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Offline Jake  
#1 Posted : 25 January 2016 19:00:57(UTC)
Jake

Rank: Newbie

Groups: Registered
Joined: 30/04/2014(UTC)
Posts: 3
United Kingdom
Location: Leeds

Online resources has certainly helped the accountancy and tax professions with both data and information sharing and the information that the Government makes available online is improving I think year on year.

I think the Tax Treaties now being online is a handy asset for finding and reading these pesky little documents. I needed the one for UK and New Zealand...

Like a lot of the .Go.UK centralisation of information you can now find the Double Tax Treaties here.

Hope this link placed here makes it easy find them although with the other online resources links being posted by users on the Tax Support forum.

So for instance in this instance I wanted to check the position with New Zealand on bank interest arising in New Zealand taxed on someone resident in the UK.

At the time of this post the Tax Treaty link for New Zealand brings you to:

Quote:
1983 New Zealand - UK Double Taxation Convention as amended by the 2007 protocol


and on getting to the UK Tax Treaty with New Zealand you will find it is a PDF document.

Quote:
Article 1 Personal Scope
This Convention shall apply to persons who are residents of one or both of the Contracting States.


Quote:
Article 2 Taxes Covered

(1) The taxes which are the subject of this Convention are:

(a) in the United Kingdom:

(i) the income tax;
(ii) the corporation tax;
(iii) the capital gains tax; and
(iv) the petroleum revenue tax;
(hereinafter referred to as "United Kingdom tax");

(b) in New Zealand:

(i) the income tax; and
(ii) the excess retention tax;
(hereinafter referred to as "New Zealand tax").

(2) Notwithstanding the provisions of paragraph (1) of this Article, the terms "United Kingdom tax" and "New Zealand tax" do not include any amount which represents a
penalty or interest imposed under the law of either Contracting State relating to the taxes to which this Convention applies.

(3) This Convention shall also apply to any identical or substantially similar taxes which are imposed by either Contracting State after the date of signature of this Convention in addition to, or in place of, the existing taxes. The competent authorities of the Contracting States shall notify each other of any significant changes which are made in their respective taxation laws. .


Getting to the "interest" section is simple. Simply use Ctrl F to "find" and type interest and your get to Article 12

Quote:
Article 12 Interest

(1) Interest arising in a Contracting State which is derived by a resident of the other Contracting State may be taxed in that other State.

(2) However, such interest may also be taxed in the Contracting State in which it arises and according to the law of that State, but where the beneficial owner of such interest is a resident of the other Contracting State the tax so charged shall not exceed 10 percent of the gross amount of the interest.

(3) Notwithstanding the provisions of paragraph (2) of this Article, interest arising in a Contracting State shall be exempt from tax in that State if it is derived and beneficially owned by the Government of the other Contracting State.

(4) Notwithstanding the provisions of paragraph (2) of this Article, interest arising in a Contracting State which is paid to and beneficially owned by a resident of the other Contracting State shall be exempt from tax in the first-mentioned State if it is paid in respect of a loan made, guaranteed or insured, or any other debt-claim or credit guaranteed or insured, by:

(a) the United Kingdom Export Credits Guarantee Department; or

(b) the New Zealand Export Guarantee Office.

(5) The term "interest" as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor's profits, and in particular, income from government securities and income from bonds or debentures, but shall not include any item which is treated as a dividend or distribution under the provisions of Article 11.

(6) The provisions of paragraphs (1) and (2) of this Article shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 8 or Article 15, as the case may be, shall apply.

(7) Interest shall be deemed to arise in a Contracting State when the payer is that State itself, a political subdivision, a local authority or a resident of that State. Where, however, the person paying the interest, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by that permanent establishment or fixed base, then such interest shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.

(8) Where a special relationship exists between the payer and the beneficial owner or between both of them and some other person and the amount of the interest paid exceeds, for whatever reason, the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the law of each Contracting State, due regard being had to the other provisions of this Convention.

(9) The provisions of this Article shall not apply 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.


My client had 33.0% tax deducted from bank interest credit to an account he had there which arose as he had worked in NZ for a few months in recent years.

Many people find reading DTA a bit of an issue, including me at times, but the thing to remember is that there are written based on a OECD model and wording is intended to be for people in either of the "contracting" states so by definition can be a bit tricky.

So with that in mind:

Quote:
(2) However, such interest may also be taxed in the Contracting State in which it arises and according to the law of that State (NEW ZEALAND as far as my client in the UK is concerned), but where the beneficial owner (MY CLIENT RESIDENT IN THE UK) of such interest is a resident of the other Contracting State (UNITED KINDOM in this example) the tax so charged shall not exceed 10 percent of the gross amount of the interest (IN NEW ZEALNAND).


As I (my client) am reading the NZ DTA in the UK it needs to be read with that in mine.

Incidentally the same clauses exist in the Canada and UK DTA. The 10% rule you will find is quite common.

So if my client has had 33.0% tax deducted in New Zealand, how does he get the excess over 10% back?

Does everyone agree with my interpretation of the DTA and the rules as set out above, and if so exactly how does my client get the interest in NZ reduced from 33.0% to 10% as he is losing out as far as I can see!

For instance is there a form to submit to the bank in NZ and is it too late now, i.e. needs to be submitted in advance say...

Comments welcome please or pointers...

I think many accountants and advisers must just simply skip over issues like this one?


Cheers

Jake
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