The double tax treaty between the UK and Jersey entered into force on 19 December 2018. The treaty replaces the 1955 Arrangement between the UK and Jersey for the avoidance of double taxation which ceases to have effect from the dates on which the new agreement takes effect.
The agreement generally follows the provisions of the OECD Model. The definition of a permanent establishment includes a building site or construction or installation project if it continues for more than twelve months.
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.
There is 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.
The agreement contains an article on entitlement to benefits under which a benefit is 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.
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 requests this. 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 provisions on the exchange of information and on assistance in the collection of taxes.
The provisions of the agreement take effect for withholding taxes from 1 February 2019. For income tax the agreement tax effect in Jersey from 1 January 2019 and in the UK from 6 April 2019. For corporation tax the agreement takes effect in the UK from 6 April 2019.
