With reference to Article 23 (Limitation on
Benefits):
it is understood that the term "gross income" means the
total revenues derived by a resident of a Contracting State from
its principal operations, less the direct costs of obtaining such
revenues.
With reference to paragraph 4 of Article 23 (Limitation on
Benefits):
it is understood that an item of income, profit or gain is
to be considered as derived "in connection" with an active trade or
business in a Contracting State if the activity generating the item
in the other Contracting State is a line of business which forms a
part of, or is complementary to, the trade or business conducted in
the first-mentioned State. The line of business in the
first-mentioned State may be 'upstream' to that going on in the
other State (e.g., providing inputs to a manufacturing process that
occurs in that other State), 'downstream' (e.g., selling the output
of a manufacturer which is a resident of the other State) or
'parallel' (e.g., selling in one Contracting State the same sorts
of products that are being sold by the trade or business carried on
in the other Contracting State).
It is understood that an item of income, profit or gain
derived from a Contracting State would be considered "incidental"
to the trade or business carried on in the other Contracting State
if the item is not produced by a line of business which forms a
part of, or is complementary to, the trade or business conducted in
that other Contracting State by the recipient of the item, but the
production of such item facilitates the conduct of the trade or
business in that other Contracting State. An example of such
"incidental" item of income, profit or gain is interest income
earned from the short-term investment of working capital of a
resident of a Contracting State in securities issued by persons in
the other Contracting State.
With reference to paragraph 6 of Article 23 (Limitation on
Benefits):
it is understood that in applying paragraph 6 of Article 23,
the competent authorities will consider the obligations imposed
upon the United Kingdom by its membership of the European Community
and by its being a party to the European Economic Area Agreement,
and on the United States by its being a party to the North American
Free Trade Agreement. In particular, they will have regard to any
legal requirements for the facilitation of the free movement of
capital and persons, the differing internal tax systems, tax
incentive regimes and existing tax treaty policies among Member
States of the European Community or European Economic Area states,
or, as the case may be, parties to the North American Free Trade
Agreement.
Paragraph 6 of Article 23 requires the competent authority
of the State from which benefits are claimed to consider whether
the establishment, acquisition or maintenance of a resident and the
conduct of its operations had as one of its principal purposes the
obtaining of benefits under the Convention. That competent
authority may determine under a given set of facts that a change in
circumstances that would cause a qualified person to cease to
qualify for treaty benefits under paragraph 2 of Article 23 need
not result in a denial of benefits. Such changes in circumstances
may include:
(a) a change in the state of residence of a major
participator in a company;
(b) the sale of part of the ownership interests in a company
to a resident of another Member State of the European Community or
another European Economic Area state or, as the case may be,
another party to the North American Free Trade Agreement; or
(c) an expansion of a company's activities in other Member
States of the European Community or other European Economic Area
states or, as the case may be, other parties to the North American
Free Trade Agreement,
all under ordinary business conditions.
If the competent authority is satisfied that these changed
circumstances are not attributable to tax avoidance motives, this
will be a factor weighing in favour of granting benefits in
accordance with paragraph 6 of Article 23.
With reference to sub-paragraph (e) of paragraph 7 of
Article 23 (Limitation on Benefits):
it is understood that, if a class of shares was not listed
on a recognised stock exchange in the twelve months referred to in
the sub-paragraph, that class of shares will be treated as
regularly traded only if that class meets the aggregate trading
requirements of the sub- paragraph for the taxable or chargeable
period in which the income arises.
