Words and Phrases - "relieved from tax"
A Canadian author (X) who became resident but not domiciled in the UK thereafter received royalties from a Canadian publisher, that were not subject to U.K. tax because they not remitted to the UK. Are the Royalties subject to 25% withholding under s. 212(1)(d) having regard to Art. 27(2) of the Canada-U.K. Treaty? Art. 27(2) provides:
Where under any provision of this Convention any income is relieved from tax in a Contracting State and, under the law in force in the other Contracting State a person, in respect of that income, is subject to tax by reference to the amount thereof which is remitted to or received in that other Contracting State and not by reference to the full amount thereof, then the relief to be allowed under this Convention in the first-mentioned Contracting State shall apply only to so much of the income as is taxed in the other Contracting State.
In finding that the Royalties were subject to the non-Treaty reduced rate of 25%, CRA stated:
[I]ncome that is “relieved from tax” in Article 27(2) of the Treaty refers to income that is either partly or wholly relieved from Canadian income tax, pursuant to a provision in the Treaty. Given that Article 12(2) of the Treaty grants X a reduced 10% rate of withholding tax, such income would be considered to be “relieved from tax” in Canada under that Article for the purposes of Article 27(2). … Since … the Royalty payments will not be remitted to or received in the UK and accordingly are not taxable in the UK, X will not be entitled to the benefits of Article 12(2) … .
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|Tax Topics - Treaties - Income Tax Conventions - Article 12||rate reduction inapplicable where received by remittance-based UK resident free of UK tax||125|