On January 13, 2016 the UK HM Revenue & Customs (HMRC) issued a press release announcing that the Convention between the United Kingdom of Great Britain and Northern Ireland and the Kingdom of Sweden for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital Gains (Hereafter: the new DTA) entered into force on December 20, 2015.
The new DTA will replace the Convention between the Government of the Kingdom of Sweden and the Government of the United Kingdom of Great Britain and Northern Ireland for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains, which was signed at Stockholm on August 30, 1983.
Based on Article 29 of the new DTA (“Entry into Force”) the fact that the new DTA entered into force on December 20, 2015 means that the provisions of the new DTA shall have effect:
a) in Sweden:
(i) in respect of taxes withheld at source, for amounts paid or credited on or after January 1, 2016;
(ii) in respect of other taxes on income, for taxes chargeable for any tax year beginning on or after January 1, 2016; and
b) in the United Kingdom:
(i) in respect of taxes withheld at source, for amounts paid or credited on or after January 1, 2016;
(ii) in respect of income tax and capital gains tax, for any year of assessment beginning on or after April 6, 2016;
(iii) in respect of corporation tax, for any financial year beginning on or after April 1, 2016.
Below we will discuss some of the provisions of the new DTA of which we think they might interest our readers.
Taxes covered
Based on Article 2, Paragraph 3 of the new DTA (“Taxes Covered”), the taxes to which the new 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.
Article 2, Paragraph 4 of the new DTA subsequently arranges that the new DTA shall apply also to any identical or substantially similar taxes that are imposed after the date of signature of the Convention in addition to, or in place of, the taxes referred to in Article 2, Paragraph 3 of the new DTA.
Permanent establishment
Article 5, Paragraph 3 of the new DTA (“Permanent Establishment”) arranges 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.
Article 7, Paragraph 3 of the new DTA (“Business Profits”) contains a so-called appropriate adjustment clause that applies to profits attributable to a permanent establishment.
Immovable property
Article 6, Paragraph 1 of the new DTA (“Income from Immovable Property”) arranges that income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.
With respect to immovable property Article 13, Paragraph 1 of the new DTA (“Capital gains”) arranges that gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.
Article 13, Paragraph 2 of the new DTA subsequently arranges that gains derived by a resident of a Contracting State from the alienation of shares, other than shares in which there is substantial and regular trading on a Stock Exchange, or comparable interests, deriving more than 50 per cent of their value directly or indirectly from immovable property situated in the other Contracting State may be taxed in that other State.
Associated enterprises
Article 9, Paragraph 2 of the new DTA (“Associated Enterprises”) contains a so-called appropriate adjustment clause.
Dividends
Article 10, Paragraph 2 of the New DTA (‘Dividends”) maximizes the withholding tax a Source State is allowed to withhold over dividend distributions as follows:
a) 0 per cent of the gross amount of the dividend 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;
b) 5 per cent of the gross amount of the dividends if the beneficial owner of the dividends is a resident of the other Contracting State;
c) 15 per cent of the gross amount of the dividends 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.
Article 10, Paragraph 3 subsequently arranges that a Source State is not allowed to withhold dividend withholding tax over dividend distributions if the beneficial owner of the dividends is a pension scheme.
Article 10, Paragraph 6 of the new DTA contains an anti-abuse clause, which reads as follows: “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.”
Interest
Article 11 of the new DTA (“Interest”) arranges that a Source State is not allowed to withhold withholding taxes over interest payments.
Article 11, Paragraph 5 of the new DTA contains an anti-abuse clause, which reads as follows: “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.”
Royalties
Article 12 of the new DTA (“Royalties”) arranges that a Source State is not allowed to withhold withholding taxes over royalties.
Article 12, Paragraph 5 of the new DTA contains an anti-abuse clause, which reads as follows: “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”.
Other
Furthermore the new DTA contains provisions regarding a Mutual Agreement Procedure (Article 23), the Exchange of Information (Article 24), an article containing Miscellaneous Provisions Relating to Offshore Activities (Article 26) and Preferential Regimes (Article 27).
Click here to be forwarded to the text of the new DTA as available on gov.uk, which will open in a new window.
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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