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“Liable to tax” – Non-discrimination clause – Irish group relief – USA-Ireland DTA
Facts:
Two Irish subsidiaries were owned by a US Delaware LLC. The US LLC was treated as a fiscally transparent entity under US tax laws. The Irish subsidiaries could not claim the Irish group relief directly because the parent company was not a resident of an EU member state. However, they applied the non-discrimination clause under the Irish-USA DTA to claim the group relief.
Issue:
Whether the fiscally transparent US Delaware LLC could be treated as a resident under Article 4 to claim the DTA relief.
Decision:
The court ruled that the US LLC is not a resident under Article 4 as it is not “liable” to tax in the US. The taxpayer placed heavy reliance on the TD Securities case under the US-Canada DTA, where the Canadian court ruled that the USA LLC is a resident under the DTA as it is ultimately liable to tax in the hands of its shareholder, which was a corporation. However, the Irish court distinguished this case on two points:
- The TD Securities case was based on a finding that the income of the US LLC was subject to full and comprehensive taxation in the hands of a corporation. However, in the current case, the US LLC income was ultimately taxed in the hands of individuals and not a corporation. Thus, it could not be proven that the same tax as that of a corporation was paid by the individuals.
- The reasoning and conclusion in the TD Securities case were firmly rooted in U.S. and Canadian interpretation and practice, which could not be proven in the context of Ireland and US interpretation and practice.
Further, the Irish court strongly emphasized that it is the person who is required to be liable to tax under Article 4, and not the income. In other words, the US LLC (person) was not liable to tax, although the income of the US LLC was ultimately taxed in the hands of its ultimate owners, who were individuals.
The taxpayer also relied on the Indian Tribunal decision in the case of General Motors, which was rejected by the Irish Court of Appeal. Additionally, I also believe that some principles relied on in the Indian Tribunal decision need to be revisited.
The Irish court’s reasoning on the non-discrimination clause and “liable to tax” in this case are detailed and worth reading in the attached judgment.
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