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HMRC internal manual

International Manual

UK residents with foreign income or gains: double taxation relief: The source rule - concessions

The following concessions are given to relieve certain hardships which may result from the strict application of the source rule (INTM161110).

(A) Extra-statutory concession ESC/A12 - DTR: alimony etc

ESC/A12 was withdrawn with effect from 6 April 2013. This was on the grounds that alimony and maintenance payments have not been taxed in the UK since 6 April 2000. For further information see the Technical Note published on 6 December 2011.

(B) Extra-statutory concession ESC/B8 - DTR: royalties and `know how’ payments

A UK resident may receive income consisting of royalties or `know how’ payments from a foreign resident. While in particular cases there may be special circumstances which will require to be taken into account, in general such income should be dealt with as follows.

a) Payments made by a person resident in a foreign country to a person carrying on a trade in the UK as consideration for the use of, or for the privilege of using, in the foreign country any copyright, patent, design, secret process or formula, trademark or other like property may be treated for the purpose of credit (whether under double taxation agreements or by way of unilateral relief) as income arising outside the UK, except to the extent that they represent consideration for services (other than merely incidental services) rendered in this country by the recipient to the payer. b) Traders resident in the UK are not entitled to claim credit for any tax which is levied in the foreign country in respect of payments for services which are rendered in the UK and are not merely incidental services. In any such case the net amount of the payment (after deduction of any foreign tax borne by them on the payments) is included in the computation of profits for UK tax purposes.

The prohibition on credit for foreign tax charged on payments for services rendered in the UK may be overruled by the terms of those double taxation agreements which have a royalties Article which includes technical services in the definition of royalties (see INTM153130) or a separate technical fees Article (see INTM153140) and those agreements deem the source of such payments to be in the country of which the payer is a resident. In such cases, even though the services are rendered in the UK, credit is due for the foreign tax charged on these payments.

b) If the owner of a right such as a patent, trademark or copyright is not engaged in any trade to which the right relates but derives income by exploiting that right, the source of the income may be regarded for the purpose of credit as located in the country where the right is enforceable.

Any case in which special circumstances appear to be present or in which doubt or difficulty arises should be submitted to CSTD Business, Assets & International (Tax Treaty Team).