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HMRC internal manual

Oil Taxation Manual

Non-Residents Working on the UK Continental Shelf: Double Taxation Agreements - Treaties with a restricted definition of the UK confined to land areas & territorial sea

This is the first type mentioned at OT41530 and an example is the UK/Jersey DTA (SI1952/1216).

In this double taxation agreement (DTA), the term “the UK” is defined as “Great Britain and Northern Ireland” (Article 2(l)(a)). This covers England, Wales, Scotland and Northern Ireland and the surrounding Territorial Sea but not the designated areas (see OT40650).

The treaty also defines the terms “a Contracting State” and “the Contracting State “ as “the UK or Jersey as the context requires” (Article 2(1)(c)). For the purposes of this definition “the UK” takes the restricted definition in Article 2(l)(a).

Article 6(2) provides inter alia that “The industrial or commercial profits of a Jersey enterprise shall not be subject to UK tax unless the enterprise carries on a trade or business in the UK through a permanent establishment situated therein”. This means for example that a company which is a “resident of Jersey” is not subject to UK tax on profits unless the company is engaged in a trade or business in “the UK” (on a geographic restricted definition) through a permanent establishment situated in “the UK” (again on a restricted geographical definition).

An individual providing “independent personal services” is not liable for UK tax on income unless he has a fixed base in “the UK” (on the restricted definition) (Article 13).

Consequences for a person protected by this DTA include:

  • Activities carried on in a UK designated area do not rank as activities carried on in “the UK” [Article 2(l)(a)]. CTA09\S1313, ITTOIA05\S874 and ITEPA03\S41 are therefore effectively overridden.
  • A facility in a UK designated area (for example an accommodation platform on the UK Continental Shelf made available on a long term basis by a Jersey company engaged in construction work) could not rank as a permanent establishment in “the UK” [Article 6(2)] as the location of the platform is not within the UK as defined in the treaty.
  • Although CTA09\S1313 & ITTOIA05\S874 treats profits arising to a non-resident from “exploration or exploitation activities” carried on in the UK, the UK territorial sea or in a UK designated area as profits of a trade carried on through a UK branch or agency this deeming provision is overridden by the requirement that only profits arising from a trade or business carried on through an actual permanent establishment in “the UK” (on a restricted definition) may be charged to UK tax [Article 6(2)].

So a Jersey company which carries on short term activities in the UK territorial sea (say pipe laying) or long term activities on the UK Continental Shelf (say platform hook-up work spread over 12 months) is likely to be protected against the effects of CTA09\S1313. It would of course be necessary to test that the company was indeed a “resident of” Jersey and that it had been able to arrange its operations in such a way as to avoid the setting up of a permanent establishment in “the UK” under the “restricted definition”.

If the Jersey company traded through a branch on the UK mainland it would be liable to UK tax by virtue of CTA09\S5 rather than CTA09\S1313(1) . As the branch will then rank as an actual permanent establishment under the UK/Jersey DTA, the company will not be exempt from UK tax.