On Monday 2 July Financial Secretary Mel Stride and ministers from Guernsey, Jersey and the isle of Man signed new double tax treaties.
The treaties need parliamentary approval in the UK and the Crown Dependencies before they enter into force.
The new treaties are a simplified form of the UK’s current model treaty, which offer modern protections to investors and equally modern protection against abuse. There’s a principal purpose test, which aims to ensure that treaty benefits only go to those investors intended to benefit by the treaty partners. It has an interesting sub-clause, which may allow taxpayers to claim different (presumably lower) benefits, where they can show that they would have been granted absent the disqualified arrangements. The Crown Dependencies will collect UK tax, if necessary – and the UK will do the same. There are better dispute resolution provisions, including arbitration if necessary. Interestingly, despite the UK liking arbitration provisions in treaties, it has not yet been involved in one. Perhaps this demonstrates that countries really do try harder to resolve disputes where there is the potential to hand it over to a third party for adjudication.
Crown Dependency residents will be pleased that they may escape UK withholding tax on interest and royalties, where the recipient is an individual, or a company where 75% or more is owned by resident individuals. Banks and financial institutions may also benefit, as can any other person where the establishment, acquisition or maintenance of that person, or the conduct of its operations, does not have as its principal purpose or one of its principal purposes to secure the treaty benefit. Similar provisions cover royalties.
The Opposition has on occasion challenged new UK tax treaties as part of the approval process in the House of Commons and may ask questions about these ones. However, the new treaties do have significant provisions to prevent abuse – and should otherwise help the flow of investment from the Crown Dependencies to the UK.