Replaced by new DTA, which applies in UK from 1st April 2003 for
CT, 6th April 2003 for IT and 1st January 2004 for PRT. For US
withholding taxes it applies from 1st May 2003 and for other US
taxes from 1st January 2004. See DT19939.
(1) Dividends derived from a corporation which is a resident
of a Contracting State by a resident of the other Contracting State
may be taxed in the other Contracting State. However, such
dividends may be taxed in the Contracting State of which the
corporation paying the dividends is a resident, but if the
beneficial owner is a resident of the other Contracting State, the
tax so charged shall not exceed 15 per cent of the gross amount of
the dividends.
(2) As long as an individual resident in the United Kingdom
is entitled under United Kingdom law to a tax credit in respect of
dividends paid by a corporation which is resident in the United
Kingdom, paragraph (1) of this Article shall not apply. In these
circumstances, dividends derived from a corporation which is a
resident of a Contracting State by a resident of the other
Contracting State may be taxed in the other Contracting State.
However, such dividends may be taxed in the Contracting State of
which the corporation paying the dividends is a resident, but if
the beneficial owner is a resident of the other Contracting State,
the tax so charged shall not exceed the tax provided in
sub-paragraphs (a) and (b) below:
(a) In the case of dividends paid by a corporation which is
a resident of the United Kingdom:
(i) to a United States corporation which either alone or
together with one or more associated corporations controls,
directly or indirectly, at least 10 per cent of the voting stock of
the corporation which is a resident of the United Kingdom paying
the dividend, the United States corporation shall be entitled to a
payment from the United Kingdom of a tax credit equal to one-half
of the tax credit to which an individual resident in the United
Kingdom would have been entitled had he received the dividend,
subject to the deduction withheld from such payment and according
to the laws of the United Kingdom of an amount not exceeding 5 per
cent of the aggregate of the amount or value of the dividend and
the amount of the tax credit paid to such corporation;
(ii) in all other cases, the resident of the United States
to whom such dividend is paid shall be entitled to a payment from
the United Kingdom of the tax credit to which an individual
resident in the United Kingdom would have been entitled had he
received the dividend, subject to the deduction withheld from such
payment and according to the laws of the United Kingdom of an
amount not exceeding 15 per cent of the aggregate of the amount or
value of the dividend and the amount of the tax credit paid to such
resident;
(iii) the aggregate of the amount or value of the dividend
and the amount of the tax credit referred to in sub-paragraphs (a)
(i) and (ii) of this paragraph paid by the United Kingdom to the
United States corporation or other resident (without reduction for
the 5 or 15 per cent deduction, as the case may be, by the United
Kingdom) shall be treated as a dividend for United States tax
credit purposes.
(b) In the case of dividends paid by a United States
corporation:
(i) to a corporation which is a resident of the United
Kingdom and controls, directly or indirectly, at least 10 per cent
of the voting stock of the United States corporation paying such
dividend, the tax charged by the United States shall not exceed 5
per cent of the gross amount of the dividend;
(ii) in all other cases, the tax charged by the United
States on payment of a dividend to a resident of the United Kingdom
shall not exceed 15 per cent of the gross amount of the dividend.
For the purposes of this paragraph, two corporations shall
be deemed to be associated if one controls directly or indirectly
more than 50 per cent of the voting power in the other corporation,
or a third corporation controls more than 50 per cent of the voting
power in both of them.
(3) The term `dividends` for United Kingdom tax purposes
includes any item which under the law of the United Kingdom is
treated as a distribution and for United States tax purposes
includes any item which under the law of the United States is
treated as a distribution out of earnings and profits.
(4) Paragraphs (1) or (2), as the case may be, shall not
apply if the person deriving the dividends, being a resident of a
Contracting State, carries on business in the other Contracting
State through a permanent establishment situated therein, or
performs in that other State independent personal services from a
fixed base situated therein, and the holding in respect of which
the dividends are paid is effectively connected with such permanent
establishment or fixed base. In such a case the provisions of
Articles 7 (Business profits), 14 (Independent personal services),
or 17 (Artistes and athletes), as the case may be, shall apply.
(5) Where a corporation which is a resident of a Contracting
State (and not a resident of the other Contracting State) derives
profits or income from the other Contracting State, that other
State may not impose any tax on the dividends paid by the
corporation, except insofar as such dividends are paid to a
resident of that other State (and where that other State is the
United States, to a national of the United States) or insofar as
the holding in respect of which the dividends are paid is
effectively connected with a permanent establishment or fixed base
situated in that other State, even if the dividends paid consist
wholly or partly of profits or income arising in that other State.
(6) A corporation which is a resident of the United Kingdom
shall be exempt from United States tax on its accumulated or
undistributed earnings, profit, income or surplus, if individuals
(other than nationals of the United States) who are residents of
the United Kingdom control, directly or indirectly, throughout the
last half of the taxable year, more than 50 per cent of the entire
voting power in such corporation.
(7)
(a) If the beneficial owner of a dividend being a resident
of a Contracting State owns 10 per cent or more of the class of
shares of a corporation in respect of which the dividend is paid,
then paragraph (1), or as the case may be paragraph (2), of this
Article shall not apply to the dividend to the extent that it can
have been paid only out of profits which the corporation paying the
dividend earned or other income which it received in a period
ending 12 months or more before the relevant date. For the purposes
of this paragraph the term `relevant date` means the date on which
the beneficial owner of the dividend became the owner of 10 per
cent or more of the class of shares in question.
(b) Paragraphs (1) and (2) of this Article shall not apply
if:
(i) the recipient of the dividend is exempt from tax thereon
in the United States; and
(ii) the dividend is paid in such circumstances that, if the
recipient were a resident of the United Kingdom exempt from United
Kingdom tax the exemption would be limited or removed.
Provided that this paragraph shall not apply if the
beneficial owner of the dividend shows that the shares were
acquired for bona fide commercial reasons and not primarily for the
purposes of securing the benefit of this Article.
