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HMRC internal manual

Double Taxation Relief Manual

Non-residents: UK income: Returns and reports: Enquiries by FICO - effect of agreements

If the overseas recipient is a resident of a country with which we have a double taxation agreement, the agreement may provide for royalties either to be exempt from United Kingdom tax or to be liable to United Kingdom tax at a reduced rate.

Where there is such an agreement the overseas recipient (but not the United Kingdom payer of the royalty) may claim relief from United Kingdom tax accordingly. Such claims are dealt with by FICO (International), Nottingham. FICO need information to enable them to consider whether all the conditions of the relevant agreement are satisfied. Their main concerns are:-

a) whether the royalty payment is of a type covered by the agreement (DT1915);
b) whether the overseas claimant is the beneficial owner of the royalties or, less commonly, subject to tax in their country of residence on the royalties (DT1916);
c) whether there is a `special relationship’ between the parties (DT1917 - DT1918)
d) whether the anti-abuse provision of the royalty Article in the relevant agreement is in point (DT1919).
It will also be necessary to check that the right or property in respect of which the royalties are paid is not effectively connected with any permanent establishment or fixed base that the claimant may have in the United Kingdom. The definition of a permanent establishment in the relevant agreement and the guidance in DT1710 - DT1715 and DT216 on what is meant by a permanent establishment and by `effectively connected with’ should be considered.

The same considerations apply when interest is paid abroad, although more of the enquiries are then conducted by the District or by International Division on behalf of FICO (International). See DT1919B for more detailed guidance on aspects of particular relevance to interest.