Deduction of tax from payments of interest
On the payment of yearly interest:
1. By a company to any party, tax must (in almost all instances) be deducted at source
2. By an individual to any party other than a non-resident, payment should be made gross (that is, without deduction of tax)
3. By an individual to a non-resident, tax must be deducted at source.
Interest on the balance of purchase money payable in respect of a conveyancing transaction is regarded as yearly, because it could technically cover a period in excess of a year. This was held to be the case in Bebb v Bunny (1854), and it has been confirmed by the Revenue Commissioners as being their acknowledged practice.
Tax in the foregoing context means tax at the standard rate and, where deducted at source:
a) Same should be accounted for to the Revenue Commissioners by the party deducting, who
b) Should forward to the recipient of the interest a certificate of deduction in Form 185 or its equivalent.
Payments of short (that is, non-yearly) interest should in all instances – irrespective of the identities of the payer and of the recipient – be paid without deduction of tax.
This note has been approved by the Revenue Commissioners.