Under most agreements if, by reason of a special relationship
between the payer of the royalties and the recipient or beneficial
owner, or between them and some other person, the amount of the
royalties paid exceeds, for whatever reason, the amount which would
have been agreed upon in the absence of the special relationship,
relief from United Kingdom tax is available only in respect of the
last mentioned amount.
In applying that provision we need to consider
a) whether the transactions which give rise to the royalty payments would have taken place in the absence of the special relationship
and
b) whether the rate at which the royalty is paid exceeds that which would have been agreed upon in the absence of the special relationship.
The phrase `special relationship' encompasses a wider range of
relationships than those identified by `connected persons'
legislation in United Kingdom domestic law.
A special relationship exists not only where the parties are
associated (parent and subsidiary companies or companies under
common control), but also where there is any community of interests
as distinct from the legal relationship giving rise to the payment
of the royalty. This is discussed in the Commentary on paragraph 4
of Article 12 of the OECD Model Tax Convention on Income and on
Capital (DT153 and DT21500 - DT21503). It is this wider concept of
a `special relationship' that has to be applied when considering a
claim under an agreement.
