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HMRC internal manual

Double Taxation Relief Manual

From
HM Revenue & Customs
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DT: Sri Lanka: double taxation agreement, Article 21: 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):
(a) Sri Lanka tax payable under the law of Sri Lanka and in accordance with this Convention, whether directly or by deduction, on profits, income or chargeable gains from sources within Sri Lanka (excluding in the case of a dividend, tax payable in respect of the profits out of which the dividend is paid) 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 Sri Lanka tax is computed.
(b) In the case of a dividend paid by a company which is a resident of Sri Lanka to a company which is a resident of the United Kingdom and which controls directly or indirectly at least 10 per cent of the voting power in the company paying the dividend, the credit shall take into account (in addition to Sri Lanka tax creditable under the provisions of sub-paragraph (a) of this paragraph) the Sri Lanka tax payable by the company in respect of the profits out of which such dividend is paid.
(2) For the purposes of paragraph (1) of this Article, the term `Sri Lanka tax payable` shall be deemed to include any amount which would have been payable as Sri Lanka tax for any year but for an exemption or reduction of tax granted for that year or any part thereof under:
Article 21(2)(a) was amended, as below, before the Convention entered into force

(a) any of the following provisions, that is to say Sections 6(2)(v), 6(2)(vi), 6(3), 6B, 6C, 6D, 7A(2)(a), 7A(4) and 73A of the Sri Lanka Inland Revenue Act No. 4 of 1963 and Sections 11(b), 16, 17, 18, 20, 21 and 85 of the Sri Lanka Inland Revenue Act No. 28 of 1979 so far as they were in force on, and have not been modified since. the date of the signature of this Convention, or have been modified only in minor respects so as not to affect their general character; or
(b) any agreement entered into under Section 17 of the Greater Colombo Economic Commission Law No. 4 of 1978 which provides

(i) for an exemption from tax provided that the enterprise qualifying for that exemption could have qualified for exemption under any of the provisions referred to in sub-paragraph (a) of this paragraph and that the amount of the credit allowed against United Kingdom tax shall not exceed the credit which could have been given if the exemption from Sri Lanka tax had been granted under those provisions;
(ii) for a reduction of tax, subject to the mutual agreement of the competent authorities in each case, or

(c) any other provision which may subsequently be made granting an exemption or reduction of tax which is agreed by the competent authorities to be of a substantially similar character, if it has not been modified thereafter or has been modified only in minor respects so as not to affect its general character.
Provided that relief from United Kingdom tax shall not be given by virtue of this paragraph in respect of income from any source if the income arises in a period starting more than ten years after the exemption from, or reduction of, Sri Lanka tax was first granted in respect of that source.
(3) Subject to the provisions of the law of Sri Lanka regarding the allowance as a credit against Sri Lanka tax of tax payable in a territory outside Sri Lanka (which shall not affect the general principle hereof):
(a) United Kingdom tax payable under the laws of the United Kingdom and in accordance with this Convention, whether directly or by deduction, on profits, income or chargeable gains from sources within the United Kingdom (excluding in the case of a dividend, tax payable in respect of the profits out of which the dividend is paid) shall be allowed as a credit against any Sri Lanka tax computed by reference to the same profits, income or chargeable gains by reference to which the United Kingdom tax is computed.
(b) In the case of a dividend paid by a company which is a resident of the United Kingdom to a company which is a resident of Sri Lanka and which controls directly or indirectly at least 10 per cent of the voting power in the United Kingdom company, the credit shall take into account (in addition to any United Kingdom tax creditable under the provisions of sub-paragraph (a) of this paragraph) the United Kingdom tax payable by the company in respect of the profits out of which such dividend is paid.
(4) For the purposes of paragraphs (1) and (3) of this Article, profits, income and capital gains owned by a resident of a Contracting State which may be taxed in the other Contracting State in accordance with this Convention shall be deemed to arise from sources in that other Contracting State.
(5) Where profits on which an enterprise of a Contracting State has been charged to tax in that 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 State if the conditions made between the enterprises had been those which would have been made between independent enterprises dealing at arm’s length, the amount included in the profits of both enterprises shall be treated for the purposes of this Article as income from a source in the other State of the enterprise of the first-mentioned State and relief shall be given accordingly under the provisions of paragraph (1) or paragraph (3) of this Article.
(6) Where under any provision of this Convention income is relieved from Sri Lanka tax, and, under the law in force in the United Kingdom, an individual in respect of the said income is subject to tax by reference to the amount thereof which is remitted to or received in the United Kingdom and not by reference to the full amount thereof, then the relief to be allowed under this Convention in Sri Lanka shall apply only to so much of the income as is remitted to or received in the United Kingdom.