On June 22, 2017 the UK HM Revenue & Customs issued a press release announcing that on June 13, 2017 the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Kyrgyz Republic signed an Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital Gains (Hereafter: the DTA).

Although the DTA has been signed, it has not entered into force yet. For the DTA to enter into force, the respective ratification procedures have to have been finalized in both countries.

 

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 the Kyrgyz Republic:

i)    tax on income and profits of legal persons;

ii)   income tax on individuals;

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 Agreement in addition to, or in place of, the existing taxes.

 

Residency

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 Agreement. 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 Agreement, except those provided by Articles 22 (METHOD FOR ELIMINATION OF DOUBLE TAXATION), 23 (NON-DISCRIMINATION) and 24 (MUTUAL AGREEMENT PROCEDURE).

 

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 twelve months.

 

In addition Article 5, Paragraph 4 of the DTA arranges that notwithstanding the provisions of paragraphs 1, 2 and 3, where an enterprise of a Contracting State performs services in the other Contracting State for a period or periods exceeding in the aggregate 183 days in any 12 month period commencing or ending in the fiscal year concerned, and these services are performed for the same project or connected projects through one or more individuals who are present and performing such services in that other State, the activities carried on in that other State in performing these services shall be deemed to be carried on through a permanent establishment of the enterprise situated in that other State, unless these services are limited to those mentioned in paragraph 5 which, if performed through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph. For the purposes of this paragraph, services performed by an individual on behalf of one enterprise shall not be considered to be performed by another enterprise through that individual unless that other enterprise supervises, directs or controls the manner in which these services are performed by the individual.

 

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 and situated in the other Contracting State may be taxed in that other State.

 

Article 13, Paragraph 2 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 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

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 which holds directly or indirectly 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 of the DTA contains an anti-abuse clause, 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 5 per cent of the gross amount of the interest.

 

Article 11, Paragraph 7 of the DTA contains an anti-abuse clause, 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 royalties to 5 per cent of the gross amount of the royalties.

 

Article 12, Paragraph 6 of the DTA contains an anti-abuse clause, 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 24) and regarding the Exchange of Information (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.

 


Copyright – internationaltaxplaza.info

 

 

Follow International Tax Plaza on Twitter (@IntTaxPlaza)

 

and

 

Follow International Tax Plaza on Facebook

 

 

 

Submit to FacebookSubmit to TwitterSubmit to LinkedIn
INTERESTING ARTICLES