Overview

double taxation relief


Show Summary Details

Quick Reference

A number of different mechanisms designed to either reduce or avoid multiple tax charges where the same item of income is liable to taxation by more than one jurisdiction. The USA taxes income of US citizens wherever it arises and wherever the citizen is resident. The UK taxes income wherever it arises to a person resident in the UK, and taxes income arising in the UK to persons resident anywhere in the world. Other jurisdictions have similarly ambitious practices in raising tax revenue. It is, thus, commonplace for one source of income to be potentially subject to more than one tax charge.

Under the UK tax system, several different methods of double taxation relief are available:(1) relief is given under a treaty between the UK and another jurisdiction by the treaty declaring that income of a specified nature is exempt from tax in one of the two jurisdiction;(2) credit against UK tax is given by such a treaty for foreign tax paid;(3) where there is no treaty, or no provision in a treaty, a system of “unilateral relief” may allow the crediting of a foreign tax payment against the UK tax liability;(4) any foreign tax paid that is not otherwise relieved is treated as an expense in calculating the income subject to UK tax.Equivalent provisions apply for tax on capital gains and, to a restricted extent, to taxation imposed on an estate at death. The UK has double taxation treaties for income tax/corporation tax with 124 countries and for inheritance tax with only 10 countries. Interpretation of such treaties has, however, given difficulty to the courts. The Vienna Convention on the Law of Treaties 1969 (Article 31) requires that a treaty be interpreted in good faith and that terms in the treaty be interpreted in the light of their object and purpose. These are concepts that are inherently foreign to English law and have lead to decisions such as Sportsman v IRC [1998] STC 289, in which it was held that a treaty should not be interpreted so as to allow a taxpayer to pay no tax in either country.

(1) relief is given under a treaty between the UK and another jurisdiction by the treaty declaring that income of a specified nature is exempt from tax in one of the two jurisdiction;

(2) credit against UK tax is given by such a treaty for foreign tax paid;

(3) where there is no treaty, or no provision in a treaty, a system of “unilateral relief” may allow the crediting of a foreign tax payment against the UK tax liability;

(4) any foreign tax paid that is not otherwise relieved is treated as an expense in calculating the income subject to UK tax.

Subjects: Law.


Reference entries

Users without a subscription are not able to see the full content. Please, subscribe or login to access all content.