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HMRC internal manual

International Manual

Double taxation agreements: introduction: Domestic law

Double taxation agreements complement and usually override domestic law. For example, ITA07/S874 (1)(d) requires a person paying interest to a non-resident to deduct Income Tax from the payment. If the non-resident is a resident of a country with which the United Kingdom has a double taxation agreement and the interest Article in the agreement exempts a resident of that country from United Kingdom tax, then the recipient of the interest may make a claim to CAR Personal Tax International for repayment of United Kingdom tax suffered. Alternatively application may be made to Personal Tax International for the payer to be authorised not to deduct tax.

It should be noted that the existence of a double taxation agreement does not automatically release a payer from an obligation to deduct tax which is imposed under United Kingdom domestic law - the agreement merely enables a claim for exemption or relief to be made by the resident of the other country. Only where authority has been given by Personal Tax International is a payer released from his obligation to deduct tax or permitted to deduct tax at a reduced rate.

A double taxation agreement cannot impose a charge to tax where none exists at all in domestic law. For example, the normal capital gains Article in an agreement enables the country in which immovable property is situated to tax any gain on the disposal of the property made by a resident of the other country. This does not always enable the United Kingdom to tax that capital gain since the Capital Gains Tax legislation does not, except in special circumstances (INTM151020), permit the taxation of capital gains derived by non-residents.