Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Double Taxation Relief Manual

From
HM Revenue & Customs
Updated
, see all updates

USA: Double taxation agreement, Article 10: Dividends

  1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.
  2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the dividends are beneficially owned by a resident of the other Contracting State, the tax so charged shall not exceed, except as otherwise provided,

(a) 5 per cent. of the gross amount of the dividends if the beneficial owner is a company that owns shares representing directly or indirectly at least 10 per cent. of the voting power of the company paying the dividends;

(b) 15 per cent. of the gross amount of the dividends in all other cases.

This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.

  1. Notwithstanding the provisions of paragraph 2 of this Article, dividends shall not be taxed in the Contracting State of which the company paying the dividends is a resident if the beneficial owner of the dividends is a resident of the other Contracting State and either:

(a) a company that has owned shares representing 80 per cent. or more of the voting power of the company paying the dividends for a 12-month period ending on the date the dividend is declared, and that:

(i) owned shares representing, directly or indirectly, at least 80 per cent. of the voting power of the company paying the dividends prior to October 1st, 1998; or

(ii) is a qualified person by reason of sub-paragraph c) of paragraph 2 of Article 23 (Limitation on Benefits) of this Convention; or

(b) a pension scheme, provided that such dividends are not derived from the carrying on of a business, directly or indirectly, by such pension scheme.

  1. Sub-paragraph (a) of paragraph 2 and sub-paragraph (a) of paragraph 3 of this Article shall not apply in the case of dividends paid by a pooled investment vehicle which is a resident of a Contracting State. Sub-paragraph (b) of paragraph 2 and sub-paragraph (b) of paragraph 3 of this Article shall apply in the case of dividends paid by a pooled investment vehicle, the assets of which consist wholly or mainly of shares, securities or currencies or derivative contracts relating to shares, securities or currencies. In the case of dividends paid by a pooled investment vehicle not described in the preceding sentence, sub-paragraph (b) of paragraph 2 and sub-paragraph (b) of paragraph 3 of this Article shall apply only if

the beneficial owner of the dividends is an individual or pension scheme, in either case holding an interest of not more than 10 per cent. in the pooled investment vehicle;

the dividends are paid with respect to a class of stock that is publicly traded and the beneficial owner of the dividends is a person holding an interest of not more than 5 per cent. of any class of the stock of the pooled investment vehicle; or

the beneficial owner of the dividends is a person holding an interest of not more than 10 per cent. in the pooled investment vehicle and that vehicle is diversified.

  1. The previous provisions of this Article shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State, of which the payer is a resident, through a permanent establishment situated therein, and the dividends are attributable to such permanent establishment. In such case, the provisions of Article 7 (Business Profits) of this Convention shall apply.
  2. A Contracting State may not impose any tax on dividends paid by a company which is a resident of the other Contracting State, except insofar as the dividends are paid to a resident of the first-mentioned State or the dividends are attributable to a permanent establishment situated in that State, nor may it impose tax on a company’s undistributed profits, except as provided in paragraph 7 of this Article, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in that State.
  3. A company that is a resident of a Contracting State and that has a permanent establishment in the other Contracting State, or that is subject to tax in that other State on a net basis on its income or gains that may be taxed in that other State under Article 6 (Income from Real Property) or under paragraph 1 of Article 13 (Gains) of this Convention, may be subject in that other State to a tax in addition to any tax that may be imposed by that other State in accordance with the other provisions of this Convention. Such tax, however, may be imposed on only the portion of the business profits of the company attributable to the permanent establishment, and the portion of the income or gains referred to in the preceding sentence that is subject to tax under Article 6 or under paragraph 1 of Article 13, that, in the case of the United States, represents the dividend equivalent amount of such profits, income or gains and, in the case of the United Kingdom, is an amount that is analogous to the dividend equivalent amount. This paragraph shall not apply in the case of a company which:

(a) prior to October 1st, 1998 was engaged in activities giving rise to profits attributable to that permanent establishment or to income or gains to which the provisions of Article 6 or, as the case may be, paragraph 1 of Article 13 apply;

(b) is a qualified person by reason of sub-paragraph (c) of paragraph 2 of Article 23 (Limitation on Benefits) of this Convention; or

(c) is entitled to benefits under paragraph 3 or paragraph 6 of that Article with respect to an item of income, profit or gain described in this paragraph.

  1. The additional tax referred to in paragraph 7 of this Article may not be imposed at a rate in excess of the rate specified in sub-paragraph (a) of paragraph 2 of this Article.
  2. The provisions of this Article shall not apply in respect of any dividend paid under, or as part of, a conduit arrangement.
  3. For the purposes of this Article:

(a) the term “dividends” means income from shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights and any other item which, under the laws of the Contracting State of which the company paying the dividend is a resident, is treated as a dividend or a distribution of a company;

(b) the term “pooled investment vehicle” means a person:

(i) whose assets consist wholly or mainly of real property, or of shares, securities or currencies, or of derivative contracts relating to shares, securities or currencies or real property;

(ii) whose gross income consists wholly or mainly of dividends, interest, gains from the alienation of assets and rents and other income and gains from the holding and alienation of real property; and

(iii) which, in respect of its income, profits or gains, is exempt from, or is not chargeable to, tax in the State of which it is a resident, or is subject to tax at a special rate in that State, or which is entitled to a deduction for dividends paid to its shareholders in computing the amount of its income, profits or gains;

(c) a pooled investment vehicle is “diversified” if the value of no single interest in real property exceeds 10 per cent. of the pooled investment vehicle’s total interests in real property. For the purposes of this rule, foreclosure property shall not be considered an interest in real property. Where a pooled investment vehicle holds an interest in a partnership, it shall be treated as owning directly a proportion of the partnership’s interests in real property corresponding to the proportion of its interest in the partnership.

(Further clarification to paragraph 7 may be found at DT 19939Y)