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HMRC internal manual

International Manual

HM Revenue & Customs
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Description of double taxation agreements: Elimination of double taxation

So far as the United Kingdom is concerned, this Article enables the United Kingdom to relieve double taxation by giving credit for foreign tax charged on income or capital gains arising to a United Kingdom resident. There are a number of requirements which have to be met before credit is given:

  • the foreign tax must be payable under the laws of the foreign country and in accordance with the terms of agreement, and
  • it must be charged on income or gains from a source in the foreign country (but see below concerning the deeming rule for source), and
  • the United Kingdom tax against which the credit is to be given must be computed by reference to the same income or gains by reference to which the foreign tax is computed.

The Article also enables the United Kingdom to give relief for foreign tax on profits out of which a dividend from a foreign company is paid (underlying tax) where the United Kingdom resident recipient company has the requisite degree of control over the company paying the dividend.

In some agreements the Article also provides that the United Kingdom will give relief for tax in the other country which has been exempted or reduced under specific provisions of the foreign country’s laws (`tax spared’). The credit for tax spared is sometimes referred to as ‘matching credit’.

There is a deeming provision which says that income or gains arising to a resident of one country which, in accordance with the provisions of the agreement, can be taxed in the other country are deemed to have their source in that other country.

There are corresponding provisions which enable the other country to give relief to its residents for United Kingdom tax charged on income taxable in the United Kingdom in accordance with the agreement.

Fuller guidance on the following items can be found at the paragraphs shown.