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HMRC internal manual

Double Taxation Relief Manual

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

Old Agreement

Article 27A provides that a person who is a resident of the United States and carries on activities in the United Kingdom in connection with the exploration and exploitation of the sea bed etc. in the United Kingdom is deemed to be carrying on a business in respect of those activities in the United Kingdom through a permanent establishment or fixed base in the United Kingdom. The United Kingdom includes designated areas of the Continental Shelf (Article 3(1)(h)(i)).

This Article overrides the provisions of Article 5 (permanent establishment) and Article 14 (independent personal services) but does not override Article 15 (dependent personal services). Consequently, the remuneration of an employee of an United States enterprise working on the Continental Shelf will be subject to the provisions of Article 15. If the enterprise has a physical presence in the United Kingdom, including its Continental Shelf, then it will be deemed to have a permanent establishment in the United Kingdom. If the remuneration of its employees is borne by that deemed permanent establishment, then they will not avoid liability to tax under Schedule E on their remuneration although they may not be present in the United Kingdom for more than 183 days in the year of assessment.

If, however, the United States employing enterprise merely ‘hires out’ its employees to contractors working on the Continental Shelf, it is not considered that such an enterprise is carrying on activities in connection with the exploration or exploitation of the sea bed etc. It does not therefore have a permanent establishment in the United Kingdom and its employees will therefore be subject to the normal provisions of Article 15.

See the guidance at DT1920 in connection with the application of the provisions of Article 15 and, in particular, the advice concerning the identity of the employer where employees are ‘hired out’.

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New Agreement

Article 21 contains provisions for the treatment of activities in connection with the exploration or exploitation of the sea bed and sub-soil and their natural resources.

The Article provides that

an enterprise of one country carrying on such activities in the other country is deemed to be carrying on a business in the other country through a permanent establishment and thus is taxable there in accordance with Article 7 While exploitation activities will always constitute a permanent establishment, exploration activities create a permanent establishment only if they continue for a period exceeding, in the aggregate, 30 days in a twelve-month period.

in general, remuneration earned by a resident of one country in respect of employment in respect of exploration or exploitation activities carried on offshore in the other country may be taxed in that other country. The exception is if the employment in the other country does not exceed 30 days in any twelve month period. Unlike the permanent establishment rule the 30 day limit applies to both exploration and exploitation activities or any combination of them.

Capital gains in respect of exploration or exploitation rights etc. are covered in Article 13 (Gains).