The comprehensive Double Taxation Agreement and Protocol between the UK and Guernsey was signed on 2 July 2018 entered into force on 7 January 2019. When the agreement is in effect in relation the 1955 Arrangement between Guernsey and the UK for the avoidance of double taxation will cease to have effect.
Preamble
As recommended by the OECD BEPS project the treaty includes a preamble emphasising that it is not intended to create opportunities for non-taxation or reduced taxation through tax evasion or avoidance, including through treaty shopping arrangements.
Permanent Establishment
The agreement generally follows the provisions of the OECD Model Tax Convention. The definition of a permanent establishment includes a building site or construction or installation project if it continues for more than twelve months.
Dividends, Interest and Royalties
The agreement provides for zero withholding tax on dividends, interest and royalties except where dividends are paid out of income derived directly or indirectly from immovable property by an investment vehicle distributing most of its income annually and whose income from the immovable property is tax exempt. In this case the maximum withholding tax chargeable in the source country is 15%, except where the beneficial owner of the dividends is a pension scheme in which case the dividends are exempt.
Offshore Activities
The agreement contains an article in relation to miscellaneous rules applicable to certain offshore activities. Offshore activities are activities carried on offshore in a contracting state in connection with the exploration or exploitation of the seabed and subsoil and their natural resources situated in that territory. An enterprise of a territory carrying on offshore activities in the other territory is deemed to be carrying on business in the other territory through a permanent establishment unless the activities continue for a period not exceeding 30 days in aggregate in a twelve month period.
Entitlement to Benefits
The agreement contains an article on entitlement to benefits under which benefits are not granted under the treaty if obtaining that benefit was one of the principal purposes of any arrangement or transaction resulting in that benefit, unless it can be established that granting the benefit is in accordance with the object and purpose of the relevant provisions of the treaty.
Arbitration
The article on the mutual agreement procedure provides that any issues arising from a case that are not resolved after two years may be submitted to arbitration if the person who presented the case to the competent authorities so requests. Unless a person directly affected by the case does not accept the mutual agreement implementing the arbitration decision that decision shall be binding on the contracting states and implemented regardless of any time limits in domestic law.
The agreement also contains provision on the exchange of information and on assistance in the collection of taxes.
Effective date
In Guernsey and the UK the treaty takes effect for taxes withheld at source for amounts paid or credited on or after 1 March 2019.
For income tax the treaty takes effect in Guernsey for any year of assessment beginning on or after 1 January 2020; and in the UK for any year of assessment beginning on or after 6 April 2019. The treaty takes effect in the UK for corporation tax from 1 April 2019.
