INTM162031 - UK residents with foreign income or gains: double taxation relief - claims and procedures - certificates of residence and companies

A company may claim relief from foreign tax under a Double Taxation Convention (DTC) only if it is "a resident of the UK" for the purpose of the DTC in question. Typically a company will be a resident of the UK if, under UK law, it is liable to tax in the UK by reason of its domicile, residence, place of management, place of incorporation or any other criterion of a similar nature. A company is resident in the UK if its central management and control is here (the “case law rule”) or if it is incorporated in the UK (CTA09/S14) unless

• it migrated with Treasury consent before 15 March 1988, continues to carry on a business and is centrally managed and controlled outside the UK; or
• it is treated as not resident in the UK by virtue of CTA09/S18 (under which a company is treated as non-resident if it is so treated for the purposes of a DTC).

Being UK resident may be the only general condition for claiming relief from the tax of another State, e.g. if the company has manufacturing or retailing profits and it does not have a permanent establishment in the other State to which the profits are attributable.

But if the company derives dividends, interest or royalties from the other State, then typically it will also have to be either the beneficial owner of the income in question, or be subject to tax in the UK in respect of the income. The relevant DTC will need to be considered for any additional conditions before relief can be claimed.

Examining a Claim

HMRC will support companies that are UK resident in their legitimate claims to relief from foreign tax where a DTC is in place, just as companies that are residents of a foreign State will expect the tax authorities of that State to support them in their legitimate claims to relief from UK tax under a DTC.

If a UK company claims relief from foreign tax under a DTC, the other State will verify that the conditions for relief are met and will ask appropriate questions if the position is not immediately clear.

HMRC must take reasonable precautions against any statements made by it being used to obtain relief from foreign tax if that relief is not due. It is important that we do not jeopardise our relations with other States as we have a responsibility to maintain the UK's reputation in this area.

We therefore need to ask a company for sufficient information to verify the accuracy of statements that we are asked to make in support of its claim to relief from foreign tax under a DTC. A certificate of residence should not be issued if you think that to do so would not be in accordance with the relevant DTC. However, before a formal refusal is issued please refer to CTIAA, Business International, Outward Investment Team.

For example, a residence certificate will not be given if the UK company concerned is not the beneficial owner of the profits or income in question. This will be the case if, for example, it acts as an agent for another person rather than as principal. We have also seen cases where a UK company has lent its name to a transaction when the beneficial owner of the profits or income resulting from that transaction is a different person.

It would be wrong for us to certify the residence status of a UK-incorporated company if the certificate is likely to be used to support a claim to relief from foreign tax in such circumstances, since it is the beneficial owner who may be entitled to claim relief. This would be the case even if the UK company was rewarded by the other person, for example by a payment of commission or for the use of its name, since this would not be the income that was the subject of the claim under the DTC. It would also be wrong to certify UK residence if we have insufficient information to form a view on whether or not the profits or income concerned are profits or income of the UK company .