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HMRC internal manual

Double Taxation Relief Manual

Double Taxation Relief Manual: Guidance by country: United States of America: Scope

Article 1(4) [Article 1(3) in the old agreement] provides that subject to some exceptions which are set out below, each country reserve their rights to tax their residents and citizens in accordance with their domestic laws, notwithstanding anything in the treaty to the contrary.

However, there are exceptions to the clause so that some of the benefits provided by the treaty are available to all citizens and residents of the UK and the USA.

For example, the benefit of:

i) non-discrimination on the grounds of nationality;

exemptions for certain pension distributions and social security payments;

double taxation relief for certain income taxes paid in the other contracting state even where such relief may not be available under domestic tax law;

access to the mutual agreement procedure for resolving issues of taxation not in accordance with the treaty;

host country exemption for the income of diplomatic agents and consular officials;

host country exemption from tax for certain income of students, business apprentices and teachers.

The Article has a more limited application in the United Kingdom, but it will, for example, enable the United Kingdom to tax a member of a United States partnership who resides in and is a resident of the United Kingdom on his share of the partnership profits even though the partnership may have no permanent establishment in the United Kingdom.

Article 24(6)(a) [Article 23(3) in the old Agreement] provides that the United Kingdom is not required to give credit for United States tax charged on a United States national who is resident in the United Kingdom in respect of income which he derives from sources outside the United States as determined under United Kingdom laws. Any case where a United States citizen, who is resident in the United Kingdom, claims tax credit relief for United States tax payable in respect of earnings from an employment exercised in the United Kingdom should be referred to CT & VAT, International CT..