(March 31, 2015)
On March 30, 2015 the UK HM Revenue & Customs issued a press release announcing that on March 26, 2015 the United Kingdom of Great Britain and Northern Ireland and the Kingdom of Sweden signed a Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital Gains (Hereafter: DTA). Although the DTA has been signed, it has not yet entered into force. The DTA will enter into force once both countries have completed their respective ratification procedures. When entering into force the newly signed DTA will replace the existing (1983) DTA.
Based on Article 2, Paragraph 3 (“Taxes Covered”) of the DTA, the taxes to which the DTA shall apply are :
a) in Sweden:
(i) the national income tax (den statliga inkomstskatten);
(ii) the withholding tax on dividends (kupongskatten);
(iii) the income tax on non-residents (den särskilda inkomstskatten för utomlands bosatta);
(iv) the income tax on non-resident artistes and athletes (den särskilda inkomstskatten för utomlands bosatta artister m.fl.); and
(v) the municipal income tax (den kommunala inkomstskatten);
b) in the United Kingdom:
(i) the income tax;
(ii) the corporation tax; and
(iii) the capital gains tax;
Paragraph 3 of Article 5 (“Permanent Establishment”) of the DTA determines that a building site or construction, assembly or installation project or supervisory activities in connection therewith constitutes a permanent establishment only if it lasts more than twelve months.
Paragraph 2 of Article 10 (“Dividends”) of the DTA determined the following:
“However, dividends paid by a company which is a resident of a Contracting State may also be taxed in that State and according to its laws, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed 5 per cent of the gross amount of the dividends. However, if the beneficial owner is a company which controls, directly or indirectly, at least 10 per cent of the voting power in the company paying the dividends, the dividends shall be exempt from tax in the Contracting State of which the company paying the dividends is a resident.
Notwithstanding the previous provisions of this paragraph, where dividends are paid out of income (including gains) derived directly or indirectly from immovable property within the meaning of Article 6 by an investment vehicle which distributes most of this income annually and whose income from such immovable property is exempted from tax, the tax so charged shall not exceed 15 per cent of the gross amount of the dividends.
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 (“Dividends”) contains an Anti-Abuse clause stating 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.”
Article 11 (“Interest”) of the DTA exempts interest payments from interest withholding taxes.
Paragraph 5 of Article 11 (“Interest”) contains an Anti-Abuse clause stating 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.”
Article 12 (“Royalties”) of the DTA exempts royalty payments from royalty withholding taxes.
Paragraph 5 of Article 12 (“Royalties”) contains an Anti-Abuse clause stating 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 rights in respect of which the royalties are paid to take advantage of this Article by means of that creation or assignment.”
The DTA also contains an Article 27 (“Preferential Regimes”) which states the following:
“Notwithstanding any other provisions of this Convention, where
(a) a company that is a resident of a Contracting State derives its income primarily from other states
(i) from shipping and financial activities, or
(ii) from being the headquarters or co-ordination centre for, or from being an entity providing administrative services or other support to, a group of companies which carry on business primarily in other states; and
(b) under a preferential regime, such income bears a significantly lower tax than income from similar activities carried out within that State or than income from being the headquarters, co-ordination centre or similar entity providing administrative services or other support to a group of companies which carry on business in that State, as the case may be,
any provisions of this Convention conferring an exemption or a reduction of tax shall not apply to the income of such company and paragraph 2 of Article 10 and Article 21 shall not apply to the dividends paid by such company.”
The DTA also contains an Article 26 titled “Miscellaneous Provisions Relating to Offshore Activities”.
The agreement furthermore a.o. provides for: a Mutual Agreement Procedure (Article 23), the Exchange of Information (Article 24).
For further information click here to be forwarded to the full text of the DTA as published on the website of the UK Government, which will open in a new window.
If you are interested in efficiently locating texts of more DTAs (like the existing (1983) UK-Swedish DTA) then click here to be forwarded to our section DTAs where you can link to numerous governmental websites on which you can find links to the texts of DTAs as concluded by that State.
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