In December 2018 and January 2019, three new double tax treaties (DTT) entered into force between the UK and Guernsey, Isle of Man and Jersey.
On 19 December 2018 the new Jersey – United Kingdom Income Tax Treaty (2018) and the new Isle of Man – United Kingdom Income Tax Treaty (2018) entered into force. A few weeks later, on 7 January 2019, the new Guernsey – United Kingdom Income Tax Treaty (2018) also entered into force This article briefly explores when the treaties will take effect and the key features of the new treaties.
The previous treaties were some of the oldest in the UK’s treaty network, the Channel Islands treaties having first entered into force in 1952, with the Isle of Man following in 1955. The new treaties have been brought up to date and are broadly drafted in line with the OECD’s 2017 edition of the Income and Capital Model Convention and Commentary.
For UK tax purposes the new treaties will apply for different taxes on different dates as follows:
Under the new treaties, full relief is provided for withholding tax suffered on qualifying interest and royalties, subject to the application of a new principal purpose test for treaty benefits (in line with Action 6 of the OECD’s BEPS project). Companies looking to rely on this relief will therefore need to assess whether the principal purpose test is satisfied, based on their existing or proposed arrangements.
The new treaties also all now include a non-discrimination clause (Article 24) and should in principle be considered ‘full treaty countries’ for UK tax purposes going forward. Multinational enterprises should therefore look to consider the impact of this change in respect of double taxation relief claims, application of the branch exemption election, and the forthcoming offshore receipts in respect of intangible property legislation.
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