1st August 2018
At the start of July 2018 three new Double Tax Agreements (DTAs) were announced between the UK and the Crown Dependencies (Guernsey, Isle of Man, and Jersey). The three DTAs (from each of the islands) are identical, which was a key aim of the UK Government. MSI's Guernsey member Dixcart Trust Corporation Ltd provides further information.
Each of the DTAs cover clauses relating to Base Erosion and Profit Shifting (’BEPS’) and they comply with new international tax standards, under the OECD’s Model Tax Convention.
The new DTAs will come into force once each of the territories has notified the others, in writing, of the completion of the process required under their local law.
Key Tax Related Clauses
These tax reliefs are likely to significantly increase the attractiveness of Guernsey and the Isle of Man as jurisdictions from which to lend into the UK. The Double Tax Treaty Passport Scheme will be available to Crown Dependency lenders to make the process of claiming withholding tax relief administratively easier.
Additional Significant Clauses
Collection of Taxes for the UK Exchequer
Whilst the new DTAs confer a number of advantages, the Crown Dependencies will also now be required to assist in the collection of tax for the UK Exchequer.
Principal Purpose Test and Mutual Agreement Procedures
The DTAs include the ‘Principal Purpose Test’. This means that the benefits under each DTA may be denied where it is determined that the purpose, or one of the main purposes, of an arrangement was to secure those benefits. This test is derived from BEPS treaty measures.
In addition, ‘Mutual Agreement Procedures’ will mean that where a taxpayer considers that the actions of one or both of the jurisdictions specified in the DTA gives rise to a tax outcome which is not in accordance with the DTA, the relevant tax authorities will try to resolve the matter through mutual agreement and consultation. Where agreement is not reached, the taxpayer can request that the matter is submitted to arbitration, the outcome of which will be binding on both jurisdictions.
The Crown Dependencies – and Substance
In addition to the DTAs just announced, the commitment to substance, as defined in the ‘Council of the European Union – Code of Contact Group (Tax) Report’ issued on 8 June 2018 is also likely to have a positive impact for the Crown Dependencies. In relation to international business, proving the existence of substance in the form of employment, investment, and infrastructure, will be key, to establish tax certainty and acceptability.
Dixcart Trust Corporation Limited is incorporated in Guernsey, licensed by the Guernsey Financial Services Commission, and provides a full range of fiduciary services.
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