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HMRC internal manual

Double Taxation Relief Manual

Non-residents: UK income: Other income included in profits

Where the profits of the permanent establishment include income which is dealt with in other Articles of an agreement, for example, dividends, interest or royalties, such income is dealt with in accordance with the provisions of those Articles. However, in most cases such income will be `effectively connected with the permanent establishment’ (see DT214, fifth sub-para.), and will be part of the business profits of the permanent establishment. For example, a permanent establishment of a non-resident enterprise invests its surplus funds in United Kingdom interest bearing securities. Although the interest Article in the agreement may provide for exemption from, or for a reduced rate of, United Kingdom tax on interest flowing to a non-resident, the interest will be part of the permanent establishment’s business profits and chargeable to United Kingdom tax under Case III of Schedule D without any relief being allowed under the interest Article.