(March 31, 2015)
On March 30, 2015 the UK HM Revenue & Customs issued a press release announcing that on March 26, 2015 the United Kingdom of Great Britain and Northern Ireland and the Republic of Bulgaria signed a Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital Gains (Hereafter: DTA). Although the DTA has been signed, it has not yet entered into force. The DTA will enter into force once both countries have completed their respective ratification procedures. When entering into force the newly signed DTA will replace the existing (1987) DTA.
Based on Article 2, Paragraph 3 (“Taxes Covered”) of the DTA, the existing taxes to which the DTA shall apply are in particular:
a) in Bulgaria:
(i) the personal income tax; and
(ii) the corporate income tax;
b) in the United Kingdom:
(i) the income tax;
(ii) the corporation tax; and
(iii) the capital gains tax;
Paragraph 3 of Article 5 (“Permanent Establishment”) of the DTA determines that a building site or construction or installation project constitutes a permanent establishment only if it lasts more than 12 months.
Paragraph 2 of Article 10 (“Dividends”) of the DTA limits the dividend withholding tax to be withheld by the Source State as follows:
(a) may also be taxed in Source State and according to the laws of the Source State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed:
(i) 5 per cent of the gross amount of the dividends, except as provided in subparagraph a) (ii);
(ii) 15 per cent of the gross amount of the dividends where those dividends are paid out of income (including gains) derived directly or indirectly from immovable property within the meaning of Article 6 by an investment vehicle which distributes most of this income annually and whose income from such immovable property is exempted from tax;
(b) shall, notwithstanding the provisions of subparagraph (a), be exempt from tax in the Source State if the beneficial owner of the dividends is:
(i) a company which is a resident of the other Contracting State (other than where the dividends are paid by an investment vehicle as mentioned in subparagraph (a) (ii)); or
(ii) a pension scheme.
Paragraph 7 of Article 10 (“Dividends”) contains an Anti-Abuse clause stating the following:
“No relief shall be available under this Article if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares or other rights in respect of which the dividend is paid to take advantage of this Article by means of that creation or assignment.”
Under paragraph 2 of Article 11 (“Interest”) interest withholding tax to be withheld by the Source State is maximized at 5 per cent of the gross amount of the interest if the beneficial owner of the interest is a resident of the other Contracting State.
Paragraph 3 of Article 11 (“Interest”) states the following:
“Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State and beneficially owned by a resident of the other Contracting State shall be taxable only in that other State to the extent that such interest is paid:
(a) with respect of indebtedness arising as a consequence of the sale on credit of any equipment, merchandise or services;
(b) on any loan of whatever kind granted by a financial institution;
(c) to a pension scheme;
(d) to the Government of that other State, a political subdivision or local authority thereof or to the central bank of that other State; or
(e) between companies, where one company holds directly at least 10 per cent of the capital of the other company for at least one year prior to the payment of the interest or where both companies are held by a third company which holds directly at least 10 per cent of the capital of both aforementioned companies for at least one year prior to the payment of the interest.”
Paragraph 8 of Article 11 (“Interest”) contains an Anti-Abuse clause stating the following:
“No relief shall be available under this Article if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the debt-claim in respect of which the interest is paid to take advantage of this Article by means of that creation or assignment.”
Under paragraph 2 of Article 12 (“Royalties”) royalty withholding tax to be withheld by the Source State shall not exceed 5%.
Paragraph 7 of Article 12 (“Royalties”) contains an Anti-Abuse clause stating the following:
“No relief shall be available under this Article if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the rights in respect of which the royalties are paid to take advantage of this Article by means of that creation or assignment.”
The agreement a.o. also provides for: a Mutual Agreement Procedure (Article 24), the Exchange of Information (Article 25), and the Assistance in the Collection of Taxes (Article 26).
For further information click here to be forwarded to the full text of the DTA as published on the website of the UK Government, which will open in a new window.
If you are interested in efficiently locating texts of more DTAs (like the existing (1987) UK-Bulgarian DTA) then click here to be forwarded to our section DTAs where you can link to numerous governmental websites on which you can find links to the texts of DTAs as concluded by that State.
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