If the non-resident is a resident of a country with which the
United Kingdom has a double taxation agreement then we have to
consider the provisions of the agreement as well as domestic law
before we can decide whether there is liability. Our domestic law
cannot generally overide an agreement. However an agreement cannot
impose a charge to tax where one does not already exist at all
under our domestic law. Therefore an agreement may exempt where our
domestic law would charge and an agreement may contemplate
liability which our domestic law cannot enforce.
Our domestic law, in deciding whether a non-resident trader
should be taxed, simply asks the question - is the trade being
exercised in the United Kingdom? However the business profits
Article in the OECD model agreement (see DT211) provides that
country A can tax the profits of an enterprise of a resident of
country B, an agreement partner, only if it has a permanent
establishment (see DT205) in country A.
In considering whether the business profits of an enterprise
of a country A with which there is an agreement are taxable in the
United Kingdom, it is necessary to decide
a) whether a trade is being carried on in the United Kingdom,
b) if it is, whether it is carried on through a permanent establishment in the United Kingdom.
For companies it is also necessary, for the purpose of a charge to Corporation Tax, to determine whether the trade is carried on through a branch or agency. Most non-residents, whether companies or not, who trade in the United Kingdom do so through a branch or agency. In many cases a branch or agency will be a permanent establishment and vice versa. A non-resident may however trade in the United Kingdom through a branch or agency which is not a permanent establishment, or may have a permanent establishment here of which the activities do not amount to trading in the United Kingdom.
