On August 2, 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 Republic of Senegal for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital Gains, which was signed on February 26, 2015 (Hereafter the DTA), already entered into force on March 30, 2016.
Based on Article 28, Paragraph 1 of the DTA (“Entry into Force”), the fact that the DTA entered into force on March 30, 2016 means that the provisions of the DTA shall have effect:
a) in Senegal:
(i) in respect of tax withheld at source on income received on or after January 1, 2017;
(ii) in respect of other taxes, for taxable years beginning on or after January 1, 2017; and
b) in the United Kingdom:
(i) in respect of income tax and capital gains tax, for any year of assessment beginning on or after April 6, 2016;
(ii) in respect of corporation tax, for any financial year beginning on or after April 1, 2016.
Article 28, Paragraph 2 subsequently arranges that notwithstanding the provisions of Article 28, Paragraph 1, the provisions of Article 24 (Mutual agreement procedure), Article 25 (Exchange of information) and Article 26 (Assistance in the collection of taxes) shall have effect from March 30, 2016, without regard to the taxable period to which the matter relates.
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 Senegal:
(i) the income tax on companies;
(ii) the minimum income tax on companies;
(iii) the income tax on individuals; and
(iv) the capital gains tax on developed and undeveloped land;
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.
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.
According to Article 5, Paragraph 4 the term “permanent establishment” also encompasses:
a) the furnishing of 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 twelve-month 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 twelve-month period commencing or ending in the fiscal year concerned.
Article 5, Paragraph 7 subsequently arranges that notwithstanding the preceding provisions of this Article, an insurance enterprise of a Contracting State shall, except in regard to re-insurance, be deemed to have a permanent establishment in the other Contracting State if it collects premiums in the territory of that other State relating to the insurance of risks situated therein through a person other than an agent of an independent status to whom Article 5, Paragraph 8 applies.
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 2 of the DTA (“Capital Gains”) arranges that gains derived by a resident of a Contracting State from the alienation of shares, 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.
With respect to the obligation to make a so-called appropriate adjustment clause, Article 9, Paragraph 3 and 4 arrange the following:
Article 9, Paragraph 3
“A Contracting State is not required to make a corresponding adjustment under paragraph 2 after the expiry of the time limits provided in its domestic law.”
Article 9, Paragraph 4
“The provisions of paragraph 2 shall not apply where judicial, administrative or other legal proceedings have resulted in a final ruling that by actions giving rise to an adjustment under paragraph 1 of profits of an enterprise of a Contracting State, that enterprise is liable under the laws of that State to a penalty with respect to fraud, gross negligence, wilful default or careless or deliberate behaviour.”
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 dividend distributions to:
a) 5 per cent of the gross amount of the dividends if the beneficial owner is a company which holds directly at least 25 percent of the capital of the company paying the dividends;
b) 8 per cent of the gross amount of the dividends if the beneficial owner is a pension scheme established in that other State;
c) 10 per cent of the gross amount of the dividends in all other cases.
Article 10, Paragraph 3 subsequently arranges that notwithstanding the provisions of Article 10, paragraph 2, other than where the beneficial owner of the dividends is a pension scheme, dividends paid out of income (including gains) derived directly or indirectly from immovable property within the meaning of Article 6 by an investment vehicle resident in a Contracting State whose income from such immoveable property is exempt from tax and which distributes most of that income annually may also be taxed in that State and according to the laws of that State, but if the beneficial owner of the dividend is a resident of the other Contracting State, the tax so charged shall not exceed 15 per cent of the gross amount of the dividends.
Article 10, Paragraph 8 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 dividends 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 interest payments to 10 per cent of the gross amount of the interest.
Article 11, Paragraph 8 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
Article 12, Paragraph 2 of the DTA (“Royalties”) maximizes the withholding tax that a Source State is a allowed to withhold over royalties to:
a) in the case of payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process, or for information (know-how) concerning industrial, commercial or scientific experience, 10 per cent of the gross amount of the royalties;
b) in the case of payments of any kind received as a consideration for the use of, or the right to use, industrial, commercial or scientific equipment 10 per cent of the adjusted amount of the royalties. (For the purpose of this sub-paragraph, “the adjusted amount” means 60 per cent of the gross amount of the royalties)
Article 12, Paragraph 7 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.”
Capital gains
Article 13, Paragraph 5 of the DTA (“Capital Gains”) arranges that gains, other than those to which Article 13, Paragraph 2 applies (real estate companies), derived by a resident of a Contracting State from the alienation of shares of a company which is a resident of the other Contracting State, may be taxed in that other State if the alienator, at any time during the 12- month period preceding such alienation, held directly or indirectly at least 50 per cent of the capital of that company. The tax in that other State shall be charged on not more than 25 per cent of the gain.
Other
Furthermore the DTA contains provisions regarding a Mutual Agreement Procedure (Article 24), the Exchange of Information (Article 25) and regarding the Assistance in the Collection of Taxes (Article 26).
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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