On June 28, 2016 the UK HM Revenue & Customs (HMRC) released the text of the Convention between the United Kingdom of Great Britain and Northern Ireland and the Oriental Republic of Uruguay for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital, which was signed on February 24, 2016 (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 United Kingdom:
(i) the income tax;
(ii) the corporation tax; and
(iii) the capital gains tax;
b) in Uruguay:
(i) the tax on business income (Impuesto a las Rentas de las Actividades Económicas -IRAE-);
(ii) the personal income tax (Impuesto a las Rentas de las Personas Físicas -IRPF-);
(iii) the non-residents income tax (Impuesto a las Rentas de los No Residentes -IRNR-);
(iv) the tax for social security assistance (Impuesto de Asistencia a la Seguridad Social -IASS-); and
(v) the capital tax (Impuesto al Patrimonio -IP-);
Article 2, Paragraph 4 subsequently arranges that the DTA shall apply also to any taxes that are imposed after the date of signature of the Convention that fall within the terms of paragraph 1 and to any identical or substantially similar taxes that are so imposed in addition to, or in place of, the existing taxes.
Resident
Article 4 of the DTA (“RESIDENT”) contains 2 interesting paragraphs, which read as follows:
Paragraph 3:
“For the purposes of this Convention, income derived by or through an entity or arrangement that is treated as wholly or partly fiscally transparent under the tax law of either Contracting State shall be considered to be income of a resident of a Contracting State but only to the extent that the income is treated, for purposes of taxation by that State, as the income of a resident of that State. In no case shall the provisions of this paragraph be construed so as to restrict in any way a Contracting State’s right to tax the residents of that State.”
Paragraph 4:
“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 Convention. 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 Convention, except those provided by Articles 22 (ELIMINATION OF DOUBLE TAXATION), 24 (NON-DISCRIMINATION) and 25 (MUTUAL AGREEMENT PROCEDURE).”
Permanent establishment
Article 5, Paragraph 3 of the DTA (“PERMANENT ESTABLISHMENT”) arranges that the term "permanent establishment" likewise includes:
a) a building site, a construction, assembly or installation project or supervisory activities in connection therewith, but only if such site, project or activities last more than 183 days;
b) the performing 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 in any twelve-month period commencing or ending in the fiscal year concerned;
c) 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 in 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 and situated in the other Contracting State may be taxed in that other State.
Article 13, Paragraph 4 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 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.
Article 13, Paragraph 5 of the DTA arranges that gains from the alienation of shares or comparable interests, which entitle the owner of such shares or interests to the enjoyment of immovable property situated in a Contracting State, may be taxed in that 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 (other than a partnership) which holds directly at least 10 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.
Interest
If the beneficial owner of the interest is a resident of the other Contracting Party, Article 11, Paragraph 2 of the DTA (“INTEREST”) maximizes the withholding tax a Source State is allowed to withhold over such interest to 10 per cent of the gross amount of the interest.
Royalties
If the beneficial owner of the royalties is a resident of the other Contracting Party, Article 12, Paragraph 2 of the DTA (“ROYALTIES”) maximizes the withholding tax a Source State is allowed to withhold over such royalties to 10 per cent of the gross amount of the royalties.
GAAR
Article 23 of the DTA (“ENTITLEMENT TO BENEFITS”) contains an General Anti Abuse Regulation which reads as follows:
“Notwithstanding the other provisions of this Convention, a benefit under this Convention shall not be granted in respect of an item of income or capital if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of this Convention”.
Other
Furthermore the DTA contains a.o. provisions regarding a Mutual Agreement Procedure (Article 25) and regarding the Exchange of Information (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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