If the overseas recipient is a resident of a country with which
we have a double taxation agreement, the agreement may provide for
royalties either to be exempt from United Kingdom tax or to be
liable to United Kingdom tax at a reduced rate.
Where there is such an agreement the overseas recipient (but
not the United Kingdom payer of the royalty) may claim relief from
United Kingdom tax accordingly. Such claims are dealt with by FICO
(International), Nottingham. FICO need information to enable them
to consider whether all the conditions of the relevant agreement
are satisfied. Their main concerns are:-
a) whether the royalty payment is of a type covered by the agreement (DT1915);
b) whether the overseas claimant is the beneficial owner of the royalties or, less commonly, subject to tax in their country of residence on the royalties (DT1916);
c) whether there is a `special relationship' between the parties (DT1917 - DT1918)
and
d) whether the anti-abuse provision of the royalty Article in the relevant agreement is in point (DT1919).
It will also be necessary to check that the right or property in
respect of which the royalties are paid is not effectively
connected with any permanent establishment or fixed base that the
claimant may have in the United Kingdom. The definition of a
permanent establishment in the relevant agreement and the guidance
in DT1710 - DT1715 and DT216 on what is meant by a permanent
establishment and by `effectively connected with' should be
considered.
The same considerations apply when interest is paid abroad,
although more of the enquiries are then conducted by the District
or by International Division on behalf of FICO (International). See
DT1919B for more detailed guidance on aspects of particular
relevance to interest.
