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HMRC internal manual

Double Taxation Relief Manual

HM Revenue & Customs
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Non-residents: UK income: Agreement partner resident

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.