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HMRC internal manual

International Manual

Non-residents trading in the UK: Treaty law could potentially affect the UK domestic charge to tax: Treaty law - an introduction

Non-residents process map:- In all cases where you are considering the potential chargeability of a non-resident you should consider the facts of the case in the process illustrated below. The relevant guidance for each stage of consideration is sign-posted accordingly. This chapter of the guidance concerns stage 2 of the process laid out below and specifically explains how an applicable double tax treaty might affect the UK domestic charge to tax over a non-resident trading in the UK. Where an enquiry into a non-resident is concerned stage 4 (whether any tax liability can be collected) of the process should equally be under consideration from the outset.

Stage 1

Is there a charge under domestic legislation on the activities in question? If there is not, you need consider the case no further. [INTM261000 to INTM264120]

Stage 2

If the non-resident is a resident of a state with which we have a Double Taxation Agreement, does the treaty restrict the domestic charge? [INTM265010 to INTM266160]

Stage 3

How much are the chargeable profits that can be taxed in the UK? [INTM267010 to INTM267170]

Stage 4

Having established that there is a domestic charge and having taken account of the effects of the relevant treaty, how do we assess and collect any tax that is due? [INTM268010 to INTM268050]  

The UK has negotiated double tax conventions (treaties) with over 100 partners around the world. The majority of those treaties follow the format of the model treaty developed and agreed between the member states of the Organisation for Economic Co-operation and Development (OECD). The model treaty is complemented by an extensive commentary, agreed and published by the OECD, that interprets the model treaty on an article by article basis and is modified from time to time usually by unanimous agreement between the OECD member states. Where any member States do not concur with the OECD view expressed in the commentary, they can put their reservations or observations on record as part of the commentary so that readers are aware of how the particular Article will be interpreted within that Country. Therefore, where an article within an UK treaty follows the model treaty the commentary provides interpretation. But not all of the UK treaties follow the OECD model and you should always refer to the actual wording of the treaty that applies in your case. The treaties are reproduced in full, in alphabetical order, from DT2140PP onwards, and some more recent ones can be found in this manual. For further guidance and information on other aspects of treaties see the index of treaty related subjects at INTM150000. Refer to INTM159000 onwards for detailed guidance on the OECD, the model treaty and the supporting commentary.

Treaties can vary the extent of or even remove the charge to tax on a person under domestic law but cannot impose a charge to tax where one does not already exist at all under our domestic law. There must be a charge under the domestic provisions regardless of what the treaty states before an assessment or its equivalent to UK tax can be contemplated.