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HMRC internal manual

Double Taxation Relief Manual

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HM Revenue & Customs
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DT: Cyprus: double taxation agreement, Article 24: Elimination of double taxation

(1) The laws of each of the Contracting States shall continue to govern the taxation of income whether derived from the Contracting State or elsewhere except where express provisions to the contrary are made in this Convention. Where income derived from one of the Contracting States is subject to tax in both Contracting States, relief from tax chargeable on such income shall be given in accordance with the provisions of paragraphs (2) and (3) of this Article.

(2) Subject to the provisions of the law of Cyprus regarding the allowance as a credit against Cyprus tax of tax payable in a territory outside Cyprus (which shall not affect the general principle hereof)-

(a) United Kingdom tax payable under the laws of the United Kingdom and in accordance with this Convention, whether directly or by deduction, on profits or income from sources within the United Kingdom shall be allowed as a credit against any Cyprus tax computed by reference to the same profits or income by reference to which the United Kingdom tax is computed. Provided that in the case of a dividend the credit shall only take into account such tax in respect thereof as is additional to any tax payable by the company on the profits out of which the dividend is paid and is ultimately borne by the recipient without reference to any tax so payable.

(b) Where a company which is a resident of the United Kingdom pays a dividend to a company resident in Cyprus which controls directly or indirectly at least 10 per cent of the voting power of the first-mentioned company, the credit shall take into account (in addition to any United Kingdom tax for which credit may be allowed under the provisions of sub- paragraph (a) of this paragraph) the United Kingdom tax payable by that first-mentioned company in respect of the profits out of which such dividend is paid.

(3) Subject to the provisions of the law of the United Kingdom regarding the allowance as a credit against United Kingdom tax of tax payable in a territory outside the United Kingdom (which shall not affect the general principle hereof)-

(a) Cyprus tax payable under the laws of Cyprus and in accordance with this Convention, whether directly or by deduction, on profits or income from sources within Cyprus shall be allowed as a credit against any United Kingdom tax computed by reference to the same profits or income by reference to which the Cyprus tax is computed. Provided that in the case of a dividend the credit shall only take into account such tax in respect thereof as is additional to any tax payable by the company on the profits out of which the dividend is paid and is ultimately borne by the recipient without reference to any tax so payable.

(b) Where a company which is a resident of Cyprus pays a dividend to a company resident in the United Kingdom which controls directly or indirectly at least 10 per cent of the voting power in the first-mentioned company, the credit shall take into account (in addition to any Cyprus tax for which credit may be allowed under the provisions of sub-paragraph (a) of this paragraph) the Cyprus tax payable by the first-mentioned company in respect of the profits out of which such dividend is paid.

(4) For the purpose of paragraphs (2) and (3) of this Article profits and income derived by a resident of one of the Contracting States which may be taxed in the other Contracting State in accordance with this Convention shall be deemed to be derived from the other Contracting State.

(5) For the purposes of paragraph (3) of this Article, the term `Cyprus tax payable` shall be deemed to include-

(a) any amount which would have been payable as Cyprus tax for any year but for an exemption or reduction of tax granted for that year or any part thereof under Section 10 of the Income Tax Laws 1961 to 1969 of Cyprus (so far as it was in force on, and has not been modified since, the date of signature of this Convention, or has been modified only in minor respects so as not to affect its general character), in any case where the interest in question is certified by the competent authority of Cyprus as being payable in respect of a loan made for the purposes of promoting development in Cyprus; or

(b) in the case of any approved capital expenditure, any amount which would have been payable as Cyprus tax but for an investment deduction allowed under Section 12(2)(b) or (c) of the Cyprus Income Tax Laws 1961 to 1969 (so far as they were in force on, and have not been modified since, the date of signature of this Convention or have been modified only in minor respects so as not to affect their general character). For the purposes of this sub- paragraph the term `approved capital expenditure` means capital expenditure which is incurred, on or after the date of signature of this Convention and not later than 5 years after the commencement of the trade or business in question, by an enterprise wholly or mainly engaged in the hotel business or in activities falling within one of the following classes:

(i) manufacturing, assembling or processing;
(ii) construction, civil engineering or shipbuilding; or (iii) electricity, hydraulic power, gas or water supply;
and which is certified by the competent authority of Cyprus as incurred for the purposes of promoting development in Cyprus; or

(c) any amount which would have been payable as Cyprus tax for any year but for an exemption or reduction of tax granted for that year or any part thereof under any other provision which may be made after the date of signature of this Convention granting an exemption or reduction of tax which is agreed by the competent authorities of the Contracting States to be of a substantially similar character, if it has not been modified thereafter or has been modified only in minor respects so as not to affect its general character.