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HMRC internal manual

Double Taxation Relief Manual

From
HM Revenue & Customs
Updated
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Non-residents: UK income: Returns and reports: Enquiries by FICO - anti-abuse provision

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Some treaties contain anti-abuse provisions within the royalty Article. One form of such a provision is found in the royalty Article of the agreement with France: `The provisions of this Article shall not apply if the right or property giving rise to the royalties was created or assigned mainly for the purpose of taking advantage of this Article and not for bona fide commercial reasons’.

A more modern form of the provision is found in, for example, the royalty Article of the agreement with Korea: \`The provisions of this Article shall not apply if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the rights in respect of which the royalties are paid to take advantage of this Article by means of that creation or assignment.'   
  
Where there is a provision of the kind described above, FICO will consider whether the facts and circumstances of a particular claim are such that the provision should apply to deny relief from United Kingdom tax.   
  
The diagrams below illustrate the sorts of issues that might arise. 

![1919.gif (3619 bytes)](http://www.hmrc.gov.uk/gds/dt/images/1919.gif)

By channelling the royalty payments through a treaty partner country, the non-treaty partner is effectively receiving the royalties gross. If the royalties were paid directly to the non-treaty partner country, they would be subject to deduction of Income Tax.