The AAT has held that an amount of Pay Related Social Insurance (PRSI) deducted from a taxpayer’s Irish salary was not a “substantially similar tax” to Australian income tax for the purposes of Australia-Ireland double tax agreement (Irish Agreement) and he was therefore not entitled to a foreign income tax offset for that Insurance.

The taxpayer is an Australian citizen and resident for tax purposes. He moved to Ireland for 12 months where he was employed. Regular deductions, including a Universal Social Charge (USC) and PRSI, were made from his pay. The Commissioner disallowed the taxpayer’s objection against a private ruling made under Div 359 in Sch 1 to the Taxation Administration Act 1953 for the years of income ending 2013, 2014 and 2015. The ruling concerned the consequences under Australian taxation law of the deduction of the compulsory PRSI contributions from the taxpayer’s salary.

The essential issue was whether the provision for the making of employment contributions by employed contributors pursuant to the relevant Irish law constituted a tax within the terms of Article 2(2) of the Irish Agreement. It was common ground between the parties that the particular issue is whether it is a “substantially similar tax” for the purpose of that provision.

The Tribunal’s view was that Pay Related Social Insurance did not constitute a “substantially similar tax” to Australian income tax for the purposes of Article 2 of the Irish Agreement, there being no distinctive feature of the latter warranting a different conclusion as to whether the former is covered by the double tax agreement. The Tribunal considered the taxpayer was not entitled to a foreign income tax offset under s 770-10(1) of the ITAA 1997 for the amount of PRSI deducted from his Irish salary, as it did not constitute “foreign income tax” within the terms of s 770-15(1). The Tribunal therefore affirmed the decision under review.

([2014] AATA 961, AAT, Alpins DP, AAT Ref: 2014/1077, 23 December 2014.)

[LTN 1, 5/1/15]