Interaction of UK law and treaties - up to 5 April 2015: introduction
When dealing with securities and options of an employee who has carried out their employment in more than one country, you should
- Identify the facts clearly. At a minimum this will include the date on which the option was granted or securities acquired, the residence status of the employee at that time, the residence status when the chargeable event happened, and the dates of entering and departing the UK;
- Consider whether there is a charge to IT under normal domestic rules in ITEPA and in particular whether Chapter 5A of Part 2 of ITEPA will apply;
- Consider the effect of any double taxation treaty (see below).
Effect of treaties
The UK has an extensive network of Double Taxation Agreements. Details of these can be found in the Double Taxation Relief Manual (see DT2100 onwards). Each treaty will vary, but the Article governing employment income usually follows the pattern of the Organisation for Economic Co-operation and Development Model Article 15 - see the International Manual at INTM159440.
In broad terms:
- If the UK is the territory of residence when a chargeable event in the UK happens, e.g. exercise of an option by an employee who was UK-resident at the date of grant, then the UK has the right to tax in full, but must give credit for foreign tax paid on the same income, subject to certain rules (see INTM160000 onwards).
- If the UK is not the territory of residence when a chargeable event happens, then the employee may be resident in a territory with which we have a double taxation treaty. If so, the employee will be able to make a claim that the UK restrict its taxation to the amount derived from employment in the UK, commonly known as ‘time apportionment’ - see ERSM161320.
- If the UK is not the territory of residence when a chargeable event happens, but the employee is not a resident of a territory with which we have a double taxation treaty then there is no reduction in the amount of UK liability. It is up to the territory of residence to deal with any double taxation that arises.