
over-form principles, to a nominee in one State deriving income from the other on behalf of a
third-country resident. In addition, although the text of the OECD Model does not contain
express anti-abuse provisions, the Commentaries to Article 1 contain an extensive discussion
approving the use of such provisions in tax treaties in order to limit the ability of third state
residents to obtain treaty benefits. The United States holds strongly to the view that tax treaties
should include provisions that specifically prevent misuse of treaties by residents of third
countries. Consequently, all recent U.S. income tax treaties contain comprehensive Limitation on
Benefits provisions.
A treaty that provides treaty benefits to any resident of a Contracting State permits “treaty
shopping”: the use, by residents of third states, of legal entities established in a Contracting State
with a principal purpose to obtain the benefits of a tax treaty between the United States and the
other Contracting State. It is important to note that this definition of treaty shopping does not
encompass every case in which a third state resident establishes an entity in a U.S. treaty partner,
and that entity enjoys treaty benefits to which the third state resident would not itself be entitled.
If the third country resident had substantial reasons for establishing the structure that were
unrelated to obtaining treaty benefits, the structure would not fall within the definition of treaty
shopping set forth above.
Of course, the fundamental problem presented by this approach is that it is based on the
taxpayer's intent, which a tax administration is normally ill-equipped to identify. In order to avoid
the necessity of making this subjective determination, Article 23 sets forth a series of mechanical
tests. The assumption underlying each of these tests is that a taxpayer that satisfies the
requirements of any of the tests probably has a real business purpose for the structure it has
adopted, or has a sufficiently strong nexus to the other Contracting State (e.g.
, a resident
individual) to warrant benefits even in the absence of a business connection, and that this business
purpose or connection outweighs any purpose to obtain the benefits of the Convention.
For instance, the assumption underlying the active trade or business test under paragraph 3
is that a third country resident that establishes a “substantial” operation in Ireland and that derives
income from a similar activity in the United States would not do so primarily to avail itself of the
benefits of the Convention; it is presumed in such a case that the investor had a valid business

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purpose for investing in Ireland, and that the link between that trade or business and the U.S.
activity that generates the treaty-benefitted income manifests a business purpose for placing the
U.S. investments in the entity in Ireland. It is considered unlikely that the investor would incur
the expense of establishing a substantial trade or business in Ireland simply to obtain the benefits
of the Convention. A similar rationale underlies other tests in Article 23.
While mechanical tests provide useful surrogates for identifying actual intent, they cannot
account for every case in which the taxpayer was not treaty shopping. Accordingly, Article 23
also includes a provision (paragraph 6) authorizing the competent authority of a Contracting State
to grant benefits. While an analysis under paragraph 6 may well differ from that under one of the
other tests of Article 23, its objective is the same: to identify investors whose residence in the
other State can be justified by factors other than a purpose to derive treaty benefits.
Article 23 and the anti-abuse provisions of domestic law complement each other, as
Article 23 effectively determines whether an entity has a sufficient nexus to the Contracting State
to be treated as a resident for treaty purposes, while domestic anti-abuse provisions (e.g.
, business
purpose, substance-over-form, step transaction or conduit principles) determine whether a
particular transaction should be recast in accordance with its substance. Thus, internal law
principles of the source State may be applied to identify the beneficial owner of an item of income,
and Article 23 then will be applied to the beneficial owner to determine if that person is entitled to
the benefits of the Convention with respect to such income.
Structure of the Article
Article 23 follows the form used in other recent U.S. income tax treaties. (See, e.g.
, the
Convention between the United States of America and the Kingdom of the Netherlands for the
Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on
Income.) The structure of the Article is as follows: Paragraph 1 states the general rule of the
article that a resident is entitled to all the benefits otherwise accorded to residents only if such
resident is a “qualified person” as defined in this Article. Paragraph 2 lists a series of six attributes
of a resident, any one of which suffices to make such resident a “qualified person” and thus
entitled to all the benefits of the Convention. Paragraph 3 sets forth the active trade or business
test, under which a person not entitled to benefits under paragraph 2 may nonetheless be granted
benefits with regard to certain types of income. Paragraph 4 provides for limited so-called
“derivative benefits” for shipping and air transport income. Paragraph 5 provides a more general
derivative benefits rule. Paragraph 6 provides that benefits also may be granted if the competent
authority of the State from which benefits are claimed determines that it is appropriate to provide
benefits in that case. Paragraph 7 limits treaty benefits in certain so-called “triangular” cases.
Paragraph 8 defines the terms used specifically in this Article. Paragraph 9 authorizes the
competent authorities to develop agreed applications of the provisions of this Article and to
exchange information necessary to carry out the provisions of this Article.
Paragraph 1

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Paragraph 1 provides that a resident of a Contracting State will be entitled to all the
benefits of the Convention otherwise accorded to residents of a Contracting State only if the
resident is a “qualified person” as defined in Article 23. The benefits otherwise accorded to
residents under the Convention include all limitations on source-based taxation under Articles 6
through 22, the treaty-based relief from double taxation provided by Article 24 (Relief from
Double Taxation), and the protection afforded to residents of a Contracting State under Article 25
(Non-Discrimination). Some provisions do not require that a person be a resident in order to
enjoy the benefits of those provisions. These include paragraph 1 of Article 25 (Non-
Discrimination), Article 26 (Mutual Agreement Procedure), and Article 28 (Diplomatic Agents
and Consular Officers). Article 23 accordingly does not limit the availability of the benefits of
these provisions.
Paragraph 2
Paragraph 2 has six subparagraphs, each of which describes a category of residents that
constitute qualified persons and thus are entitled to all benefits of the Convention.
Individuals -- Subparagraph 2(a)
Subparagraph a) provides that individual residents of a Contracting State will be entitled
to all treaty benefits. If such an individual receives income as a nominee on behalf of a third
country resident, benefits may be denied under the respective articles of the Convention by the
requirement that the beneficial owner of the income be a resident of a Contracting State.
Qualified Governmental Entities -- Subparagraph 2(b)
Subparagraph b) provides that qualified governmental entities, as defined in subparagraph
1(j) of Article 3 (Definitions), also will be entitled to all benefits of the Convention. As described
in Article 3, in addition to federal, state and local governments, the term “qualified governmental
entity” encompasses certain government-owned corporations and other entities, and certain
pension trusts or funds that administer pension benefits described in Article 19 (Government
Service).
Ownership and Base Erosion -- Subparagraph 2(c)
Subparagraph 2(c) provides a two-part test, the so-called ownership and base erosion test.
This test applies to any form of legal entity that is a resident of a Contracting State. Both prongs
or the test must be satisfied for the resident to be entitled to benefits under subparagraph 2(c).
The ownership prong of the test, under clause (i), requires that at least 50 percent of the
beneficial interest in the person (or, in the case of a company, at least 50 percent of the aggregate
vote and value of the company’s shares) be owned by persons who are themselves entitled to

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benefits under the other tests of paragraph 2 (i.e., subparagraphs (a), (b), (d), (e), or (f)), or who
are residents or citizens of the United States.
Although subparagraph 2(c) does not specify that only qualified persons described in other
subparagraphs can satisfy the ownership test, this in fact is required by the rule regarding chains of
ownership. Ownership by qualified persons may be indirect, but in cases of a chain of ownership,
the ownership test must be satisfied by the last owners in the chain. In general, this requires that
intermediate owners be disregarded and that ownership be traced to a person that is entitled to
benefits without reference to its owners (such as a publicly traded company under subparagraph 2
(e)). Thus, owners that satisfy the test under subparagraph 2 (c) (i) include qualified persons
described in subparagraphs 2(a), (b), (d), (e), and (f), because such persons are entitled to benefits
without reference to their ownership (if any), or residents or citizens of the United States, because
neither the United States nor Ireland is concerned about treaty-shopping through such persons.
Ownership traced to any other person would not count towards satisfying the subparagraph
2(c)(i) ownership threshold.
Trusts may be entitled to benefits under this provision if they are treated as residents under
Article 4 (Residence) and they otherwise satisfy the requirements of this subparagraph. For
purposes of this subparagraph, the beneficial interests in a trust will be considered to be owned by
its beneficiaries in proportion to each beneficiary’s actuarial interest in the trust. The interest of a
remainder beneficiary will be equal to 100 percent less the aggregate percentages held by income
beneficiaries. A beneficiary’s interest in a trust will not be considered to be owned by a person
entitled to benefits under the provisions of paragraph 2 if it is not possible to determine the
beneficiary’s actuarial interest. Consequently, if it is not possible to determine the actuarial
interest of any beneficiaries in a trust, the ownership test under clause (i) cannot be satisfied,
unless all beneficiaries are persons entitled to benefits under the other subparagraphs of paragraph
2 or are residents or citizens of the United States.
The base erosion prong of the test under subparagraph 2(c) requires that amounts paid or
accrued by a person during a taxable year, and deductible for tax purposes in that person’s State
of residence, to persons not entitled to benefits under paragraph 2 and not residents or citizens of
the United States not constitute more than 50 percent of the person's gross income for that
taxable year. To the extent they are deductible from the taxable base, trust distributions would be
considered deductible payments. Depreciation and amortization deductions, which do not
represent payments or accruals to other persons, are disregarded for this purpose. Deductible
payments do not include arm’s length payments in the ordinary course of business for services or
tangible property or with respect to financial obligations to banks that are residents of either
Contracting State or that have a permanent establishment in either Contracting State to which the
payment is attributable. The exclusion of payments to banks is in recognition of the fact that a
significant portion of the domestic banking market in Ireland has been accounted for by
subsidiaries or branches of foreign banks. The U.S. Model also excludes from deductible
payments those payments made to, and attributable to, a permanent establishment in a Contracting
State.

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The term “gross income” is not defined in this Convention. Thus, in accordance with
paragraph 2 of Article 3 (General Definitions), in determining whether a person deriving income
from United States sources is entitled to the benefits of the Convention, the United States will
ascribe the meaning to the term that it has in the United States. In such cases, “gross income” will
be defined as gross receipts less cost of goods sold. Subparagraph 8(a) allows the taxpayer to use
an averaging rule, by providing that “gross income” for purposes of paragraph 2(c) means gross
income for the preceding taxable year or the average of the annual amounts of gross income for
the four taxable years preceding the current taxable year, whichever is greater.
Publicly Traded Persons -- Subparagraph 2(d)
Subparagraph d) applies to two categories of legal entities that may not be companies
under the laws of one of the Contracting States: publicly traded entities and entities owned either
by publicly traded companies or by publicly traded entities that are not individuals or companies.
Clause i) of subparagraph 2(d) provides that a person other than an individual or a company will
be entitled to all the benefits of the Convention if the principal class of “units” in that person is
listed on a “recognized stock exchange” located in either State and is substantially and regularly
traded. The term “units” is defined in subparagraph 8(c). The term “recognized stock exchange”
is defined in subparagraph 8(b).
Subparagraph d) applies generally to trusts the shares of ownership in which are publicly
traded and to trusts that are owned by publicly traded entities. From the U.S. perspective, the
provision relating to publicly traded trusts is redundant, since the United States would generally
consider such trusts to be corporations that are covered by the parallel provision under
subparagraph 2(e).
The term “principal class of units” is not defined in the Convention. It is understood that
it will be interpreted in accordance with the definition of “principal class of shares” in
subparagraph 8(d).
The meaning of the term “substantially and regularly traded” in respect of the units in a
class of units is defined in paragraph 9 of the Protocol to this Convention. The substantial and
regular trading requirement can be met by trading on any recognized stock exchange. Trading on
one or more recognized stock exchanges may be aggregated for purposes of this requirement.
Thus, a U.S. entity could satisfy the substantially and regularly traded requirement through
trading, in whole or in part, on a recognized stock exchange located in Ireland. Authorized but
unissued units are not considered for purposes of this test.
Clause (ii) of subparagraph 2(d) provides a test under which certain entities are entitled to
the benefits of the Convention if the direct or indirect owners of at least 50 percent of the
beneficial interests in the entity are entities that satisfy the publicly traded test of subparagraph
2(d)(i) or 2(e)(i). Thus, for example, an Irish resident trust, all the shares of ownership in which
are owned by a second Irish resident trust, would qualify for benefits under the Convention if the

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principal class of units of the second Irish trust were listed on the Irish Stock Exchange and
substantially and regularly traded on the London stock exchange. However, the first Irish trust
would not qualify for benefits under subparagraph 2(d)(ii) if the publicly traded second trust were
a resident of the United Kingdom, not of the United States or Ireland. The requirement that the
trust described in clause 2(d)(ii) be owned by a resident of one of the Contracting States is
confirmed in paragraph 4 of the diplomatic notes.
Publicly Traded Companies -- Subparagraph 2(e)
Subparagraph e) applies to two categories of companies: publicly traded companies and
subsidiaries of publicly traded companies. Clause i) of subparagraph 2(e) provides that a
company will be entitled to all the benefits of the Convention if the principal class of its shares is
substantially and regularly traded on one or more recognized stock exchanges. The term
"recognized stock exchange" is defined in subparagraph 8(b) as (i) the NASDAQ System owned
by the National Association of Securities Dealers, and any stock exchange registered with the
Securities and Exchange Commission as a national securities exchange for purposes of the
Securities Exchange Act of 1934; (ii) the Irish Stock Exchange and the stock exchanges of
Amsterdam, Brussels, Frankfurt, Hamburg, London, Madrid, Milan, Paris, Stockholm, Sydney,
Tokyo, Vienna and Zurich; and (iii) any other stock exchange agreed upon by the competent
authorities of the Contracting States.
The term “principal class of shares” is defined in subparagraph 8(d). If a company has
only one class of shares, it is only necessary to consider whether the shares of that class are
substantially and regularly traded on a recognized stock exchange. If the company has more than
one class of shares, it is necessary as an initial matter to determine whether one of the classes
accounts for more than half of the voting power and value of the company. If so, then only those
shares are considered for purposes of the substantial and regular trading requirement. If no single
class of shares accounts for more than half of the company's voting power and value, it is
necessary to identify a group of two or more classes of the company's shares that account for
more than half of the company's voting power and value, and then to determine whether each
class of shares in this group satisfies the regular trading requirement. Although in a particular
case involving a company with several classes of shares it is conceivable that more than one group
of classes could be identified that account for more than 50% of the shares, it is only necessary for
one such group to satisfy the requirements of this subparagraph in order for the company to be
entitled to benefits. Benefits would not be denied to the company even if a second, non-
qualifying, group of shares with more than half of the company's voting power and value could be
identified.
The principal class of shares must always include any disproportionate class of shares, as
defined in subparagraph 8(d)(ii). A disproportionate class of shares means a class of shares in a
company resident in one of the States that entitles the shareholder to a disproportionately higher
share in the earnings generated in the other State by particular assets or activities of the company.

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Such participation may take any form, including (but not limited to) dividends and redemption
payments. A disproportionate class of shares would include so-called alphabet stock that entitles
the holder to earnings in the State produced by a particular division of the company. The
following examples illustrate the application of this paragraph.
Example 1
. EIRECo is a corporation resident in Ireland. EIRECo has two classes of
shares: Common and Preferred. The Common shares are listed on the Irish Stock Exchange and
are substantially and regularly traded. The Preferred shares have no voting rights and are entitled
to receive dividends equal in amount to interest payments that EIRECo receives from unrelated
borrowers in the United States. The Common shares account for more than 50 percent of the
value of EIRECo and for 100 percent of the voting power. Because the owner of the Preferred
shares is entitled to receive payments corresponding to the U.S. source interest income earned by
EIRECo, the Preferred shares are considered to be a disproportionate class of shares. Pursuant to
subparagraph 8(d), the principal class of shares of EIRECo includes the Common and Preferred
shares.
Example 2
. EIRECo is a corporation resident in Ireland. EIRECo has two classes of
shares: Common and Preferred. The Common shares are listed on the Irish Stock Exchange and
are substantially and regularly traded. The Preferred shares have no voting rights and are entitled
to receive dividends equal in amount to the income earned by EIRECo from selling widgets in
Ireland. Because the Preferred shares do not entitle the owner to receive dividends or other
payments corresponding to U.S.-source income received by EIRECo, the Preferred shares are not
considered a disproportionate class of shares for purposes of subparagraph 8(d).
Paragraph 9 of the Protocol provides that a class of shares will be considered to be
“substantially and regularly traded” on one or more recognized stock exchanges if trades in such
class are effected on one or more such exchanges in other than de minimis quantities during every
quarter of the taxable year for which benefits of the Convention are claimed and the aggregate
number of shares of that class traded on such exchanges during the previous year is at least 6
percent of the average number of shares or units outstanding in that class during such previous
year. The aggregate trading requirement is deemed to be met in the first year that a company is
listed on a recognized stock exchange. In addition, Subparagraph 9(a)(ii) of the Protocol
provides that an Irish Building Society will be deemed to satisfy the test under subparagraph 2(e)
and hence is entitled to the benefits of the Convention.
The substantial and regular trading requirement can be met by trading on any recognized
stock exchange. Trading on one or more recognized stock exchanges may be aggregated for
purposes of this requirement. Thus, a U.S. company could satisfy the substantially and regularly
traded requirement through trading, in whole or in part, on a recognized stock exchange located
in Ireland or certain third countries. Authorized but unissued shares are not considered for
purposes of this test.

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Clause (ii) of subparagraph 2(e) provides a test under which a company resident in a
Contracting State is entitled to the benefits of the Convention if the direct and indirect owners of
at least 50 percent of the aggregate vote and value of the company’s shares are publicly traded
companies described in subparagraph 2(e)(i), qualified governmental entities, or companies more
than 50 percent of the aggregate vote and value of which is owned by qualified governmental
entities. Thus, for example, an Irish resident company, all the shares of ownership in which are
owned by another Irish resident company, would qualify for benefits under the Convention if the
principal class of shares of the Irish parent company were listed on the Irish Stock Exchange and
substantially and regularly traded on the London stock exchange. However, the Irish company
would not qualify for benefits under subparagraph 2(e)(ii) if the publicly traded parent company
were a resident of the United Kingdom, not of the United States or Ireland. The requirement that
the company described in clause 2(e)(ii) be owned by a resident of one of the Contracting States
is confirmed in paragraph 4 of the diplomatic notes.
Tax Exempt Organizations -- Subparagraph 2(f)
Subparagraph 2(f) provides that the tax exempt organizations described in subparagraph
1(c) of Article 4 (Residence) will be qualified persons if more than half of the beneficiaries,
members or participants of the organization are themselves entitled to treaty benefits under
paragraph 2. Entities that may qualify under this subparagraph are those entities that generally are
exempt from tax in their State of residence and that are organized and operated exclusively to
administer and provide retirement and employee benefits or to fulfill religious, educational,
scientific and other charitable purposes. For purposes of this provision, the term “beneficiaries”
should be understood to refer to the persons receiving benefits from the organization.
The provisions of paragraph 2 are intended to be self executing. Unlike the provisions of
paragraph 6, discussed below, claiming benefits under paragraph 2 does not require advance
competent authority ruling or approval. The tax authorities may, of course, on review, determine
that the taxpayer has improperly interpreted the paragraph and is not entitled to the benefits
claimed.
Paragraph 3
Paragraph 3 sets forth a test under which a resident of a Contracting State that is not
generally entitled to benefits of the Convention under paragraph 2 may receive treaty benefits with
respect to certain items of income that are connected to an active trade or business conducted in
its State of residence.
Subparagraph 3(a) sets forth a three-pronged test that must be satisfied in order for a
resident of a Contracting State to be entitled to the benefits of the Convention with respect to a
particular item of income. First, the resident must be engaged in the active conduct of a trade of
business in its State of residence. Second, the income derived from the other State must be
derived in connection with, or be incidental to, that trade or business. Third, if the resident has an

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ownership interest in the activity in the other State that generated the income, then the trade or
business conducted by the resident in its State of residence must be substantial in relation to the
activity in the other State that generated the item of income.
These determinations are made separately for each item of income derived from the other
State. It therefore is possible that a person would be entitled to the benefits of the Convention
with respect to one item of income but not with respect to another. If a resident of a Contracting
State is entitled to treaty benefits with respect to a particular item of income under paragraph 3,
the resident is entitled to all benefits of the Convention insofar as they affect the taxation of that
item of income in the other State. Set forth below is a discussion of each of the three prongs of
the test under paragraph 3.
Trade or Business -- Subparagraph 3(a)(i)
The term “trade or business” is not defined in the Convention. Pursuant to paragraph 2 of
Article 3 (General Definitions), when determining whether a resident of the other State is entitled
to the benefits of the Convention under paragraph 3 with respect to income derived from U.S.
sources, the United States will ascribe to this term the meaning that it has under the law of the
United States. Accordingly, the United States competent authority will refer to the regulations
issued under section 367(a) for the definition of the term “trade or business.” These regulations
are consistent with the requirement under subparagraph 9(b)(i) of the Protocol, which states that
this determination will be based on all the relevant facts and circumstances. In general, a trade or
business will be considered to be a specific unified group of activities that constitute or could
constitute an independent economic enterprise carried on for profit. Furthermore, a corporation
generally will be considered to carry on a trade or business only if the officers and employees of
the corporation conduct substantial managerial and operational activities. See
, Code section
367(a)(3) and the regulations thereunder.
Notwithstanding this general definition of trade or business, subparagraph 3(a)(i) also
provides that the business of making or managing investments, when part of banking or insurance
activities conducted by a bank or insurance company acting in the ordinary course of its business,
will be considered to be a trade or business. Conversely, such activities conducted by a person
other than a bank or insurance company will not be considered to be the conduct of an active
trade or business, nor would they be considered to be the conduct of an active trade or business if
conducted by a banking or insurance company but not as part of the company's ordinary banking
or insurance business. Subparagraphs 9(b)(i)(A) and (B) of the Protocol provide that a bank will
be considered to be engaged in the active conduct of a banking business if it regularly accepts
deposits from the public or makes loans to the public, and an insurance company will be
considered to be engaged in the active conduct of an insurance business if its gross income
consists primarily of insurance or reinsurance premiums and the investment income attributable to
such premiums. Banks that, at the time of the signature of the Convention, were licensed by the
banking authorities of a Contracting State to engage in a banking business are deemed to satisfy
the active conduct requirement.

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Because a headquarters operation is in the business of managing investments, a company
that functions solely as a headquarters company will not be considered to be engaged in an active
trade or business for purposes of paragraph 3.
Subparagraph 9(b)(ii) of the Protocol to the Convention provides that in determining
whether a person is engaged in the active conduct of a trade or business in a Contracting State,
activities conducted by a partnership in which that person is a partner and activities conducted by
persons “connected” to such person will be deemed to be conducted by such person. Persons are
deemed to be connected to each other if one owns at least 50 percent of the other or at least 50
percent of each is owned by another person. In addition, persons are connected if one controls
the other or they are under common control.
Derived in Connection With Requirement - Subparagraphs 3(a)(ii) and (b)(i)
Subparagraph 3(b)(i) provides that income is derived in connection with a trade or
business if the income-producing activity in the other State is a line of business that forms a part
of or is complementary to the trade or business conducted in the State of residence by the income
recipient. Although no definition of the terms “forms a part of” or “complementary” is set forth in
the Convention, it is intended that a business activity generally will be considered to “form a part
of” a business activity conducted in the other State if the two activities involve the design,
manufacture or sale of the same products or type of products, or the provision of similar services.
In order for two activities to be considered to be “complementary,” the activities need not relate
to the same types of products or services, but they should be part of the same overall industry and
be related in the sense that the success or failure of one activity will tend to result in success or
failure for the other. In cases in which more than one trade or business is conducted in the other
State and only one of the trades or businesses forms a part of or is complementary to a trade or
business conducted in the State of residence, it is necessary to identify the trade or business to
which an item of income is attributable. Royalties generally will be considered to be derived in
connection with the trade or business to which the underlying intangible property is attributable.
Dividends will be deemed to be derived first out of earnings and profits of the treaty-benefitted
trade or business, and then out of other earnings and profits. Interest income may be allocated
under any reasonable method consistently applied. A method that conforms to U.S. principles for
expense allocation will be considered a reasonable method. The following examples illustrate the
application of subparagraph 3(b)(i).
Example 1
. EIRECo is a corporation resident in Ireland. EIRECo is engaged in an active
manufacturing business in Ireland. EIRECo owns 100 percent of the shares of USCo, a
corporation resident in the United States. USCo distributes EIRECo products in the United
States. Since the business activities conducted by the two corporations involve the same
products, USCo's distribution business is considered to form a part of EIRECo's manufacturing
business within the meaning of subparagraph 3(b)(i).

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Example 2. The facts are the same as in Example 1, except that EIRECo does not
manufacture. Rather, EIRECo operates a large research and development facility in Ireland that
licenses intellectual property to affiliates worldwide, including USCo. USCo and other EIRECo
affiliates then manufacture and market the EIRECo-designed products in their respective markets.
Since the activities conducted by USCo and EIRECo involve the same product lines, these
activities are considered to form a part of the same trade or business.
Example 3
. Americair is a corporation resident in the United States that operates an
international airline. FSub is a wholly owned subsidiary of Americair resident in Ireland. FSub
operates a chain of hotels in Ireland that are located near airports served by Americair flights.
Americair frequently sells tour packages that include air travel to Ireland and lodging at FSub
hotels. Although both companies are engaged in the active conduct of a trade or business, the
businesses of operating a chain of hotels and operating an airline are distinct trades or businesses.
Therefore FSub's business does not form a part of Americair's business. However, FSub's
business is considered to be complementary to Americair's business because they are part of the
same overall industry (travel) and the links between their operations tend to make them
interdependent.
Example 4
. The facts are the same as in Example 3, except that FSub owns an office
building in Ireland instead of a hotel chain. No part of Americair's business is conducted through
the office building. FSub's business is not considered to form a part of or to be complementary to
Americair's business. They are engaged in distinct trades or businesses in separate industries, and
there is no economic dependence between the two operations.
Example 5
. USFlower is a corporation resident in the United States. USFlower produces
and sells flowers in the United States and other countries. USFlower owns all the shares of
ForHolding, a corporation resident in Ireland. ForHolding is a holding company that is not
engaged in a trade or business. ForHolding owns all the shares of three corporations that are
resident in Ireland: ForFlower, ForLawn, and ForFish. ForFlower distributes USFlower flowers
under the USFlower trademark in Ireland. ForLawn markets a line of lawn care products in
Ireland under the USFlower trademark. In addition to being sold under the same trademark,
ForLawn and ForFlower products are sold in the same stores and sales of each company's
products tend to generate increased sales of the other's products. ForFish imports fish from the
United States and distributes it to fish wholesalers in Ireland. For purposes of paragraph 3, the
business of ForFlower forms a part of the business of USFlower, the business of ForLawn is
complementary to the business of USFlower, and the business of ForFish is neither part of nor
complementary to that of USFlower.
Finally, subparagraph 3(a)(ii) provides that a resident in one of the States also will be
entitled to the benefits of the Convention with respect to income derived from the other State if
the income is “incidental” to the trade or business conducted in the recipient's State of residence.
Income derived from a State will be considered incidental to a trade or business conducted in the
other State if the production of such income facilitates the conduct of the trade or business in the

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other State. An example of incidental income is the temporary investment of working capital
derived from a trade or business.
Substantiality -- Subparagraphs 3(a)(ii) and (b)(ii)
As indicated above, subparagraph 3(a)(ii) provides that income that a resident of a State
derives from the other State will be entitled to the benefits of the Convention under paragraph 3
only if the income is derived in connection with a trade or business conducted in the recipient's
State of residence and, where such resident has an ownership interest in the income-producing
activity in the other State, that trade or business is “substantial” in relation to the income-
producing activity in the other State. Subparagraph 3(b)(ii) provides that whether the trade or
business of the income recipient is substantial will be determined based on all the facts and
circumstances. These circumstances generally would include the relative scale of the activities
conducted in the two States and the relative contributions made to the conduct of the trade or
businesses in the two States.
In addition to this subjective rule, subparagraph 3(b)(ii) provides a safe harbor under
which the trade or business of the income recipient may be deemed to be substantial based on
three ratios that compare the size of the recipient's activities to those conducted in the other State.
The three ratios compare: (i) the value of the assets in the recipient's State to the assets used in
the other State; (ii) the gross income derived in the recipient's State to the gross income derived in
the other State; and (iii) the payroll expense in the recipient's State to the payroll expense in the
other State. The average of the three ratios with respect to the preceding taxable year must
exceed 10 percent, and each individual ratio must exceed 7.5 percent. If any individual ratio does
not exceed 7.5 percent for the preceding taxable year, the average of the three preceding taxable
years may be used instead. Thus, if the taxable year is 1998, the preceding year is 1997. If one of
the ratios for 1997 is not greater than 7.5 percent, the average ratio for 1995, 1996, and 1997
with respect to that item may be used.
The term “value” also is not defined in the Convention. Therefore, this term also will be
defined under U.S. law for purposes of determining whether a person deriving income from
United States sources is entitled to the benefits of the Convention. In such cases, “value”
generally will be defined using the method used by the taxpayer in keeping its books for purposes
of financial reporting in its country of residence. See
, Treas. Reg. §1.884-5(e)(3)(ii)(A).
Only items actually located or incurred in the two Contracting States are included in the
computation of the ratios. If the person from whom the income in the other State is derived is not
wholly owned (directly or indirectly) by the recipient then the items included in the computation
with respect to such person must be reduced by a percentage equal to the percentage ownership
held by persons other than the recipient. For instance, if an Irish corporation derives income from
a U.S. corporation in which it holds 80 percent of the shares, for purposes of subparagraph
3(b)(ii) only 80 percent of the assets, payroll and gross income of the U.S. company would be
taken into account.

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If the recipient has no ownership interest in the person from whom the income is derived,
then pursuant to subparagraph 3(a)(ii) the substantiality test does not apply. Of course, the other
two prongs of the test under paragraph 3 would have to be satisfied in order for the recipient of
the item of income to receive treaty benefits with respect to that income. For example, assume
that a resident of a Ireland is in the business of banking in Ireland. The bank loans money to
unrelated residents of the United States. The bank would not be subject to the substantiality
requirement of subparagraph 3(a)(ii) with respect to interest paid on the loans because it has no
ownership interest in the payors.
The provisions of paragraph 3 are intended to be self executing. Unlike the provisions of
paragraph 6, discussed below, claiming benefits under paragraph 3 does not require advance
competent authority ruling or approval. The tax authorities may, of course, on review, determine
that the taxpayer has improperly interpreted the paragraph and is not entitled to the benefits
claimed.
Paragraph 4
Paragraph 4 provides that a resident of one of the States that derives income from the
other State described in Article 8 (Shipping and Air Transport) and that is not entitled to the
benefits of the Convention under paragraphs 1 through 3, shall nonetheless be entitled to the
benefits of the Convention with respect to income described in Article 8 if it meets one of two
tests. These tests in substance duplicate the rules set forth under Code section 883 and therefore
afford little additional benefit beyond those provided by the Code. These tests are described
below.
First, a resident of one of the States will be entitled to the benefits of the Convention with
respect to income described in Article 8 if at least 50 percent of the beneficial interest in the
person (in the case of a company, at least 50 percent of the aggregate vote and value of the stock
of the company) is owned, directly or indirectly, by qualified persons or citizens of the United
States or individuals who are residents of a third state that grants by law, common agreement, or
convention an exemption under similar terms for profits as mentioned in Article 8 to citizens and
corporations of the other State. This provision is analogous to the relief provided under Code
section 883(c)(1).
Alternatively, a resident of one of the States will be entitled to the benefits of the
Convention with respect to income described in Article 8 if at least 50 percent of the beneficial of
the person (in the case of a company, at least 50 percent of the aggregate vote and value of the
stock of the company) is owned directly or indirectly by a company or combination of companies
the principal class of shares in which is substantially and regularly traded on an established
securities market in a third state, provided that the third state grants by law, common agreement
or convention an exemption under similar terms for profits as mentioned in Article 8 to citizens
and corporations of the other State. This provision is analogous to the relief provided under
Code section 883(c)(3). The term “substantially and regularly traded on an established securities

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market” is not defined in the Convention. In determining whether a resident of Ireland is entitled
to the benefits of the Convention under this paragraph, the United States will refer to the
principles of Code section 883(c)(3)(A) for guidance as to the definition of this term.
The provisions of paragraph 4 are intended to be self executing. Unlike the provisions of
paragraph 6, discussed below, claiming benefits under paragraph 4 does not require advance
competent authority ruling or approval. The tax authorities may, of course, on review, determine
that the taxpayer has improperly interpreted the paragraph and is not entitled to the benefits
claimed.

Paragraph 5
Paragraph 5 sets forth a limited derivative benefits test that applies to all treaty benefits.
In general, a derivative benefits test entitles the resident of a state to treaty benefits if the
beneficial owner of the resident would have been entitled to the same benefit had the income in
question flowed directly to that owner. Paragraph 5 provides a derivative benefits test under
which a company that is a resident of a Contracting State may be entitled to some or all of the
benefits of the Convention. In order to be entitled to all the benefits of the Convention under this
paragraph, the company must meet an ownership test, a base reduction test, and a derivative
benefits test. These tests are described below.
Subparagraph 5(a)(i) sets forth the ownership test. Under this test, at least 95 percent of
the aggregate vote and value of the company’s shares must be owned by any combination of
seven or fewer persons that are entitled to all of the benefits of the Convention under paragraph 2
or are residents of member states of the European Union or of parties to NAFTA. Ownership
may be direct or indirect.
Pursuant to subparagraphs 8(e) and (f) of this Article, a person will be considered a
resident of a member state of the European Union or of a party to NAFTA for purposes of this
paragraph only if the person would be entitled to the benefits of the income tax treaty between its
state of residence and the Contracting State from which treaty benefits are claimed. However, if
that treaty does not contain a comprehensive limitation on benefits provision, then that person
must be a person who would still have qualified for the benefits of that treaty under provisions
analogous to the provisions of paragraph 2 of this Article had that treaty contained a limitation on
benefits provision with those provisions.
Subparagraph 5(a)(ii) sets forth the base reduction test. This test is the same as the base
reduction test in subparagraph 2(c)(ii), except that for purposes of this test amounts paid or
accrued to persons that are residents of a member state of the European Union or of a party to
NAFTA are excluded from deductible payments.
Notwithstanding subparagraph 5(a), subparagraph 5(b) sets forth an additional
requirement that must be satisfied in order for a company that is a resident of a Contracting State

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to be entitled to the benefits of the Convention accorded under Articles 10 (Dividends), 11
(Interest) or 12 (Royalties). This provision requires a comparison of the rate of tax imposed on a
particular payment under the Convention to the rate of tax that would be imposed under the
income tax convention between the source state and any European Union member state or party
to NAFTA whose residents account for some of the ownership interest described in subparagraph
5(a)(i). Benefits will be extended with respect to such a payment under this provision only if at
least 95 percent of the company's shares are owned by persons resident in a European Union
member state or a party to NAFTA for which the rate (or rates) of withholding tax provided in
the income tax convention between the source state and such state is less than or equal to the rate
or rates imposed under the Convention. This rate comparison is by definition satisfied for persons
owning shares that are also qualified persons under paragraph 2 of this Article. If for a
particular payment less than 95 percent of the ownership interest is accounted for by persons that
satisfy the rate comparison, then paragraph 5 does not apply to that payment (although it may
apply to other payments and would apply to items of income, profit or gain other than those
referred to in subparagraph 5(b)).
The rates of tax to be compared under this paragraph are the rate of withholding tax that
the source State would impose had the European Union or NAFTA resident directly received its
proportionate share of the dividend, interest or royalty payment and the rate of withholding tax
that the source State would have imposed had that person been a resident of the other State and
the person’s proportionate share of the dividend, interest or royalty payment had been paid
directly to that person. For example, assume that a U.S. company pays a dividend to EIRECo, a
company resident in Ireland. EIRECo has two equal shareholders, a corporation resident in the
United Kingdom and an individual resident in the United Kingdom. Both are residents of a
member state of the European Union within the meaning of paragraph 5. Each person’s
proportionate share of the dividend payment is 50 percent of the dividend. If the UK corporation
had received this portion of the dividend directly, it would be subject to a withholding tax of 5
percent under the income tax treaty between the United States and the United Kingdom. If the
individual had received his portion of the dividend directly, it would be subject to a withholding
tax of 15 percent under the same treaty. These rates are the same rates that would have applied if
the corporation and the individual had been residents of Ireland. Therefore, the test under
subparagraph 5 (b) is satisfied with respect to this dividend payment.
The provisions of paragraph 5 are intended to be self executing. Unlike the provisions of
paragraph 6, discussed below, claiming benefits under paragraph 5 does not require advance
competent authority ruling or approval. The tax authorities may, of course, on review, determine
that the taxpayer has improperly interpreted the paragraph and is not entitled to the benefits
claimed.
Paragraph 6
Paragraph 6 provides that a resident of one of the States that is not otherwise entitled to
the benefits of the Convention may be granted benefits under the Convention if the competent

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authority of the State from which benefits are claimed so determines. This discretionary provision
is included in recognition of the fact that, with the increasing scope and diversity of international
economic relations, there may be cases where significant participation by third country residents in
an enterprise of a Contracting State is warranted by sound business practice or long-standing
business structures and does not necessarily indicate a motive of attempting to derive unintended
Convention benefits.
Paragraph 6 provides that the competent authority of a State will base a determination
under this paragraph on whether the establishment, acquisition, or maintenance of the person
seeking benefits under the Convention, or the conduct of such person's operations, has or had as
one of its principal purposes the obtaining of benefits under the Convention. Thus, persons that
establish operations in one of the States with the principal purpose of obtaining the benefits of the
Convention ordinarily will not be granted relief under paragraph 6.
The competent authority may determine to grant all benefits of the Convention, or it may
determine to grant only certain benefits. For instance, it may determine to grant benefits only with
respect to a particular item of income in a manner similar to paragraph 3. Further, the competent
authority may set time limits on the duration of any relief granted.
It is assumed that, for purposes of implementing paragraph 6, a taxpayer will not be
required to wait until the tax authorities of one of the States have determined that benefits are
denied before he will be permitted to seek a determination under this paragraph. In these
circumstances, it is also expected that if the competent authority determines that benefits are to be
allowed, they will be allowed retroactively to the time of entry into force of the relevant treaty
provision or the establishment of the structure in question, whichever is later.
The competent authority of a Contracting State will consult with the competent authority
of the other Contracting State before denying the benefits of the Convention under paragraph 6.
Finally, there may be cases in which a resident of a Contracting State may apply for
discretionary relief to the competent authority of his State of residence. For instance, a resident
of a State could apply to the competent authority of his State of residence in a case in which he
had been denied a treaty-based credit under Article 24 on the grounds that he was not entitled to
benefits of the article under Article 23.
Paragraph 7
Paragraph 7 addresses the so-called “triangular case” in which an Irish enterprise derives
income from the United States and that income is attributable to a permanent establishment
located in a third jurisdiction that imposes little or no income tax on those profits. This provision
is necessary to prevent triangular case abuse since Ireland may in particular circumstances exempt
from tax profits attributable to a permanent establishment of its residents located in certain

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countries, although it would tax the income, subject to a foreign tax credit, if the income were
earned directly by the Irish entity.
The Contracting States agreed that it would be inappropriate to grant treaty benefits with
respect to such income. Therefore, paragraph 7 generally denies any treaty benefit with respect to
any item of income derived by an Irish resident enterprise and attributable to a permanent
establishment in a third state if the combined tax in Ireland and the third state is less than 50
percent of the tax that normally would be imposed in Ireland if the income were earned there and
were not attributable to the permanent establishment in the third state. Paragraph 7 further
provides that any dividends, interest or royalties to which this paragraph applies shall be subject to
tax at source under domestic law, but at a rate not exceeding 15 percent of the gross amount.
Paragraph 7 provides an exception that grants treaty benefits for income that is connected
with or incidental to the active conduct of a trade or business carried on by the permanent
establishment in the third state. The business of making or managing investments is not an active
trade or business for this purpose unless the activities are banking or insurance activities carried
on by a bank or insurance company.
Paragraph 8
Paragraph 8 defines key terms used in this Article, which are discussed above in
connection with the relevant paragraphs.

Paragraph 9
Paragraph 9 provides additional authority to the competent authorities (in addition to that
of Article 26 (Mutual Agreement Procedure)) to consult together to develop a common
application of the provisions of this Article, including the publication of regulations or other
public guidance. The competent authorities shall, in accordance with the provisions of Article 27
(Exchange of Information and Administrative Assistance) exchange such information as is
necessary to carry out the provisions of this Article.
Article 24 (Relief from Double Taxation)
This Article describes the manner in which each Contracting State undertakes to relieve
double taxation. The United States uses the foreign tax credit method under its internal law, and
by treaty. Ireland uses a foreign tax credit when provided by a treaty and in certain circumstances
under its domestic law. In other cases, it provides for a deduction of the tax against the relevant
income.
Paragraph 1

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The United States agrees, in paragraph 1, to allow to its citizens and residents a credit
against U.S. tax for income taxes paid or accrued to Ireland. This provision is based on the
Treasury Department’s review of Ireland’s laws.
The credit under the Convention is allowed in accordance with the provisions and subject
to the limitations of U.S. law, as that law may be amended over time, so long as the general
principle of this Article, i.e.
, the allowance of a credit, is retained. Thus, although the Convention
provides for a foreign tax credit, the terms of the credit are determined by the provisions, at the
time a credit is given, of the U.S. statutory credit.
Subparagraph (b) provides for a deemed-paid credit, consistent with section 902 of the
Code, to a U.S. corporation in respect of dividends received from a corporation resident in
Ireland of which the U.S. corporation owns at least 10 percent of the voting stock. This credit is
for the tax paid by the corporation of Ireland on the profits out of which the dividends are
considered paid.
As indicated, the U.S. credit under the Convention is subject to the various limitations of
U.S. law (see
Code sections 901 - 908). For example, the credit against U.S. tax generally is
limited to the amount of U.S. tax due with respect to net foreign source income within the
relevant foreign tax credit limitation category (see
Code section 904(a) and (d)), and the dollar
amount of the credit is determined in accordance with U.S. currency translation rules (see, e.g.,
Code section 986). Similarly, U.S. law applies to determine carryover periods for excess credits
and other inter-year adjustments. When the alternative minimum tax is due, the alternative
minimum tax foreign tax credit generally is limited in accordance with U.S. law to 90 percent of
alternative minimum tax liability. Furthermore, nothing in the Convention prevents the limitation
of the U.S. credit from being applied on a per-country basis (should internal law be changed), an
overall basis, or to particular categories of income (see, e.g.
, Code section 865(h)).
Paragraph 2
Under subparagraph 3(b) of Article 10 (Dividends), Ireland allows individual residents of
the United States certain tax credits or refunds in respect of dividends paid by a corporation
which is a resident of Ireland, subject to taxes withheld of 15 percent on the aggregate amounts
received as dividends and tax credits. Paragraph 2 provides that the amounts withheld by Ireland
pursuant to paragraph 3(b) shall be regarded as an income tax imposed on the recipient of the
dividend. Thus, the U.S. foreign tax credit with respect to those amounts shall be computed in
accordance with Code section 901.
Paragraph 3
Paragraph 3 provides special rules for the tax treatment in both States of certain types of
income derived from U.S. sources by U.S. citizens who are resident in Ireland. Since U.S.
citizens, regardless of residence, are subject to United States tax at ordinary progressive rates on

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their worldwide income, the U.S. tax on the U.S. source income of a U.S. citizen resident in
Ireland may exceed the U.S. tax that may be imposed under the Convention on an item of U.S.
source income derived by a resident of Ireland who is not a U.S. citizen.
Subparagraph (a) of paragraph 3 provides special credit rules for Ireland with respect to
items of income that are either exempt from U.S. tax or subject to reduced rates of U.S. tax under
the provisions of the Convention when received by residents of Ireland who are not U.S. citizens.
The tax credit of Ireland allowed by paragraph 3(a) under these circumstances, to the extent
consistent with the law of that State, need not exceed the U.S. tax that may be imposed under the
provisions of the Convention, other than tax imposed solely by reason of the U.S. citizenship of
the taxpayer under the provisions of the saving clause of paragraph 4 of Article 1 (General
Scope). Thus, if a U.S. citizen resident in Ireland receives U.S. source portfolio dividends, the
foreign tax credit granted by that other State would be limited to 15 percent of the dividend -- the
U.S. tax that may be imposed under subparagraph 2(b) of Article 10 (Dividends) -- even if the
shareholder is subject to U.S. net income tax because of his U.S. citizenship. With respect to
royalty or interest income, Ireland would allow no foreign tax credit, because its residents are
exempt from U.S. tax on these classes of income under the provisions of Articles 11 (Interest) and
12 (Royalties).
Paragraph 3(b) eliminates the potential for double taxation that can arise because
subparagraph 3(a) provides that Ireland need not provide full relief for the U.S. tax imposed on its
citizens resident in Ireland. The subparagraph provides that the United States will credit the
income tax paid or accrued to Ireland, after the application of subparagraph 3(a). It further
provides that in allowing the credit, the United States will not reduce its tax below the amount
that is taken into account in Ireland in applying subparagraph 3(a). Since the income described in
paragraph 3 is U.S. source income, special rules are required to resource some of the income to
Ireland in order for the United States to be able to credit the other State’s tax. This resourcing is
provided for in subparagraph 3(c), which deems the items of income referred to in subparagraph
3(a) to be from foreign sources to the extent necessary to avoid double taxation under paragraph
3(b). The rules of paragraph 3(c) apply only for purposes of determining U.S. foreign tax credits
with respect to taxes referred to in paragraphs 1(b) and 2 of Article 2 (Taxes Covered).
The following two examples illustrate the application of paragraph 3 in the case of a U.S.
source portfolio dividend received by a U.S. citizen resident in Ireland. In both examples, the
U.S. rate of tax on residents of the other State under paragraph 2(b) of Article 10 (Dividends) of
the Convention is 15 percent. In both examples the U.S. income tax rate on the U.S. citizen is 36
percent. In example I, Ireland’s income tax rate on its resident (the U.S. citizen) is 25 percent
(below the U.S. rate), and in example II, Ireland’s income tax rate on its resident is 40 percent
(above the U.S. rate).
Example IExample II
Paragraph 3(a)
U.S. dividend declared$100.00$100.00
Notional U.S. withholding tax per Article 10(2)(b)15.0015.00
Irish taxable income100.00100.00

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Irish tax before credit25.0040.00
Irish foreign tax credit15.0015.00
Net post-credit Irish tax10.0025.00

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Example IExample II
Paragraphs 3(b) and (c)
U.S. pre-tax income$100.00$100.00
U.S. pre-credit citizenship tax 36.00 36.00
Notional U.S. withholding tax 15.00 15.00
U.S. tax available for credit21.00 21.00
Income resourced from U.S. to Ireland27.7758.33
U.S. tax on resourced income10.0021.00
U.S. credit for Irish tax10.0021.00
Net post-credit U.S. tax11.000.00
Total U.S. tax26.0015.00
In both examples, in the application of paragraph 3(a), Ireland credits a 15 percent U.S.
tax against its residence tax on the U.S. citizen. In example I the net Irish tax after foreign tax
credit is $10.00; in the second example it is $25.00. In the application of paragraphs 3(b) and (c),
from the U.S. tax due before credit of $36.00, the United States subtracts the amount of the U.S.
source tax of $15.00, against which no U.S. foreign tax credit is to be allowed. This provision
assures that the United States will collect the tax that it is due under the Convention as the source
country. In both examples, the maximum amount of U.S. tax against which credit for Irish tax
may be claimed is $21.00. Initially, all of the income in these examples was U.S. source. In order
for a U.S. credit to be allowed for the full amount of the Irish tax, an appropriate amount of the
income must be resourced. The amount that must be resourced depends on the amount of Irish
tax for which the U.S. citizen is claiming a U.S. foreign tax credit. In example I, the Irish tax was
$10.00. In order for this amount to be creditable against U.S. tax, $27.77 ($10 divided by .36)
must be resourced as foreign source. When the Irish tax is credited against the U.S. tax on the
resourced income, there is a net U.S. tax of $11.00 due after credit. In example II, Irish tax was
$25 but, because the amount available for credit is reduced under subparagraph 3(c) by the
amount of the U.S. source tax, only $21.00 is eligible for credit. Accordingly, the amount that
must be resourced is limited to the amount necessary to ensure a foreign tax credit for $21 of Irish
tax, or $58.33 ($21 divided by .36). Thus, even though Irish tax was $25.00 and the U.S. tax
available for credit was $21.00, there is no excess credit available for carryover.
Paragraph 4
Ireland agrees, in paragraph 4, to allow a credit against Irish tax for United States taxes
paid with respect to profits, income or chargeable gains from U.S. sources, to the extent the tax is
imposed in accordance with the Convention. The credit under the Convention is allowed in
accordance with the provisions and subject to the limitations of Irish law, as that law may be
amended over time, so long as the general principle of this Article, i.e.
, the allowance of a credit,
is retained. Thus, although the Convention provides for a foreign tax credit, the terms of the
credit are determined by the provisions, at the time a credit is given, of the Irish statutory credit.
Subparagraph (b) provides for a deemed-paid credit to an Irish corporation in respect of
dividends received from a corporation resident in the United States of which the Irish corporation

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owns at least 10 percent of the voting stock. This credit is for the tax paid by the corporation of
Ireland on the profits out of which the dividends are considered paid.
Paragraph 5
Paragraph 5 provides that, for purposes of this Article, income which may be taxed in a
Contracting State under the terms of this Convention will be considered to have its source in that
State. However, domestic law source rules that apply for purposes of limiting the foreign tax
credit will govern if they differ from the results under this paragraph. This permits the United
States to apply the anti-abuse rules of Code section 904(g), for example.
Paragraph 6
Paragraph 6 is included in the Convention because Ireland continues to maintain a
remittance system of taxation for individuals who are resident but not domiciled in Ireland. Such
persons are subject to tax in Ireland on non-Irish source income only to the extent the income or
chargeable gains are remitted to the Irish resident. Under paragraph 6, such persons are entitled
to the benefits of the Convention in order to reduce or eliminate tax only to the extent that the
relevant income is remitted or received. For example, if an Irish resident individual who is not
domiciled in Ireland maintains a brokerage account in the United Kingdom into which is paid
$100 in U.S.-source dividend income, the United States may impose withholding tax at the
statutory rate of 30%. If the dividend income instead is paid into a brokerage account in Dublin,
the Irish resident will be subject to tax in Ireland and the United States will reduce the withholding
tax to 15%.
Domicile is a legal concept that is not necessarily related to residence. An individual
receives a domicile of origin at birth. The individual may change that domicile by physically
relocating with the intention of changing his domicile.
Relation to other articles
By virtue of the exceptions in subparagraph 5(a) of Article 1 this Article is not subject to
the saving clause of paragraph 4 of Article 1 (General Scope). Thus, the United States will allow
a credit to its citizens and residents in accordance with the Article, even if such credit were to
provide a benefit not available under the Code.
Article 25 (Non-discrimination)
This Article assures that nationals of a Contracting State, in the case of paragraph 1, and
residents of a Contracting State, in the case of paragraphs 2 through 4, will not be subject,
directly or indirectly, to discriminatory taxation in the other Contracting State. For this purpose,
nondiscrimination means providing national treatment. Not all differences in tax treatment, either

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as between nationals of the two States, or between residents of the two States, are violations of
this national treatment standard. Rather, the national treatment obligation of this Article applies
only if the nationals or residents of the two States are comparably situated.
Each of the relevant paragraphs of the Article provides that two persons that are
comparably situated must be treated similarly. Although the actual words differ from paragraph
to paragraph (e.g.
, paragraph 1 refers to two nationals "in the same circumstances," paragraph 2
refers to two enterprises "carrying on the same activities" and paragraph 4 refers to two
enterprises that are "similar"), the common underlying premise is that if the difference in treatment
is directly related to a tax-relevant difference in the situations of the domestic and foreign persons
being compared, that difference is not to be treated as discriminatory (e.g.
, if one person is taxable
in a Contracting State on worldwide income and the other is not, or tax may be collectible from
one person at a later stage, but not from the other, distinctions in treatment would be justified
under paragraph 1). Other examples of such factors that can lead to non-discriminatory
differences in treatment will be noted in the discussions of each paragraph.
The operative paragraphs of the Article also use different language to identify the kinds of
differences in taxation treatment that will be considered discriminatory. For example, paragraphs
1 and 4 speak of "any taxation or any requirement connected therewith that is other or more
burdensome," while paragraph 2 specifies that a tax "shall not be less favorably levied."
Regardless of these differences in language, only differences in tax treatment that materially
disadvantage the foreign person relative to the domestic person are properly the subject of the
Article.
In most U.S. tax treaties, like the U.S. and OECD Models, this Article applies to taxes of
every kind and description imposed by a Contracting State or a political subdivision or local
authority thereof for purposes of providing nondiscrimination protection. This provision has not
been included in the Convention because of restrictions in Irish law.

Paragraph 1
Paragraph 1 provides that a national of one Contracting State may not be subject to
taxation or connected requirements in the other Contracting State that are other than or more
burdensome than the taxes and connected requirements imposed upon a national of that other
State in the same circumstances. This language is consistent with the OECD Model.
As noted above, whether or not the two persons are both taxable on worldwide income is
a significant circumstance for this purpose. The 1992 revision of the OECD Model adds after the
words "in the same circumstances, the phrase "in particular with respect to residence," reflecting
the fact that under most countries' laws residents are taxable on worldwide income and nonresi-
dents are not.

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Because the relevant circumstances relate, among other things, to taxation on worldwide
income, paragraph 1 does not obligate a Contracting State to apply the same taxing regime to a
citizen of the other Contracting State who is not resident in the first-mentioned Contracting State
and a citizen of that State who is not resident in that State. For example, United States citizens
who are not residents of the United States but who are, nevertheless, subject to U.S. tax on their
worldwide income are not in the same circumstances with respect to U.S. taxation as citizens of
Ireland who are not United States residents. Thus, for example, Article 25 would not entitle a
national of Ireland resident in a third country to taxation at graduated rates of U.S. source
dividends or other investment income that applies to a U.S. citizen resident in the same third
country. The underlying concept is essentially the same as that underlying the OECD Model
provision and similar provisions in the U.S. Model.
A national of a Contracting State is afforded protection under this paragraph even if the
national is not a resident of either Contracting State. Thus, a U.S. citizen who is resident in a
third country is entitled, under this paragraph, to the same treatment in Ireland as a national of
Ireland who is in similar circumstances (i.e.
, presumably one who is resident in a third State). The
term "national" in relation to a Contracting State is defined in subparagraph 1(i) of Article 3
(General Definitions).
Like the prior Convention and the U.S. and OECD Models, the scope of paragraph 1
extends beyond individuals to cover juridical persons that are nationals of a Contracting State.
The inclusion of juridical persons in paragraph 1, however, generally may add little as a practical
matter to the scope of the Article as a whole. A corporation that is a national of Ireland and is
doing business in the United States is already protected, vis-a-vis a U.S. corporation, by
paragraph 2. If a foreign corporation is not doing business in the United States it is, in relevant
respect, in different circumstances from a U.S. corporation, and is, therefore, not entitled to
national treatment in the United States. With respect to U.S. nationals claiming nondiscrimination
protection from the treaty partner, U.S. corporations that are "nationals" of the United States are
also U.S. residents and are, therefore, protected by paragraphs 2 and 4 in any event.
Paragraph 2
Paragraph 2 of the Article, like the comparable paragraphs in the U.S. and OECD Models,
provides that a Contracting State may not tax a permanent establishment or fixed base of an
enterprise of the other Contracting State less favorably than an enterprise of that first-mentioned
State that is carrying on the same activities. This provision, however, does not obligate a
Contracting State to grant to a resident of the other Contracting State any tax allowances, reliefs,
etc., that it grants to its own residents on account of their civil status or family responsibilities.
Thus, if a sole proprietor who is a resident of Ireland has a permanent establishment in the United
States, in assessing income tax on the profits attributable to the permanent establishment, the
United States is not obligated to allow to the resident of Ireland the personal allowances for
himself and his family that he would be permitted to take if the permanent establishment were a

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sole proprietorship owned and operated by a U.S. resident, despite the fact that the individual
income tax rates would apply.
The fact that a U.S. permanent establishment of an enterprise of Ireland is subject to U.S.
tax only on income that is attributable to the permanent establishment, while a U.S. corporation
engaged in the same activities is taxable on its worldwide income is not, in itself, a sufficient
difference to deny national treatment to the permanent establishment. There are cases, however,
where the two enterprises would not be similarly situated and differences in treatment may be
warranted. For instance, it would not be a violation of the nondiscrimination protection of
paragraph 2 to require the foreign enterprise to provide information in a reasonable manner that
may be different from the information requirements imposed on a resident enterprise, because
information may not be as readily available to the Internal Revenue Service from a foreign as from
a domestic enterprise. Similarly, it would not be a violation of paragraph 2 to impose penalties on
persons who fail to comply with such a requirement (see, e.g.
, sections 874(a) and 882(c)(2)).
Further, a determination that income and expenses have been attributed or allocated to a
permanent establishment in conformity with the principles of Article 7 (Business Profits) implies
that the attribution or allocation was not discriminatory.
Section 1446 of the Code imposes on any partnership with income that is effectively
connected with a U.S. trade or business the obligation to withhold tax on amounts allocable to a
foreign partner. In the context of the Convention, this obligation applies with respect to a share
of the partnership income of a partner resident in Ireland, and attributable to a U.S. permanent
establishment. There is no similar obligation with respect to the distributive shares of U.S.
resident partners. It is understood, however, that this distinction is not a form of discrimination
within the meaning of paragraph 2 of the Article. No distinction is made between U.S. and non-
U.S. partnerships, since the law requires that partnerships of both U.S. and non-U.S. domicile
withhold tax in respect of the partnership shares of non-U.S. partners. Furthermore, in distin-
guishing between U.S. and non-U.S. partners, the requirement to withhold on the non-U.S. but
not the U.S. partner's share is not discriminatory taxation, but, like other withholding on nonresi-
dent aliens, is merely a reasonable method for the collection of tax from persons who are not
continually present in the United States, and as to whom it otherwise may be difficult for the
United States to enforce its tax jurisdiction. If tax has been over-withheld, the partner can, as in
other cases of over-withholding, file for a refund. (The relationship between paragraph 2 and the
imposition of the branch tax is dealt with below in the discussion of paragraph 5.)
Paragraph 2, like the U.S. Model, goes beyond the comparable paragraphs in the OECD
Model in that it obligates the host State to provide national treatment not only to permanent
establishments of an enterprise of the other Contracting State, but also to other residents of that
State that are taxable in the host State on a net basis because they derive income from
independent personal services performed in the host State that is attributable to a fixed base in
that State. Thus, an individual resident of Ireland who performs independent personal services in
the U.S., and who is subject to U.S. income tax on the income from those services that is attribut-
able to a fixed base in the United States, is entitled to no less favorable tax treatment in the United

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States than a U.S. resident engaged in the same kinds of activities. With such a rule in a treaty,
the host State cannot tax its own residents on a net basis, but disallow deductions (other than
personal allowances, etc.) with respect to the income attributable to the fixed base. Similarly, in
accordance with paragraph 5 of Article 6 (Income from Real Property (Immovable Property)), the
situs State would be required to allow deductions to a resident of the other State with respect to
income derived from real property located in the situs State to the same extent that deductions are
allowed to residents of the situs State with respect to income derived from real property located
in the situs State.
Paragraph 3
Paragraph 3 prohibits discrimination in the allowance of deductions. When an enterprise
of a Contracting State pays interest, royalties or other disbursements to a resident of the other
Contracting State, the first-mentioned Contracting State must allow a deduction for those
payments in computing the taxable profits of the enterprise as if the payment had been made under
the same conditions to a resident of the first-mentioned Contracting State. An exception to this
rule is provided for cases where the provisions of paragraph 1 of Article 9 (Associated
Enterprises), paragraph 5 of Article 11 (Interest) or paragraph 4 of Article 12 (Royalties) apply,
because all of these provisions permit the denial of deductions in certain circumstances in respect
of transactions between related persons. This exception would include the denial or deferral of
certain interest deductions under Code section 163(j).
The term "other disbursements" is understood to include a reasonable allocation of
executive and general administrative expenses, research and development expenses and other
expenses incurred for the benefit of a group of related persons that includes the person incurring
the expense.
Because, as noted above, Article 25 applies only to covered taxes, Paragraph 3 differs
from the U.S. and OECD Models in that it omits rules regarding the deductibility of debts for
purposes of computing the capital tax of an enterprise.
Paragraph 4
Paragraph 4 requires that a Contracting State not impose more burdensome taxation or
connected requirements on an enterprise of that State that is wholly or partly owned or
controlled, directly or indirectly, by one or more residents of the other Contracting State, than the
taxation or connected requirements that it imposes on other similar enterprises of that
first-mentioned Contracting State. For this purpose it is understood that “similar” refers to similar
activities or ownership of the enterprise.
The Tax Reform Act of 1986 changed the rules for taxing corporations on certain
distributions they make in liquidation. Prior to 1986, corporations were not taxed on distributions
of appreciated property in complete liquidation, although nonliquidating distributions of the same

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property, with several exceptions, resulted in corporate-level tax. In part to eliminate this
disparity, the law now generally taxes corporations on the liquidating distribution of appreciated
property. The Code provides an exception in the case of distributions by 80 percent or more
controlled subsidiaries to their parent corporations, on the theory that the built-in gain in the asset
will be recognized when the parent sells or distributes the asset. This exception does not apply to
distributions to parent corporations that are tax-exempt organizations or, except to the extent
provided in regulations, foreign corporations. The policy of the legislation is to collect one
corporate-level tax on the liquidating distribution of appreciated property. If, and only if, that tax
can be collected on a subsequent sale or distribution does the legislation defer the tax. It is
understood that the inapplicability of the exception to the tax on distributions to foreign parent
corporations under section 367(e)(2) does not conflict with paragraph 4 of the Article. While a
liquidating distribution to a U.S. parent will not be taxed, and, except to the extent provided in
regulations, a liquidating distribution to a foreign parent will, paragraph 4 merely prohibits
discrimination among corporate taxpayers on the basis of U.S. or foreign stock ownership.
Eligibility for the exception to the tax on liquidating distributions for distributions to non-exempt,
U.S. corporate parents is not based upon the nationality of the owners of the distributing
corporation, but rather is based upon whether such owners would be subject to corporate tax if
they subsequently sold or distributed the same property. Thus, the exception does not apply to
distributions to persons that would not be so subject -- not only foreign corporations, but also
tax-exempt organizations. A similar analysis applies to the treatment of section 355 distributions
subject to section 367(e)(1).
For the reasons given above in connection with the discussion of paragraph 2 of the
Article, it is also understood that the provision in section 1446 of the Code for withholding of tax
on non-U.S. partners does not violate paragraph 4 of the Article.
It is further understood that the ineligibility of a U.S. corporation with nonresident alien
shareholders to make an election to be an "S" corporation does not violate paragraph 4 of the
Article. If a corporation elects to be an S corporation (requiring 35 or fewer shareholders), it is
generally not subject to income tax and the shareholders take into account their pro rata shares of
the corporation's items of income, loss, deduction or credit. (The purpose of the provision is to
allow an individual or small group of individuals to conduct business in corporate form while
paying taxes at individual rates as if the business were conducted directly.) A nonresident alien
does not pay U.S. tax on a net basis, and, thus, does not generally take into account items of loss,
deduction or credit. Thus, the S corporation provisions do not exclude corporations with
nonresident alien shareholders because such shareholders are foreign, but only because they are
not net-basis taxpayers. Similarly, the provisions exclude corporations with other types of
shareholders where the purpose of the provisions cannot be fulfilled or their mechanics
implemented. For example, corporations with corporate shareholders are excluded because the
purpose of the provisions to permit individuals to conduct a business in corporate form at
individual tax rates would not be furthered by their inclusion.

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Paragraph 5
Paragraph 5 of the Article confirms that no provision of the Article will prevent either
Contracting State from imposing the branch tax described in paragraph 8 of Article 10 (Divi-
dends). Since imposition of the branch tax under the Convention is specifically sanctioned by
paragraph 8 of Article 10 (Dividends), its imposition could not be precluded by Article 25, even
without paragraph 5. Under the generally accepted rule of construction that the specific takes
precedence over the more general, the specific branch tax provision of Article 10 would take
precedence over the more general national treatment provision of Article 25.
Relation to Other Articles
The saving clause of paragraph 4 of Article 1 (General Scope) does not apply to this
Article, by virtue of the exceptions in paragraph 5(a) of Article 1. Thus, for example, a U.S.
citizen who is a resident of Ireland may claim benefits in the United States under this Article.
Nationals of a Contracting State may claim the benefits of paragraph 1 regardless of
whether they are entitled to benefits under Article 23 (Limitation on Benefits), because that
paragraph applies to nationals and not residents. They may not claim the benefits of the other
paragraphs of this Article with respect to an item of income unless they are generally entitled to
treaty benefits with respect to that income under a provision of Article 23.
Article 26 (Mutual Agreement Procedure)
This Article provides the mechanism for taxpayers to bring to the attention of competent
authorities issues and problems that may arise under the Convention. It also provides a
mechanism for cooperation between the competent authorities of the Contracting States to
resolve disputes and clarify issues that may arise under the Convention and to resolve cases of
double taxation not provided for in the Convention. The Article also provides for the possibility
of the use of arbitration to resolve disputes that cannot be settled by the competent authorities.
The competent authorities of the two Contracting States are identified in paragraph 1(e) of Article
3 (General Definitions).
Paragraph 1
This paragraph provides that where a resident of a Contracting State considers that the
actions of one or both Contracting States will result in taxation that is not in accordance with the
Convention he may present his case to the competent authority of either Contracting State.
Nearly all U.S. treaties allow taxpayers to bring competent authority cases only to the competent
authority of their country of residence, or citizenship/nationality. Paragraph 16 of the OECD
Commentary to Article 26 suggests, however, that countries may agree to allow a case to be
brought to either competent authority. Because there seems to be no apparent reason why a

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resident of a Contracting State must take its case to the competent authority of its State of
residence and not to that of the partner, the Convention, like the U.S. Model, adopts the approach
suggested in the OECD Commentary. Under this approach, a U.S. permanent establishment of a
corporation resident in the treaty partner that faces inconsistent treatment in the two countries
would be able to bring its complaint to the competent authority in either Contracting State.
Although the typical cases brought under this paragraph will involve economic double
taxation arising from transfer pricing adjustments, the scope of this paragraph is not limited to
such cases. For example, if a Contracting State treats income derived by a company resident in
the other Contracting State as attributable to a permanent establishment in the first-mentioned
Contracting State, and the resident believes that the income is not attributable to a permanent
establishment, or that no permanent establishment exists, the resident may bring a complaint under
paragraph 1 to the competent authority of either Contracting State.

It is not necessary for a person bringing a complaint first to have exhausted the remedies
provided under the national laws of the Contracting States before presenting a case to the
competent authorities, nor does the fact that the statute of limitations may have passed for seeking
a refund preclude bringing a case to the competent authority. Like the U.S. Model, but unlike the
OECD Model, no time limit is provided within which a case must be brought.
Paragraph 2
This paragraph instructs the competent authorities in dealing with cases brought by
taxpayers under paragraph 1. It provides that if the competent authority of the Contracting State
to which the case is presented judges the case to have merit, and cannot reach a unilateral
solution, it shall seek an agreement with the competent authority of the other Contracting State
pursuant to which taxation not in accordance with the Convention will be avoided. Any
agreement is to be implemented even if such implementation otherwise would be barred by the
statute of limitations or by some other procedural limitation, such as a closing agreement. In a
case where the taxpayer has entered a closing agreement (or other written settlement) with the
United States prior to bringing a case to the competent authorities, the U.S. competent authority
will endeavor only to obtain a correlative adjustment from Ireland. See, Rev. Proc. 96-13, 1996-3
I.R.B. 31, section 7.05. Because, as specified in paragraph 2 of Article 1 (General Scope), the
Convention cannot operate to increase a taxpayer's liability, time or other procedural limitations
can be overridden only for the purpose of making refunds and not to impose additional tax.
Paragraph 3
Paragraph 3 authorizes the competent authorities to resolve difficulties or doubts that may
arise as to the application or interpretation of the Convention. The paragraph includes a
non-exhaustive list of examples of the kinds of matters about which the competent authorities may
reach agreement. This list is purely illustrative; it does not grant any authority that is not
implicitly present as a result of the introductory sentence of paragraph 3. The competent authori-

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ties may, for example, agree to the same attribution of income, deductions, credits or allowances
between an enterprise in one Contracting State and its permanent establishment in the other
(subparagraph (a)) or between related persons (subparagraph (b)). These allocations are to be
made in accordance with the arm's length principle underlying Article 7 (Business Profits) and
Article 9 (Associated Enterprises). Agreements reached under these subparagraphs may include
agreement on a methodology for determining an appropriate transfer price, common treatment of
a taxpayer's cost sharing arrangement, or upon an acceptable range of results under that
methodology. Subparagraph (h) makes clear that they may also agree to apply this methodology
and range of results prospectively to future transactions and time periods pursuant to advance
pricing agreements.
As indicated in subparagraphs (c), (d), (e) and (f), the competent authorities also may
agree to settle a variety of conflicting applications of the Convention. They may agree to
characterize particular items of income in the same way (subparagraph (c)), to characterize
entities in a particular way (subparagraph (d)), to apply the same source rules to particular items
of income (subparagraph (e)), and to adopt a common meaning of a term (subparagraph f)).
Subparagraph (g) authorizes the competent authorities to increase any dollar amounts
referred to in the Convention to reflect economic and monetary developments. Under the
Convention, this refers only to Article 17 (Artistes and Sportsmen). The rule under paragraph (h)
is intended to operate as follows: if, for example, after the Convention has been in force for some
time, inflation rates have been such as to make the $20,000 exemption threshold for entertainers
unrealistically low in terms of the original objectives intended in setting the threshold, the
competent authorities may agree to a higher threshold without the need for formal amendment to
the treaty and ratification by the Contracting States. This authority can be exercised, however,
only to the extent necessary to restore those original objectives. Because of paragraph 2 of
Article 1 (General Scope), it is clear that this provision can be applied only to the benefit of
taxpayers, i.e.
, only to increase thresholds, not to reduce them.
Subparagraph (i) makes clear that the competent authorities can agree to the common
application, consistent with the objective of avoiding double taxation, of procedural provisions of
the internal laws of the Contracting States, including those regarding penalties, fines and interest.
Since the list under paragraph 3 is not exhaustive, the competent authorities may reach
agreement on issues not enumerated in paragraph 3 if necessary to avoid double taxation. For
example, the competent authorities may seek agreement on a uniform set of standards for the use
of exchange rates, or agree on consistent timing of gain recognition with respect to a transaction
to the extent necessary to avoid double taxation.
Finally, paragraph 3 authorizes the competent authorities to consult for the purpose of
eliminating double taxation in cases not provided for in the Convention and to resolve any
difficulties or doubts arising as to the interpretation or application of the Convention. This
provision is intended to permit the competent authorities to implement the treaty in particular

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cases in a manner that is consistent with its expressed general purposes. It permits the competent
authorities to deal with cases that are within the spirit of the provisions but that are not specifi-
cally covered. An example of such a case might be double taxation arising from a transfer pricing
adjustment between two permanent establishments of a third-country resident, one in the United
States and one in Ireland. Since no resident of a Contracting State is involved in the case, the
Convention does not apply, but the competent authorities nevertheless may use the authority of
the Convention to prevent the double taxation. Ireland requested a mutual understanding
(paragraph 5 of the Diplomatic Notes) that this provision applies only with respect to covered
taxes.
Agreements reached by the competent authorities under paragraph 3 need not conform to
the internal law provisions of either Contracting State. Paragraph 3 is not, however, intended to
authorize the competent authorities to resolve problems of major policy significance that normally
would be the subject of negotiations between the Contracting States themselves. For example,
this provision would not authorize the competent authorities to agree to allow a U.S. foreign tax
credit under the treaty for a tax imposed by the other country where that tax is not otherwise a
covered tax and is not an identical or substantially similar tax imposed after the date of signature
of the Convention. In such a case, the creditability of the tax would be determined under the
Code and regulations.
Paragraph 3 also requires the competent authorities of both Contracting States to publish
any principle of general application established by agreement or agreements of the competent
authorities. This provision is not contained in the U.S. Model, but it is the practice of the U.S.
competent authority to publish agreements reached under any convention that have broad
application.
Paragraph 4
Paragraph 4 provides that the competent authorities may communicate with each other for
the purpose of reaching an agreement. This makes clear that the competent authorities of the two
Contracting States may communicate without going through diplomatic channels. Such
communication may be in various forms, including, where appropriate, through face-to-face
meetings of the competent authorities or their representatives.
Paragraph 5
Paragraph 5 contains an arbitration procedure found in several recent U.S. tax treaties,
although the arbitration procedures currently are operative only under the treaty with Germany.
Paragraph 5 provides that where the competent authorities have been unable to resolve a
disagreement regarding the application or interpretation of the Convention, the disagreement may,
by mutual consent of the competent authorities and the affected taxpayers, be submitted for
arbitration. Nothing in the provision requires that any case be submitted for arbitration. If a case

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is submitted to an arbitration board, however, the board's decision in that case will be binding on
both Contracting States and the taxpayer(s) with respect to that case.
When a case is referred to an arbitration board, confidential information necessary for
carrying out the arbitration procedure may be released by the States to the board. The members
of the board, and any staff, however, are subject to the disclosure rules of Article 27.

The arbitration procedures will not come into effect until the Contracting States have
agreed through an exchange of diplomatic notes. It is anticipated that the two States will consider
exchanging diplomatic notes implementing the arbitration procedure at such time the provisions
under the other Conventions, and the European Communities agreement signed on 23 July, 1990,
prove satisfactory to the competent authorities of both the United States and Ireland. The
arbitration procedures themselves also will be established through an exchange of notes.
Other Issues
Treaty effective dates and termination in relation to competent authority dispute resolution
A case may be raised by a taxpayer under a treaty with respect to a year for which a treaty
was in force after the treaty has been terminated. In such a case the ability of the competent
authorities to act is limited. They may not exchange confidential information, nor may they reach
a solution that varies from that specified in its law.
A case also may be brought to a competent authority under a treaty that is in force, but
with respect to a year prior to the entry into force of the treaty. The scope of the competent
authorities to address such a case is not constrained by the fact that the treaty was not in force
when the transactions at issue occurred, and the competent authorities have available to them the
full range of remedies afforded under this Article.
Triangular competent authority solutions
International tax cases may involve more than two taxing jurisdictions (e.g.
, transactions
among a parent corporation resident in country A and its subsidiaries resident in countries B and
C). As long as there is a complete network of treaties among the three countries, it should be
possible, under the full combination of bilateral authorities, for the competent authorities of the
three States to work together on a three-sided solution. Although country A may not be able to
give information received under Article 27 (Exchange of Information and Administrative
Assistance) from country B to the authorities of country C, if the competent authorities of the
three countries are working together, it should not be a problem for them to arrange for the
authorities of country B to give the necessary information directly to the tax authorities of country
C, as well as to those of country A. Each bilateral part of the trilateral solution must, of course,
not exceed the scope of the authority of the competent authorities under the relevant bilateral
treaty.

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Relation to Other Articles
This Article is not subject to the saving clause of paragraph 4 of Article 1 (General Scope)
by virtue of the exceptions in paragraph 5(a) of that Article. Thus, rules, definitions, procedures,
etc. that are agreed upon by the competent authorities under this Article may be applied by the
United States with respect to its citizens and residents even if they differ from the comparable
Code provisions. Similarly, as indicated above, U.S. law may be overridden to provide refunds of
tax to a U.S. citizen or resident under this Article. A person may seek relief under Article 26
regardless of whether he is generally entitled to benefits under Article 23 (Limitation on Benefits).
As in all other cases, the competent authority is vested with the discretion to decide whether the
claim for relief is justified.
Article 27 (Exchange of Information and Administrative Assistance)
Paragraph 1
This Article provides for the exchange of information between the competent authorities
of the Contracting States. The information to be exchanged is that which is relevant for carrying
out the provisions of the Convention or the domestic laws of the United States or of Ireland
concerning the taxes covered by the Convention. The OECD Model refers to information that is
"necessary" for carrying out the provisions of the Convention, etc. This term consistently has
been interpreted as being equivalent to "relevant," and as not requiring a requesting State to
demonstrate that it would be disabled from enforcing its tax laws unless it obtained a particular
item of information. To remove any potential misimpression that the term "necessary" created a
higher threshold than relevance, the Convention, like the U.S. Model, adopts the term "relevant."
Exchange of information with respect to domestic law is authorized insofar as the taxation
under those domestic laws is not contrary to the Convention. Thus, for example, information may
be exchanged with respect to a covered tax, even if the transaction to which the information
relates is a purely domestic transaction in the requesting State and, therefore, the exchange is not
made for the purpose of carrying out the Convention. An example of such a case is provided in
the OECD Commentary: A company resident in the United States and a company resident in the
partner transact business between themselves through a third-country resident company. Neither
Contracting State has a treaty with the third State. In order to enforce their internal laws with
respect to transactions of their residents with the third-country company (since there is no
relevant treaty in force), the Contracting State may exchange information regarding the prices that
their residents paid in their transactions with the third-country resident. However, unlike the U.S.
Model, the Convention does not extend exchange of information beyond the covered taxes in
Article 2 because of restrictions under Irish law.
Paragraph 1 states that information exchange is not restricted by Article 1 (General
Scope). Accordingly, information may be requested and provided under this Article with respect

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to persons who are not residents of either Contracting State. For example, if a third-country
resident has a permanent establishment in Ireland which engages in transactions with a U.S.
enterprise, the United States could request information with respect to that permanent
establishment, even though it is not a resident of either Contracting State. Similarly, if a third-
-country resident maintains a bank account in Ireland, and the Internal Revenue Service has
reason to believe that funds in that account should have been reported for U.S. tax purposes but
have not been so reported, information can be requested from Ireland with respect to that person's
account.
Paragraph 1 also provides assurances that any information exchanged will be treated as
secret, subject to the same disclosure constraints as information obtained under the laws of the
requesting State. Information received may be disclosed only to persons, including courts and
administrative bodies, concerned with the assessment, collection, enforcement or prosecution in
respect of the taxes to which the information relates, or to persons concerned with the
administration of these taxes. The information must be used by these persons in connection with
these designated functions. Persons in the United States concerned with the administration of
taxes include legislative bodies, such as the tax-writing committees of Congress and the General
Accounting Office. Information received by these bodies must be for use in the performance of
their role in overseeing the administration of U.S. tax laws. Information received may be
disclosed in public court proceedings or in judicial decisions.
The Article authorizes the competent authorities to exchange information on a routine
basis, on request in relation to a specific case, or spontaneously. It is contemplated that the
Contracting States will utilize this authority to engage in all of these forms of information
exchange, as appropriate.
Paragraph 2
Paragraph 2 is identical to paragraph 2 of Article 26 of the OECD Model and paragraph 2
or Article 26 of the U.S. Model. It provides that the obligations undertaken in paragraph 1 to
exchange information do not require a Contracting State to carry out administrative measures that
are at variance with the laws or administrative practice of either State. Nor is a Contracting State
required to supply information not obtainable under the laws or administrative practice of either
State, or to disclose trade secrets or other information, the disclosure of which would be contrary
to public policy. Thus, a requesting State cannot obtain information from the other State if the
information would be obtained pursuant to procedures or measures that are broader than those
available in the requesting State.
While paragraph 2 states conditions under which a Contracting State is not obligated to
comply with a request from the other Contracting State for information, the requested State is not
precluded from providing such information, and may, at its discretion, do so subject to the limita-
tions of its internal law.

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Paragraph 3
Paragraph 3 does not have an analog in the OECD Model. Paragraph 3 provides that
when information is requested by a Contracting State in accordance with this Article, the other
Contracting State is obligated to obtain the requested information as if the tax in question were
the tax of the requested State, even if that State has no direct tax interest in the case to which the
request relates. The OECD Model does not state explicitly in the Article that the requested State
is obligated to respond to a request even if it does not have a direct tax interest in the information.
The OECD Commentary, however, makes clear that this is to be understood as implicit in the
OECD Model. (See paragraph 16 of the OECD Commentary to Article 27.) Although Ireland
has not entered an observation to the Commentary on this point, paragraph 10 of the Protocol
states that the laws and practices of Ireland currently do not permit it to obtain information in
cases where it does not have a tax interest. However, if the laws and practices of Ireland change
in this respect, Ireland will carry out enquiries on behalf of the United States in such cases.
The first sentence of paragraph 3 of the U.S. Model, which provides the authority to
obtain and provide information from financial institutions, is not included in the Convention.
However, paragraph 6 of the Diplomatic Notes accompanying the Convention and Protocol sets
forth Ireland’s agreement that the United States may, pursuant to a request under the provisions
of the Irish Criminal Justice Act, 1994 (or any successor law), obtain information of financial
institutions and depositions of witnesses for the purpose of investigating or prosecuting criminal
fiscal offenses. The Irish negotiators confirmed that such requests may be made to the Irish
Minister of Justice by the Department of Justice or the Internal Revenue Service.
Paragraph 3 further provides that the requesting State may specify the form in which
information is to be provided (e.g.
, depositions of witnesses and authenticated copies of original
documents) so that the information can be usable in the judicial proceedings of the requesting
State. The requested State should, if possible, provide the information in the form requested to
the same extent that it can obtain information in that form under its own laws and administrative
practices with respect to its own taxes. In addition, Paragraph 6 of the diplomatic notes sets forth
Ireland’s agreement that the United States may, pursuant to a request under the provisions of the
Irish Criminal Justice Act, 1994 (or any successor law), obtain information of financial institutions
and depositions of witnesses for the purpose of the investigation of criminal fiscal offenses. Such
requests may be made whether the investigation is undertaken by the Department of Justice or the
Internal Revenue Service.
Paragraph 4
Finally, paragraph 4 provides that the competent authority of the requested State shall
allow representatives of the applicant State to enter the requested State to interview individuals
and examine a person’s books and records with that individual’s or person’s consent.

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Treaty effective dates and termination in relation to competent authority dispute resolution
A tax administration may seek information with respect to a year for which a treaty was in
force after the treaty has been terminated. In such a case the ability of the other tax
administration to act is limited. The treaty no longer provides authority for the tax
administrations to exchange confidential information. They may only exchange information
pursuant to domestic law.
The competent authority also may seek information under a treaty that is in force, but with
respect to a year prior to the entry into force of the treaty. The scope of the competent
authorities to address such a case is not constrained by the fact that a treaty was not in force when
the transactions at issue occurred, and the competent authorities have available to them the full
range of information exchange provisions afforded under this Article. Where a prior treaty was in
effect during the years in which the transaction at issue occurred, the exchange of information
provisions of the current treaty apply.
Article 28 (Diplomatic Agents and Consular Officers)
This Article confirms that any fiscal privileges to which diplomatic or consular officials are
entitled under general provisions of international law or under special agreements will apply
notwithstanding any provisions to the contrary in the Convention. The text of this Article is
identical to the corresponding provision of the U.S. and OECD Models. The agreements referred
to include any bilateral agreements, such as consular conventions, that affect the taxation of
diplomats and consular officials and any multilateral agreements dealing with these issues, such as
the Vienna Convention on Diplomatic Relations and the Vienna Convention on Consular
Relations. The U.S. generally adheres to the latter because its terms are consistent with
customary international law.
The Article does not independently provide any benefits to diplomatic agents and consular
officers. Article 19 (Government Service) does so, as do Code section 893 and a number of
bilateral and multilateral agreements. Rather, the Article specifically reconfirms in this context the
statement in paragraph 2 of Article 1 (General Scope) that nothing in the tax treaty will operate to
restrict any benefit accorded by the general rules of international law or with any of the other
agreements referred to above. In the event that there is a conflict between the tax treaty and
international law or such other treaties, under which the diplomatic agent or consular official is
entitled to greater benefits under the latter, the latter laws or agreements shall have precedence.
Conversely, if the tax treaty confers a greater benefit than another agreement, the affected person
could claim the benefit of the tax treaty.
Pursuant to subparagraph 5(b) of Article 1, the saving clause of paragraph 4 of Article 1
(General Scope) does not apply to override any benefits of this Article available to an individual
who is neither a citizen of the United States nor has immigrant status there.

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Article 29 (Entry into Force)
This Article contains the rules for bringing the Convention into force and giving effect to
its provisions.
Paragraph 1
Paragraph 1 provides for the ratification of the Convention by both Contracting States
according to their constitutional and statutory requirements and requires that instruments of
ratification be exchanged as soon as possible.
In the United States, the process leading to ratification and entry into force is as follows:
Once a treaty has been signed by authorized representatives of the two Contracting States, the
Department of State sends the treaty to the President who formally transmits it to the Senate for
its advice and consent to ratification, which requires approval by two-thirds of the Senators
present and voting. Prior to this vote, however, it generally has been the practice for the Senate
Committee on Foreign Relations to hold hearings on the treaty and make a recommendation
regarding its approval to the full Senate. Both Government and private sector witnesses may
testify at these hearings. After receiving the advice and consent of the Senate to ratification, the
treaty is returned to the President for his signature on the ratification document. The President's
signature on the document completes the process in the United States.
Paragraph 2
Paragraph 2 provides that the Convention will enter into force upon the exchange of
instruments of ratification. The date on which a treaty enters into force is not necessarily the date
on which its provisions take effect. Paragraph 2, therefore, also contains rules that determine
when the provisions of the treaty will have effect. Under paragraph 2(a), the Convention will
have effect with respect to taxes withheld at source (principally dividends, interest and royalties)
for amounts paid or credited on or after the first day of January next following the date on which
the Convention enters into force. For example, if instruments of ratification are exchanged on
April 25 of a given year, the withholding rates specified in paragraph 2 of Article 10 (Dividends)
would be applicable to any dividends paid or credited on or after January 1 of the next year.
For all other taxes, paragraph 2(b) specifies that the Convention will have effect, in the
case of United States taxes, for taxable years beginning on or after January 1 of the year following
entry into force and, in the case of Irish taxes, for financial years (in the case of the corporation
tax) or years of assessment (in the case of income tax and capital gains tax) beginning on or after
January 1 of the year following entry into force. Because the federal excise tax on insurance
premiums is collected quarterly and is not a withholding tax, the effective date provided by
paragraph 2(b) will apply to that tax.

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As discussed under Articles 25 (Mutual Agreement Procedure) and 26 (Exchange of
Information), the powers afforded the competent authority under these articles apply retroactively
to taxable periods preceding entry into force.
Paragraph 3
As in many recent U.S. treaties, Paragraph 3 provides a "grace period" in the form of a
general exception to the effective date rules of paragraph 2. Under this paragraph, if the prior
Convention would have afforded greater relief from tax to a person entitled to its benefits than
would be the case under this Convention, that person may elect to remain subject to all of the
provisions of the prior Convention for a twelve-month period from the date on which this
Convention would have had effect under the provisions of paragraph 2 of this Article. During the
period in which the election is in effect, the provisions of the prior Convention will continue to
apply only insofar as they applied prior to the entry into force of the Convention.
For example, under the Convention a non-publicly traded corporation resident in Ireland
that is wholly owned by third-country residents and that earns portfolio dividends from passive
investments in the United States would be denied U.S. treaty benefits with respect to those
dividends under the provisions of Article 23 (Limitation on Benefits). Since the prior Convention
contained no anti-treaty-shopping rule, so that the corporation would be entitled to the reduced
U.S. withholding rate of 15 percent, this corporation may elect under the grace period rule to be
subject to the rules of the prior Convention for one additional year from the effective date
specified in paragraph 2(a), thereby receiving U.S. treaty benefits for that period. This rule gives
those residents of a Contracting State that are subject to the Limitation on Benefits provision an
additional year to restructure their activities in a manner that would entitle them to qualify for
benefits. Under the prior Convention, foreign source income attributable to a U.S. permanent
establishment was not subject to U.S. tax. If an Irish resident has a U.S. permanent establishment
that earns Canadian source income, that income would be exempt under the prior Convention, but
taxable under the Convention. The Irish resident claiming that the Canadian-source income is
exempt may do so for one additional year after the first taxable year beginning on or after the first
day of January following entry into force of the new treaty.
If the grace period is elected, all of the provisions of the prior Convention must be applied
for that additional year. The taxpayer may not apply certain, more favorable, provisions of the
prior Convention and, at the same time, apply other, more favorable, provisions of the
Convention. Thus, an Irish enterprise with a permanent establishment in the United States cannot
rely on the prior Convention to avoid the branch profits tax and at the same time claim exemption
from the branch level interest tax on excess interest on the basis that Article 11 (Interest) of the
Convention eliminates source-basis taxation of interest (and therefore the excess interest tax).
The enterprise must choose one regime or the other.

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Paragraph 4
Paragraph 4 provides a rule to coordinate the termination of the prior Convention with the
effective dates of the new treaty. The prior Convention will cease to have effect when the
provisions of this Convention take effect in accordance with paragraphs 2 and 3 of the Article.
Thus, for a person not taking advantage of the election in paragraph 3, the prior Convention will
cease to have effect at the time, on or after January 1 of the year following entry into force of the
Convention, when the provisions of the new Convention first have effect. For persons electing
the additional year of coverage of the prior Convention, the prior Convention will remain in effect
for one additional year beyond the date specified in the preceding sentence.
Paragraph 5
Paragraph 5 includes an additional transition rule with respect to the “derivative benefits”
requirement of subparagraph 5 b) of Article 23 (Limitation on Benefits). Under this transition
rule, an Irish company that is claiming the benefits of the Convention on the basis that it is owned
by residents of EU or NAFTA countries may do so without regard to whether its owners would
be entitled to benefits equivalent to those available under the Convention. This transition rule is
available for a period of two years from when the Convention otherwise would have effect under
the provisions of paragraphs 2 and 3.
For example, assume an Irish company owns 50 percent of a U.S. company from which it
receives interest and dividends. The Irish company in turn is owned 30 percent by an Irish
publicly traded company and 70 percent by a Canadian company and meets the base erosion
standard of subparagraph 5 a) ii) of Article 23. If instruments of ratification were exchanged on
November 15, 1997, the Convention will enter into force generally on January 1, 1998. Under
the prior Convention, the Irish company was subject to U.S. withholding tax at a rate of 15% on
dividends paid by the U.S. company because it did not meet the 95 percent ownership threshold
to receive the direct dividend rate. That rate is reduced to 5% under the Convention for direct
dividends. Accordingly, the Irish company does not elect to extend the effective date of the
Convention pursuant to paragraph 3. However, as of January 1, 2000, the Irish company will no
longer receive the benefits of the Convention with respect to interest paid by the U.S. company,
because the Convention between the United States and Canada provides for a positive rate of
withholding tax on interest and therefore the requirements of paragraph 5 b) of Article 23 will not
be met. If, on the other hand, the Irish company owns 100 percent of the U.S. company, so that it
qualified for the 5% direct dividend rate under the prior Convention, the Irish company could
elect to apply the prior Convention for an additional year, as described above, so that it would not
come into effect generally until January 1, 1999. In that case, the Irish company would receive
benefits with respect to interest until January 1, 2001.

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Article 30 (Termination)
The Convention is to remain in effect indefinitely unless terminated by one of the
Contracting States in accordance with the provisions of Article 30. The Convention may be
terminated at any time after five years from the date on which it enters into force. If notice of
termination is given, the provisions of the Convention with respect to withholding at source will
case to have effect for amounts paid or credited on or after the first of January next following the
expiration of the six months’ period of notice. For other taxes, the Convention will cease to have
effect for taxable years beginning on or after the first day of January next following the expiration
of the six months’ period of notice, in the case of the United States, and, in the case of Ireland,
the Convention will cease to have effect for financial years (in respect of the corporation tax) and
for years of assessment (in respect of the income and capital gains tax) beginning, in each case, on
or after the first of January next following the expiration of the six months’ notice period.
A treaty performs certain specific and necessary functions regarding information exchange
and mutual agreement. In the case of information exchange the Convention's function is to
override confidentiality rules relating to taxpayer information. In the case of mutual agreement its
function is to allow competent authorities to modify internal law in order to prevent double
taxation and tax avoidance. With respect to the effective termination dates for these aspects of
the Convention, therefore, if a Convention is terminated as of January 1 of a given year, no other-
wise confidential information can be exchanged after that date, regardless of whether the
Convention was in force for the taxable year to which the request relates. Similarly, no mutual
agreement departing from internal law can be implemented after that date, regardless of the
taxable year to which the agreement relates. Therefore, for the competent authorities to be
allowed to exchange otherwise confidential information or to reach a mutual agreement that
departs from internal law, a Convention must be in force at the time those actions are taken and
any existing competent authority agreement ceases to apply.
Article 30 relates only to unilateral termination of the Convention by a Contracting State.
Nothing in that Article should be construed as preventing the Contracting States from concluding
a new bilateral agreement, subject to ratification, that supersedes, amends or terminates provisions
of the Convention without the six-month notification period.
Customary international law observed by the United States and other countries, as
reflected in the Vienna Convention on Treaties, allows termination by one Contracting State at
any time in the event of a "material breach" of the agreement by the other Contracting State.