EIM13698 - Foreign service: PAYE - taxing rights shared over an element of a termination payment

Taxing rights may be shared or apportioned between 2 countries for one or more elements of a termination payment and a PAYE liability may arise in the UK as well as a withholding tax requirement in the other state. Consideration of the OECD commentary should clarify how taxing rights are to be allocated.

Where liability to both UK PAYE and a foreign withholding tax exists, the use of EP Appendix 5 arrangements will be considered. These provide for a reduction in the liability to UK PAYE by the amount of any foreign withholding tax requirement.

In order to use these arrangements, it will be necessary to have considered the provisions of the OECD commentary. Where taxing rights on a payment are apportioned, the other state will only have taxing rights over part of that payment. EP Appendix 5 arrangements can be used to reduce the PAYE liability by the amount of tax due on the part of the payment which can be and is taxed by the other state.

You can find full details on how to apply EP Appendix 5 arrangements at PAYE82002.