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HMRC internal manual

International Manual

Double Taxation applications and claims - Remittance: Background

The tax systems of many countries seek to tax all of the income arising in that country - no matter to whom it is paid. And to tax their residents on the total amount of their income wherever it arises. However, the tax codes of some countries contain provisions that limit a person’s taxable income to the amount that is remitted to or received in that country.

Because some countries do not tax all of their residents’ worldwide income it is possible that someone might benefit from “double exemption” from tax. This might happen if a Double Taxation Agreement (DTA) gives primary taxing rights to the country of residence but that country does not charge tax on that income.

To avoid double exemption occurring, some of our DTAs include a provision that relief from UK tax is available only if the person is liable to tax in the other country on the income that is the subject of the claim. This provision denies (or limits) relief where the person will pay tax only by reference to the amount remitted to or received in that country.

Because we cannot be certain how the tax system of each of our treaty partners works our claim forms contain questions that seek to discover if the income in question will be taxed by the other country in total or only by reference to the amount remitted. In the latter case the form also asks for the amount remitted to be stated.

If the other country taxes its residents on their worldwide income then the provision of the DTA is not brought into play. Subject to any other conditions for relief that are included in the treaty being satisfied, the income will qualify for relief from UK tax.

If the amount of the income that is taxable in the other country is restricted to the amount which is received there (rather than the full amount being taxed) then the exemption to be allowed by the UK is limited to the amount of the income that is taxed by the other country.