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HMRC internal manual

Double Taxation Relief Manual

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HM Revenue & Customs
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DT: Luxembourg: double taxation agreement, Article 25: Elimination of double taxation

 

(1) Subject to the provisions of the law of the United Kingdom regarding the allowance as a credit against United Kingdom tax of tax payable in a territory outside the United Kingdom (which shall not affect the general principle hereof), Luxembourg tax payable under the laws of Luxembourg and in accordance with this Convention (excluding, in the case of a dividend, any tax payable on the profits, income or chargeable gains of the company paying the dividend) whether directly or by deduction, on profits, income or chargeable gains from sources within Luxembourg shall be allowed as a credit against any United Kingdom tax computed by reference to the same profits, income or chargeable gains by reference to which the Luxembourg tax is computed. In the case of a dividend paid by a company which is a resident of Luxembourg to a company which is a resident of the United Kingdom and which controls directly not less than 25 per cent of the voting power in the Luxembourg company, the credit shall take into account (in addition to any Luxembourg taxpayable in respect of the dividend) the Luxembourg tax payable by the company in respect of its profits. For the purpose of this paragraph:

 

(a) the term ` Luxembourg tax ` shall not include capital tax (l’impot sur la fortune) or communal trade tax (l’impot commercial communal) computed on a basis other than profits;

(b) income which under the Convention may be taxed in Luxembourg shall be deemed to be income from sources in Luxembourg.

Article 25(2) was substituted by SI84/364 as below;

(2)

(a) Where a resident of Luxembourg derives income or owns capital which, in accordance with the provisions of this Convention may be taxed in the United Kingdom, Luxembourg shall, subject to the provisions of subparagraphs (b) and (d) of this paragraph, exempt such income or capital from tax.

(b) Where a resident of Luxembourg derives items of income which, in accordance with the provisions of Articles 10, 12, 13A and paragraph (2) of Article 18, may be taxed in the United Kingdom, Luxembourg shall, subject to the provisions of sub- paragraph (c) of this paragraph, allow as a deduction from the tax on the income of that resident an amount equal to the tax paid in respect of such items of income in the United Kingdom. Such deduction shall not, however, exceed that part of the tax, as computed before the deduction is given, which is attributable to such items of income derived from the United Kingdom.

Where, in the case of a dividend to which the provisions of sub-paragraph (c) of paragraph (3) of Article 10 apply, the company receiving the dividend is outside the scope of sub-paragraph (c) of this paragraph, then the difference between the tax credit referred to in sub-paragraph (b) of paragraph (3) of Article 10 and the tax credit referred to in sub-paragraph (c) of paragraph (3) of Article 10 shall be assimilated, for the purposes of the preceding sentence, to United Kingdom tax but the total of this difference and the tax charged in the United Kingdom in accordance with the provisions of sub-paragraph (a) (ii) of paragraph (3) of Article 10 shall not exceed the amount of tax referred to in sub-paragraph (b) of paragraph (2) of Article 10.

(c) Where dividends paid by a company which is a resident of the United Kingdom to a company which is a resident of Luxembourg are exempt from Luxembourg tax in accordance with Luxembourg law, the tax deducted in the United Kingdom on such dividends shall not be credited against Luxembourg tax.

(d) Where in accordance with any provision of this Convention income derived and capital owned by a resident of Luxembourg is exempt from tax in Luxembourg, that State may nevertheless, in calculating the amount of tax on the remaining income or capital of such resident, take into account the exempted income or capital.

(3) Where profits on which an enterprise of one of the Contracting States has been charged to tax in that Contracting State are also included in the profits of an enterprise of the other Contracting State and the profits so included are profits which would have accrued to that enterprise of the other Contracting State if the conditions made between each of the enterprises had been those which would have been made between independent enterprises dealing at arm’s length, the amount of such profits included in the profits ofboth enterprises shall be treated for the purpose of this Article as income from a source in the other Contracting State of the enterprise of the first-mentioned Contracting State and relief shall be given accordingly under paragraph (1) or paragraph (2) of this Article.