Corporate Tax 2010 - BMR Advisors

Chapter 48
United Kingdom
Graham Airs
Slaughter and May
Zoe Andrews
1 General: Treaties
1.1 How many income tax treaties are currently in force in the
United Kingdom
The UK has one of the most extensive treaty networks in the world,
with over 100 comprehensive income tax treaties currently in force.
There are income tax treaties with nearly all western European
countries and most of the Commonwealth. The UK also has income
tax treaties with many Eastern European countries including most
of the former Soviet republics. The UK Government reviews the
UK’s tax treaty priorities each year and there is a rolling programme
for the negotiation of new treaties to replace current treaties.
1.2 Do they generally follow the OECD or another model
1.5 Are treaties overridden by any rules of domestic law
(whether existing when the treaty takes effect or
introduced subsequently)
Once a double tax treaty has been made part of the UK domestic
legislation, it may override UK law but this is a matter of
construction. The UK legislation that describes and limits the
consequences that a tax treaty may have in UK law requires treaties
to take effect “notwithstanding anything in any enactment”. This
means that the treaty prevails over domestic legislation whether that
legislation is prior to or subsequent to the treaty, unless the UK
legislation is clearly expressed to override the treaty or the intention
of Parliament to override the provisions of a treaty is clear.
2 Transaction Taxes
They generally follow the OECD model but certain articles in the UK
treaties can differ significantly from the OECD model. The UK’s
agreements are often tailored to the UK tax system or to the foreign
tax system. An example of this is the Dividends Article in most of the
UK’s agreements which has been tailored to the UK’s imputation
system of corporation tax and the tax credits available on dividends
paid by UK companies. Since the tax credit fell to one ninth of the net
dividend in 1999, however, the tax credit has been of little value to an
overseas investor and this provision is not included in the more recent
treaties (see, for example, the UK/US treaty signed in 2001 and the
new UK/France and UK/Netherlands treaties signed in 2008).
1.3 Do treaties have to be incorporated into domestic law
before they take effect
Yes. A tax treaty must be incorporated into UK law and this is done
by way of a statutory instrument. A treaty will then enter into force
from the date determined by the treaty and will have effect in
relation to each tax covered from the dates determined by the treaty.
1.4 Do they generally incorporate anti-treaty shopping rules (or
“limitation of benefits” articles)
In general, the UK has avoided wide limitation of benefits articles
but has instead made specific provisions in particular articles. For
example, the Dividends, Interest or Royalty article may provide that
the UK will not give up its taxing rights if, broadly, the main
purpose or one of the main purposes of the creation or assignment
of the relevant shares, loan or right to royalties is to take advantage
of the article.
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2.1 Are there any documentary taxes in the United Kingdom
Stamp duty is a tax on certain documents. Since 1 December 2003
stamp duty is chargeable only on instruments relating to stock and
marketable securities, on instruments transferring an interest in
certain partnerships and on bearer instruments. See the answer to
question 2.5 below for details of the stamp duty land tax that applies
to land transactions.
There is an ad valorem rate of duty on a transfer on sale of stock or
marketable securities of 0.5% of the consideration. Bearer
instruments can be transferred by delivery and so the stamp duty
charge arises on issue, or in certain cases on first transfer at the ad
valorem rate of 1.5%.
2.2 Do you have Value Added Tax (or a similar tax) If so, at
what rate or rates
The UK has had VAT since becoming an EC Member State in 1973.
The UK VAT legislation gives effect to the EC Directives. There
are three rates of VAT:
the standard rate of VAT is 17.5% (a temporary standard rate
of 15% applies to supplies made between 1 December 2008
and 31 December 2009) (this rate applies to any supply of
goods or services which is not exempt, zero-rated or subject
to the reduced rate of VAT);
the reduced rate of VAT is 5% (e.g. fuel); and
the zero-rate of VAT is 0% (e.g. certain food, books,
children’s wear).
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