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HMRC internal manual

Double Taxation Relief Manual

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HM Revenue & Customs
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DT: Double taxation agreement, Exchange of Notes: Article 1

With reference to paragraph 3 of Article 1 (General Scope):

it is understood that, at the time of the signing of the Convention, the only agreements in force as between the two Contracting States that may impose national treatment or most-favoured nation obligations are the General Agreement on Trade in Services, the General Agreement on Tariffs and Trade, A Convention to Regulate the Commerce between the Territories of the United States and of His Britannic Majesty, signed in London on July 3rd, 1815, and the Treaty of Amity, Commerce, and Navigation, between His Britannic Majesty and the United States of America, signed at London, on November 19th, 1794. If it is determined that there were, at the date of the signing of the Convention, additional agreements in force between the Contracting States that create such obligations, the Contracting States will consider whether amendments to the Convention are necessary to ensure the proper interaction of the Convention and such other agreement with respect to tax measures.

With reference to paragraph 6 of Article 1 (General Scope):

(1) it is understood that an individual shall be regarded as a former long-term resident of a Contracting State only if that individual (not being a citizen of that Contracting State) was a lawful permanent resident of that Contracting State in at least eight of the fifteen fiscal years ending with the fiscal year in which the individual ceased to be a long-term resident of that Contracting State;

(2) it is further understood that, in the case of an individual who is a former citizen of a Contracting State, the following factors shall be considered favourably in determining whether or not one of the principal purposes of that individual’s loss of citizenship of that Contracting State was the avoidance of tax,

(a) at the time of the individual’s ceasing to be a citizen of that Contracting State or within a reasonable period thereafter, the individual is or becomes a resident fully liable to income tax in the other Contracting State, and

(b) (i) the individual was a citizen of both Contracting States at birth and has remained a citizen of the other Contracting State;

(ii) at the time of the loss of such citizenship (or within a reasonable period thereafter), the individual was or became a citizen of the other Contracting State, and that other Contracting State was that individual’s country of birth, or the country of birth of that individual’s spouse or of either of that individual’s parents;

(iii) in the 10 years preceding the loss of such citizenship the individual was present in that Contracting State for no more than 30 days in any taxable year or year of assessment; or

(iv) the loss of citizenship occurred before the individual attained the age of 181/2 years;

(3) it is further understood that, in the case of an individual who is a former long-term resident of a Contracting State, the following factors shall be considered favourably in determining whether or not one of the principal purposes of that individual’s ceasing to be a long-term resident of that Contracting State was the avoidance of tax,

(a) at the time of the individual’s ceasing to be a long-term resident of that Contracting State or within a reasonable period thereafter, the individual is or becomes a resident fully liable to income tax in the other Contracting State, and that other Contracting State is

(i) the country in which the individual was born;

(ii) the country in which the individual’s spouse was born; or

(iii) the country where either of the individual’s parents was born;

(b) in the 10 years preceding the individual’s ceasing to be a long-term resident of that Contracting State, the individual was present in that Contracting State for no more than 30 days in each taxable year or year of assessment; or

(c) the individual ceases to be a long-term resident of that Contracting State before reaching the age of 181/2 years; and

(4) it is understood that, for the purposes of sub-paragraph a) of paragraph (2) and sub-paragraph a) of paragraph (3) above, an individual is not to be regarded as fully liable to income tax in a Contracting State if that individual is subject to tax in that State, in respect of income arising in the other Contracting State, by reference to the amount of such income which is remitted to or received in the first-mentioned State and not by reference to the full amount thereof.

With reference to paragraph 8 of Article 1 (General Scope):

it is understood that where an item of income, profit or gain is derived through a person which is a resident of a Contracting State the provisions of the paragraph shall not prevent that Contracting State from taxing the item as the income, profit or gain of that person.

It is further understood that, where, by virtue of the paragraph, an item of income, profit or gain is considered by a Contracting State to be derived by a person who is a resident of that Contracting State, and the same item is considered by the other Contracting State to be derived by that person or by a person who is a resident of that other Contracting State, the paragraph shall not prevent either Contracting State from taxing the item as the income, profit or gain of the person considered by that State to have derived the item of income, profit or gain.

It is further understood that, in applying the paragraph, the United Kingdom shall, exceptionally, regard an item of income, profit or gain arising to a person as falling within the paragraph where another person is charged to United Kingdom tax in respect of that item of income, profit or gain

(a) under section 660A or 739, Income and Corporation Taxes Act 1988; or

(b) under section 77 or 86, Taxation of Chargeable Gains Act 1992.

It is further understood that, in applying the paragraph, a person shall be regarded as fiscally transparent under the laws of the United Kingdom in relation to an item of income, profit or gain where a charge is made on another person on that item either:

(a) by virtue of section 13, Taxation of Chargeable Gains Act 1992; or

(b) because that other person has (or, under section 118, Finance Act 1993, is treated as having) an equitable right in possession in a trust.