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HMRC internal manual

Oil Taxation Manual

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Taxation of Non-Residents under Section 830 ICTA 1988: Double Taxation Agreements - Treaties without an Offshore Activities Article but with an extended definition of the UK including UK Continental Shelf, land and territorial sea areas

Example - Australia

This is the second type mentioned at OT41530 and an example of this is the UK/Australia DTA (SI03/3199).

The UK is defined as “Great Britain and Northern Ireland, including any area outside the territorial sea of the UK which in accordance with international law has been or may hereafter be designated, under the laws of the UK concerning the Continental Shelf, as an area within which the rights of the UK with respect to the sea-bed and sub-soil and their natural resources may be exercised” [Article 2(l)(a)].

So whenever the term “the UK” is used in the agreement it has an “extended definition” which includes the UK designated areas.

The treaty also defines the terms “a Contracting State “, “the other Contracting State” as meaning “the UK or Australia as the context requires” [Article 2(l)(e)]. This automatically brings in the extended definition to include the UK Continental Shelf.

The Business Profits Article (Article 7) provides inter alia that industrial or commercial profits of an Australian enterprise shall be taxable only in Australia unless the enterprise carries on trade or business in the UK through a permanent establishment situated therein. This covers both companies and individuals who are in business.

The effects of the above Articles on the scope of the charge to UK tax are:

  • Activities carried on in the UK designated areas rank as activities carried on in the UK, but
  • Only profits arising through a permanent establishment for an enterprise are chargeable to UK tax.
  • Although ICTA\S830(4) deems profits arising to a non-resident company from “exploration or exploitation activities” carried on in the UK, the UK territorial sea or the UKCS as profits of a trade carried on through a branch or agency in the UK this deeming provision is overridden and only profits arising from a trade or business carried on through an actual permanent establishment in “the UK” (on an extended definition) may be charged to UK tax.

An Australian company carrying on short term offshore activities (for example seismic data capture) is therefore likely to be protected from the effects of Section 830, though it would of course be necessary to check that the company is a “resident of” Australia and that its activities are not supported from a permanent establishment in “the UK” (on an extended definition).

If an Australian company trades through a branch on the UK mainland it will of course be liable to UK tax by virtue of ICTA88\S11(1) rather than under Section 830. Since the branch will then rank as an actual permanent establishment under the UK/Australia DTA the company will not be exempt from UK tax.