(July 13, 2015)

The Government of Jersey has made the text available of the Agreement between Jersey and the Republic of Rwanda for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income as signed in London on June 26, 2015 (hereafter: DTA) on its website.

 

Although signed, the Agreement has not yet entered into force. For the DTA to enter into force, the respective ratification procedures have to have been finalized in both countries.

 

Since this is a Tax Treaty between a developed and a developing country, it is even more interesting to have a look at the clauses included in the DTA as it already is when a DTA is concluded between 2 developed countries. So as always, below we will highlight some of the paragraphs included in the DTA.

 

Based on paragraph 3 of Article 2 of the DTA (“Taxes Covered”) the existing taxes to which the Agreement shall apply are in particular: 

(a)        In Jersey:

--       the income tax

(b)        in Rwanda:

(i)            the personal income tax;

(ii)          the corporate income tax;

(iii)         the withholding taxes; and

(iv)        the tax on rent of immovable properties

 

Paragraph 4 of Article 2 of the DTA (“Taxes Covered”) subsequently states that the Agreement shall apply also to any identical or substantially similar taxes that are imposed by either Contracting Party after the date of signature of the Agreement in addition to, or in place of, the existing taxes. The competent authorities of the Contracting Parties shall notify each other of any significant changes that have been made in their taxation laws.

 

Paragraph 3 of Article 5 of the DTA (“Permanent Establishment”) determines that the term "permanent establishment" also encompasses:

(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 6 months;

(b)        the furnishing of services, including consultancy 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 Party for a period or periods aggregating more than 183 days in any twelve-month period.

(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, for the purpose of performing those services, is for a period or periods aggregating more than 183 days within any twelve month period commencing or ending in the fiscal year concerned.

(d)        an installation or structure used in the exploration for natural resources provided that the installation or structure continues for a period of not less than 90 days.

 

Paragraph 5 of Article 5 of the DTA (“Permanent Establishment”) determines that notwithstanding the provisions of paragraphs 1 and 2 of this Article, where a person - other than an agent of an independent status to whom paragraph 7 of this Article applies - is acting on behalf of an enterprise and has, and habitually exercises, in a Contracting Party an authority to conclude contracts in the name of the enterprise, that enterprise shall be deemed to have a permanent establishment in that Party in respect of any activities which that person undertakes for the enterprise, unless the activities of such person are limited to those mentioned in paragraph 4 of this Article which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph.

 

Paragraph 6 of Article 5 of the DTA (“Permanent Establishment”) determines that notwithstanding the preceding paragraphs of this Article, an insurance enterprise of a Contracting Party shall, except in regard to re-insurance, be deemed to have a permanent establishment in the other Contracting Party if it collects premiums in the territory of that other Party or insures risks situated therein through a person other than an agent of an independent status to whom paragraph 7 of this Article applies.

 

An other interesting clause can be found in Paragraph 3 of Article 7 (“Business Profits”) which reads as follows:

“In determining the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the business of the permanent establishment, including executive and general administrative expenses so incurred, whether in the Contracting State in which the permanent establishment is situated or elsewhere. However, no such deduction shall be allowed in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of commission, for specific services performed or for management, or, except in the case of a banking enterprise, by way of interest on moneys lent to the permanent establishment. Likewise, no account shall be taken, in the determination of the profits of a permanent establishment, for amounts charged (otherwise than towards reimbursement of actual expenses), by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of commission for specific services performed or for management, or, except in the case of a banking enterprise by way of interest on moneys lent to the head office of the enterprise or any of its other offices.”

 

With respect to withholding taxes on dividends Paragraph 2 of Article 10 of the DTA (“Dividends”) determines the following: 

“However, such dividends may also be taxed in the Contracting Party of which the company paying the dividends is a resident and according to the laws of that Party, but if the beneficial owner of the dividends is a resident of the other Contracting Party, the tax so charged shall not exceed 10 per cent of the gross amount of the dividends. The competent authorities of the Contracting Parties shall by mutual agreement settle the mode of application of this limitation. This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.”

 

Paragraph 6 of Article 10 of the DTA (“Dividends”) determines the following:

“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.”

 

Paragraph 2 of Article 11 of the DTA (“Interest”) maximizes the interest withholding taxes to be withheld by the Source State to a maximum of 10% of the gross amount of the interest.

 

Article 11 of the DTA (“Interest”) contains an anti-abuse clause which is similar to the one included in the Article on Dividends. Paragraph 8 of Article 11 of the DTA (“Interest”) determines the following:

“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.”

 

Paragraph 2 of Article 12 of the DTA (“Royalties”) maximizes the interest withholding taxes to be withheld by the Source State to a maximum of 10% of the gross amount of the interest.

 

Paragraph 7 of Article 12 of the DTA (“Royalties”) contains the following anti-abuse clause:

“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.”

 

Article 13 of the DTA (“Management or Professional Fees”) contains regulations regarding Management or Professional Fees.

Paragraph 3 of Article 13 of the DTA (“Management or Professional Fees”) defines the term management or professional fees as: payments of any kind to any person, other than to an employee of the person making the payments, in consideration for any services of a technical, managerial, professional or consultancy nature not covered under any other Article of this Agreement.

 

Based on Paragraph 1 of Article 13 of the DTA (“Management or Professional Fees”) management or professional fees arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other Contracting State.

 

Paragraph 2 of Article 13 of the DTA (“Management or Professional Fees”) arranges however that the Source State is allowed to withhold withholding taxes over ‘Management or Professional Fees’. In this respect Paragraph 2 of Article 13 arranges the following:

“However, such management or professional fees may also be taxed in the Contracting State in which they arise and according to the law of that State, but if the beneficial owner of the management or professional fees is a resident of the other Contracting State, the tax so charged shall not exceed 12 per cent of the gross amount of the management or professional fees.”

 

Other interesting Articles/Paragraphs are: Paragraph 2 of Article 9 (“Associated Enterprises”) containing a clause arranging for appropriate adjustments, Article 24 (“Mutual Agreement Procedure”), Article 25 (“Exchange of Information”).

 

For further information click here to be forwarded to the text of the DTA as published on the website of the Government of Jersey.

 

Are you looking for an other DTA? Then check our section DTAs & TIEAs, a very efficient way to locate numerous DTAs.

 

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