On July 5, 2016 the UK Government announced that the Convention between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the People’s Republic of Algeria for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion and Tax Fraud with respect to Taxes on Income and on Capital as signed on February 18, 2015 (Hereafter: the DTA) entered into force on June 16, 2015.
Based on Article 27, Paragraph 1 of the new DTA (“Entry Into Force”) the fact that the DTA entered into force on June 16, 2016 means that its provisions shall have effect:
a) in Algeria:
(i) in respect of taxes withheld at source, for amounts paid or credited on or after January 1, 2017;
(ii) in respect of other taxes, for any year of assessment beginning on or after January 1, 2017; and
b) in the United Kingdom:
(i) in respect of taxes withheld at source, for amounts paid or credited on or after January 1, 2017;
(ii) in respect of income tax and capital gains tax, for any year of assessment beginning on or after April 6, 2017;
(iii) in respect of corporation tax, for any financial year beginning on or after April 1, 2017.
Article 27, Paragraph 2 of the DTA subsequently arranges that notwithstanding the provisions of Article 27, Paragraph 1, the provisions of Article 23 (Mutual Agreement Procedure), Article 24 (Exchange of Information) and Article 25 (Assistance in the Collection of Taxes) shall have effect from the date of entry into force of the DTA, without regard to the taxable period to which the matter relates.
Article 27, Paragraph 3 arranges that the Agreement between the Democratic and Popular Republic of Algeria and the United Kingdom of Great Britain and Northern Ireland for the avoidance of double taxation of income derived from the operation of international air services, signed at Algiers on 27 May 1981 shall cease to have effect in respect of any tax with effect from the date upon which this DTA has effect in respect of that tax in accordance with the provisions of Article 27, Paragraph 1 of this DTA and shall terminate on the last such date.
Below we will discuss a selection of provisions included in the DTA of which we think they might interest our readers.
Taxes covered
Based on Article 2, Paragraph 3 of the DTA (“Taxes Covered”), the existing taxes to which the DTA shall apply are in particular:
a) in Algeria:
i) the tax on global income;
ii) the tax on the profits of companies;
iii) the tax on professional activity; and
iv) royalties and taxes on results relating to activities of prospecting, research, exploitation and transport of hydrocarbons by way of pipelines;
b) in the United Kingdom:
i) the income tax;
ii) the corporation tax; and
iii) the capital gains tax;
Article 2, Paragraph 4 subsequently arranges that the DTA shall apply also to any identical or substantially similar taxes that are imposed after the date of signature of the Convention in addition to, or in place of, the existing taxes.
Resident
Article 4, Paragraph 3 of the DTA (“Resident”) arranges that where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, then the competent authorities of the Contracting States shall endeavour to determine by mutual agreement the Contracting State of which that person shall be deemed to be a resident for the purposes of this DTA. In the absence of a mutual agreement by the competent authorities of the Contracting States, the person shall not be considered a resident of either Contracting State for the purposes of claiming any benefits provided by the DTA, except those provided by Articles 21 (“Elimination of Double Taxation”) and 23 (“Mutual Agreement Procedure”) of the DTA.
Permanent establishment
Article 5, Paragraph 3 of the DTA (“Permanent Establishment”) arranges that a building site or construction or installation project constitutes a permanent establishment only if it lasts more than six months.
Article 5, Paragraph 4 of the DTA subsequently arranges that notwithstanding the provisions of Article 5, Paragraph 1, the term “permanent establishment” also encompasses:
a) the performing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for such purpose, but only if activities of that nature continue (for the same or a connected project) within a Contracting State for a period or periods aggregating more than 183 days within any twelvemonth period commencing or ending in the fiscal year concerned;
b) for an individual, the performing of services in a Contracting State by that individual, but only if the individual’s stay in that State is for a period or periods aggregating more than 183 days within any twelvemonth period commencing or ending in the fiscal year concerned.
Immovable property
Article 6, Paragraph 1 of the DTA (“Income from Immovable Property”) arranges that income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.
With respect to immovable property Article 13, Paragraph 1 of the DTA (“Capital Gains”) arranges that gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 of the DTA and situated in the other Contracting State may be taxed in that other State.
Article 13, Paragraph 2 of the DTA subsequently arranges that gains derived by a resident of a Contracting State from the alienation of shares, other than shares in which there is substantial and regular trading on a Stock Exchange, or comparable interests, deriving more than 50 per cent of their value directly or indirectly from immovable property situated in the other Contracting State, other than immovable property in which that company or the holders of those interests carry on their business, may be taxed in that other State.
Associated enterprises
Article 9, Paragraph 2 of the DTA (“Associated Enterprises”) contains a so-called appropriate adjustment clause.
Dividends
With respect to the dividend withholding tax a Source State is allowed to withhold if the beneficial owner of the dividends is a resident of the other Contracting State, Article 10, Paragraph 2 of the DTA (“Dividends”) maximizes the withholding tax a Source State is allowed to withhold over dividends to:
a) 5 per cent of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) which holds directly at least 25 per cent of the capital of the company paying the dividends;
b) 15 per cent of the gross amount of the dividends in all other cases.
Article 10, Paragraph 6 contains an anti-abuse regulation which reads as follows:
“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.”
Interest
If the beneficial owner of the interest is a resident of the other Contracting State, Article 11, Paragraph 2 of the DTA (“Interest”) maximizes the withholding tax a Source State is allowed to withhold over such interest to 7 per cent of the gross amount of the interest.
Article 11, Paragraph 8 contains an anti-abuse regulation which reads as follows:
“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.”
Royalties
If the beneficial owner of the Royalties is a resident of the other Contracting State, Article 12, Paragraph 2 of the DTA (“Royalties”) maximizes the withholding tax a Source State is allowed to withhold over such interest to 10 per cent of the gross amount of the royalties.
Article 12, Paragraph 7 contains an anti-abuse regulation which reads as follows:
“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.”
Other
Furthermore the DTA contains a.o. provisions regarding a Mutual Agreement Procedure (Article 23), the Exchange of Information (Article 24) and the Assistance in the Collection of Taxes (Article 25).
Click here to be forwarded to the text of the DTA as available on GOV.UK.
Are you looking for other DTAs? Then check our section DTAs & TIEAs, a very efficient way to locate numerous DTAs.
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