HM Revenue & Customs (HMRC) Residency in Nottingham is the office primarily responsible for giving relief from UK income tax to residents of other territories in receipt of relievable UK source income tax.
The main types of income that may be relieved under the UK/Japan Double Taxation Convention (DTC) are Article 11 (interest), Article 12 (royalties) and Article 17 (pensions and annuities). Article 21 may operate to relieve from tax items of income not dealt with under any other article of the treaty, but specifically excludes from its scope any income paid out of trusts or the estates of deceased persons in the course of administration.
Article 10 of the treaty deals with dividends. Unlike its predecessor, the article does not contain a provision granting residents of Japan entitlement to tax credits in respect of dividends that are paid by UK companies to their shareholders. However, after 1 January 2007 it will be possible for UK Real Estate Investment Trusts (UK-REITs) to pay Property Income Distributions (PIDs) from which UK tax will be deducted. Claims may be made under the terms of Article 10 for repayment of some or all of that tax.
Please see further information about PIDs that are paid by UK-REITs
In broad terms, a claim for relief from UK tax may be made in two ways. A resident of Japan can claim repayment of tax already deducted from UK source income. It is also possible to make an application to HMRC Residency asking it to issue instructions to the UK payer of the income that future payments should be made without deduction of tax (or after deduction of tax at the rate specified in the treaty). However, it is not possible to ask for a Direction to be issued in respect of future payments of PIDs.
Individuals should complete form Japan-1-DT (PDF 112K).
Other claimants will need to complete either:
Forms to allow claims to be made under the terms of Article 10 for repayment of tax that is deducted from PIDs paid by UK-REITs will be published shortly on the HMRC Residency home page.
Any claim for treaty benefits for which a claim form is not provided should be made on form Japan-2-DT (completed as far as possible) and supported by a letter explaining what is being claimed and by whom.
Claim forms can be downloaded by visiting Applications and Claims by Non-residents under Double Taxation Treaties or by telephoning the HMRC-Residency Helpline. Each form has a set of guidance notes attached.
The method of claiming treaty benefits has not altered with the introduction of the new treaty. The completed form should be sent to the National Tax Agency office in Japan, which will certify the claimant’s tax status and return the certified form to the claimant who should then send the form to HMRC Residency. It is not HMRC Residency’s practice to process a form that has not been certified in this manner, although it is open to claimants to send HMRC Residency an advance copy of their claim, and HMRC Residency may consider it without prejudice, dependent upon receipt of the certified form.
The questions on the form are designed to ensure that HMRC Residency has all the information necessary to determine whether the claimant is entitled to treaty benefits. But as the new treaty contains provisions not found in the previous treaty (such as the limitation on benefits article) there are inevitably more questions than on the previous claim form. HMRC Residency has done all it can to keep the number of extra questions to a minimum consistent with the need to ensure that a claimant establishes entitlement to treaty benefits.
There is no form or set form of words for making a claim under the competent authority discretion provision at Article 22(6). Where a resident of Japan is not a 'qualified person' under any of the provisions in Article 22 and wants to rely upon the provision at Article 22(6) a letter detailing the reasons why the claimant thinks they are entitled to treaty benefits should, in the first instance, be sent to the address at the end of this Guidance Note. In addition claimants should complete the appropriate HMRC Residency claim form and send it in the normal way to the National Tax Agency office of Japan (see 'How do I claim relief?' above). Please attach a copy of the letter addressed to the Competent Authority to the claim form.
Some people may already have received clearance from HMRC for interest or royalties following an application under the previous treaty. Clearance under the previous treaty will normally have been granted for the duration of the loan or licensing agreement or until a review date has been reached. With the introduction of the new treaty, some of these clearances may need to be reviewed to ensure that the claimant continues to be entitled to the benefit of the interest or royalty article.
An existing Direction, issued under the terms of Statutory Instrument 1970/488 that interest and/or royalties are to be paid after retention of UK tax at the rate of 10 per cent, will not be reviewed by HMRC. If a resident of Japan who is paid an amount after deduction of tax of 10 per cent considers that they are entitled, under the terms of the 2006 treaty, to claim full relief from UK tax they must make a formal claim. The resident of Japan may at the same time make an application for UK tax relief at source on future payments of the income.
HMRC expects both the UK payer and the overseas applicant to consider whether they are still entitled to make and receive the payments without deducting income tax. If they believe they might not be, they should tell HMRC Residency as soon as possible.
Article 4(5) deals with entities that are 'fiscally transparent' for taxation purposes and directs the taxation authorities to 'look through' such concerns to establish eligibility to relief. Claims should be made in the name of any 'fiscally transparent concern' signed by a senior, general or managing partner or member, as appropriate. The claim should include information about all of the 'beneficiaries, members or participants of that entity' whether natural or legal persons. Where all of the partners etc are resident for tax purposes in Japan the name and address (residential or registered business addresses) should be given. If any participants are not residents of Japan, the schedule of beneficial owners should show each persons percentage share of the income that is the subject of the claim.
In cases of multiple ownership or where there non-Japanese tax resident persons are involved, HMRC Residency will need to decide if it is possible to authorise relief at source. In such cases, relief may be possible only by way of separate claims for repayment of tax made after a UK-source payment has been received and tax deducted from it.
Visit the HMRC Residency pages to find out more about how claims for relief under the UK’s tax treaties are processed.
HMRC Residency helpline: Tel 0845 070 0040 if calling from the UK, or +44 151 210 2222 if calling from outside the UK.
Send an email.