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Double Tax Treaties
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Using Double Tax Treaties to avoid UK Tax
Double tax treaties are agreements between different countries that apply to determine which country shall tax certain forms of income and gains. The provisions though are much wider than this, and they can also be used to determine an individuals or company's tax residence. The need for double tax treaties arises because many countries tax both the income of their residents as well as any income arising in their borders. So a resident in one country (France) may be taxed by France on his worldwide income. However if some of his income arose in the UK, the UK may also want to tax the income arising within the UK. This could lead to the same income (ie the UK income) being taxed twice. This is where double tax treaties come into play, and they could provide for either an exemption from tax in one of the country's or a tax credit to offset against the other country's tax liability. This section includes articles that cover the use of double tax treaties. Join up today to read unique tax planning articles and obtain online tax guidance on using double tax treaties
Articles on Double Tax Treaties
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Company tax treatment under the UK-Estonia double tax treaty - USERNAME: Andre
Tax Question: Assuming I as an ordinary resident of UK owns a company in Estonia (to 100% and I being a board member, no director in the private limited liability company), how how will the company be taxed in terms of capital gains from shares, immovable property and business profits? Estonian companies owned by Estonian residents only pay 21% tax on distributed profits taken out of the company. My Estonian company would probably be deemed UK resident (due to my residency) although it's not doing business in UK at all? An thus be taxed in UK as a UK company? The systems of taxing business in Estonia and UK are different, I don't understand how the double taxation agreement would work? Link to the double taxation agreement: http://www.hmrc.gov.uk/manuals/dtmanual/dt6700+.htm Thanks! . . .
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Tax treaty residence and completing a UK tax return? - USERNAME: Pier
Tax Question: An Italian individual who spend basically half of his time in Italy and half in the UK so possibly could be considered, according to each domestic rules, resident in both countries. According to the Double Tax treaty ITA/UK he could be considered Italian resident. His only income is his pension paid in Italy. For UK tax purposes does he need to submit anyway a UK income tax return even if the pension income should be taxable only in Italy, according to the Double Tax Treaty between the two countries? Basically, given that for the DTT is not liable in the UK, does he still have to comply to the UK tax rules or he can avoid to do that because of the DTT. Many thanks . . .
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Concerns from the European Commission about the UK-Switzerland Tax Agreement
09/12/2011
The recent tax agreement between the UK and Switzerland provides for provisions to collect tax from UK residents with undisclosed bank accounts in Switzerland. Essentially it provides for a payment to reflect back taxes and then ongoing taxes on income/gains etc. The benefit to the UK resident is that banking confidentiality is maintained. However, it is now uncertain that this agreement will be implemented after concerns from European Commission. . . .
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Double tax treaty relief - USERNAME: Wib
Tax Question: A question on the UK/India Double Taxation Agreement, although it could apply to any agreement. If someone is resident in both countries, residence is awareded to one country under the tie-breaker clauses. The UK/India agreement restricts tax on interest to 15%. So if Indian interest is received by someone who is treaty resident in India under the agreement, when preparing the UK tax return, is the Indian interest left off the return and HS302 completed showing the maximum tax rate of 15%? Answer: Yes, this should be the case. The Help Sheet specifically states: "…Fill in 3(d) to claim partial relief from UK tax where the DTA provides that the rate of UK tax attributable to income received by a person who is a resident of the other country for the purposes of the DTA, is lower than the normal domestic UK rate. For example, the interest article of a DTA might reduce the rate of UK tax applicable to interest received by such a person to 10%, whereas the UK domestic rate on interest is 20%. To claim relief for the difference between the Agreement rate and the UK domestic rate you should: • exclude the full gross amount of the income from other parts of your UK tax return • complete 3(d) of the claim form attached to this helpsheet and • add the partial relief claimed to any relief claimed in 3(c) for UK tax deducted at source. Enter the total of the two amounts in box 20 of the Residence, remittance basis etc. pages…" . . .
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Tax relief for Swiss tax suffered on letting property - USERNAME: Denise
Tax Question: I have husband and wife clients who have jointly owned a property in Switzerland for a number of years. They are UK resident. In late 2010 they started to let the property. They have provided me with details of various taxes paid in Switzerland, including Cantonal and Community Taxes (Impot sur le Revenu et la Fortune), Federal Tax (Impot federal direct), Tax de Sejours and Commune Property Tax (Impot Foncier). I am completing the UK tax returns and am trying to understand which, if any, of these taxes are deductible or allowed as a credit: a) as a deduction in computing the net rental income, or b) as a foreign tax credit against the net rental income, or c) as a foreign tax deduction against the net rental income (normally only if there is a net loss and foreign tax credit at b) not available). I have seen the guidance at HMRC DT18102 which shows that Impot sur le Revenu and Impot Federal direct are admissible as a credit under the Swiss/UK DTA, whereas Impot sur la fortune is not. But is the whole of the Impot sur le Revenu and Impot Federal allowable as a credit against the net rental income, or as a deduction if there is a net loss (I understand the tax is in effect a tax on the notional rental income and is payable whether or not the property is let)? And is the Impot sur la Fortune allowable as a deduction against the net rents if not admissible as a credit? I understand that there is no tax charge in Switzerland directly on the rental income so it seems that my clients pay the same amount of tax in Switzerland regardless of whether the property is let or not. So is any of the Swiss tax deductible against the rents for UK tax purposes? Can you help please? . . .
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Double tax treaty changes for QROPS - USERNAME: Taxhelp
Tax Question: In march 2011 I moved my occupational pension to a guernsey Qrops and established draw down with a small pension drawing in the 2010 2011 tax year. I took the 25% tax free lump sum at that time. I am retired and my intention is to leave the UK this tax year and establish tax residency in a more tax efficient environment. I saw an article ref a change in the taxation of foreign pensions under the terms of double taxation agreements. Will this affect the taxation of the lump sum i took as it was taken after the pension was transferred to a foreign scheme (guernsey). Can I still draw my QROPS pension without paying UK tax ? Can I still transfer my wifes pension to a QROPS(still in the UK) . . .
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Just how effective will the new UK-Switzerland agreement be?
26/10/2011
HMRC announced last week that they will shortly be writing to UK resident individuals and organisations holding bank accounts with HSBC in Geneva, using information obtained under a tax treaty last year. There's also recently been the new UK-Swiss tax agreement that applies new withholding taxes. This article looks at just how effective the new agreement will be . . .
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Non Residence and UK/Australian tax - USERNAME: gerryb
Tax Question: Tax free Income from St Helena I am UK ex-pat, working full time abroad, based mainly in Australia since 2009. I am on a temporary visa there. My UK income from property, dividends and pension is not taxed in Australia. UK/Australia has a taxation agreement. However any earned income abroad ("for short periods", whatever that means) is taxed in Australia, although with the UK there is a double taxation agreement avoiding double taxation when I earn here. I will be living and working in St Helena/Tristan (British Overseas Territory) and the income will be free of tax. I intend to go back and work in Australia again. I gather that I would not be taxed in the UK as a UK resident. But I am not. Would the double taxation agreement be of help here or am I subject to Australian tax on this income? Any way to avoid that? . . .
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Details of the new UK-Switzerland Tax Agreement
19/10/2011
This agreement ensures funds of UK taxpayers in Switzerland face a significant one-off deduction of between 19% and 34% to settle past tax liabilities. As from 2013, a new withholding tax of 48% on investment income and 27% on gains will apply unless the individual authorises a full disclosure of their affairs to HMRC. This article looks at some of the key provisions in the new agreement . . .
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Relief for withholding tax under a double tax treaty and the "subject to tax" requirement - USERNAME: Pier
Tax Question: Dear sirs A Uk res non Dom is participating to a television program in an Italy The company which is paying the individual has asked for a certificate of residence to the UK Inland Revenue in order to apply a reduced percentage of withholding tax as per the DTT between the two countries. This means that, if the res non Dom has opted for the remittances basis, he can enjoy a reduced amount of withholding tax when the income is paid and not to have anything more to pay in the Uk if does not remit it. Is that correct? Should this be correct it could mean that the DTT could be "used" to reduce the overall taxation of the individual. What is your opinion on this respect? Many thanks . . .
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UK corporation tax on german property income? - USERNAME: sterling
Tax Question: We have a uk registered ltd company client.The only director and shareholder is german,he lives in germany ,the company owns a german property ,the only income for the company is rent received from a german tennant.our client assures us that the company trading results are declared and taxed in germany,(if it is profitable).We currently propose to file the accounts at companies house.Should we make any returns to HMR&C ? . . .
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Personal allowance for US citizen under UK-US tax treaty? - USERNAME: SR66
Tax Question: Hi, A former German Student and her father jointy own a Flat in the UK which they are renting out. The student lived in the flat during her studies and has now moved back to Germany. The student was born in Germany and is an American and German citizen.She only lived in the UK for 5 years whilst studying and has moved back to Germany. Her father is an American citizen but has lived in Germany for 39 years but is not a German citizen.He has never lived in the UK. With regard to the Uk tax on the rental income I assume that the student can claim UK personal allowances against any profit from the rental property and if any UK Tax becomes due set this against her German Tax liability. As her father is an American citizen I understand that he cannot claim personal allowances so will be subject to UK Tax on his share of the rental income. AS an American citizen he has to complete a US Tax return and will he be able to claim a tax credit for any UK tax due against any US Tax and or German Tax. Presumably if they remain Non Resident they will not be subject to CGT if they decide to sell the property. Thank You . . .
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