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HMRC internal manual

Double Taxation Relief Manual

From
HM Revenue & Customs
Updated
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USA: double taxation agreement, Article 16: Investment or holding companies

Replaced by new DTA, which applies in UK from 1st April 2003 for CT, 6th April 2003 for IT and 1st January 2004 for PRT. For US withholding taxes it applies from 1st May 2003 and for other US taxes from 1st January 2004. See DT19939N for nearest equivalent.

(1) The provisions of Articles 10 (Dividends), 11 (Interest) or 12 (Royalties) of this Convention shall not apply to a corporation which is a resident of one of the Contracting States and which derives dividends, interest, or royalties arising within the other Contracting State if:

(a)

(i) the tax imposed on the corporation by the first-mentioned Contracting State in respect of such dividends, interest or royalties is substantially less than the tax generally imposed by that State on corporate profits; or

(ii) the corporation is a resident of the United States and receives more than 80 per cent of its gross income from sources outside the United States as determined by and for the period prescribed in sections 861(a)(1)(B) and (a)(2)(A) of the United States Internal Revenue Code of 1954, as they may be amended from time to time in minor respects so as not to affect their general principle; and

(b) 25 per cent or more of the capital of such corporation is owned, directly or indirectly, by one or more persons who are not individual residents of the first-mentioned Contracting State and are not nationals of the United States.

(2) Nothing in this Article shall however prevent a claim under the provisions of Articles 10 (Dividends), 11 (Interest) or 12 (Royalties) by a United States corporation where more than 75 per cent of the capital of that corporation directly or indirectly owned:

(a) by a United States corporation which receives 20 per cent or more of its gross income from sources within the United States as determined by and for the period described in subparagraph (1)(a)(ii) of this Article: or

(b) by a corporation (other than a United States corporation) which by reference to the provisions of section 283 of the United Kingdom Income and Corporation Taxes Act 1970(a) (as it may be amended from time to time without changing the general principle thereof) would not fall to be treated as a close company; or

(c) by a corporation which is a resident of the United Kingdom and in which more than 50 per cent of the voting power is controlled, directly or indirectly, by individuals who are residents of the United Kingdom.