The Double Taxation Relief (Taxes on Income) (Czechoslovakia) Order 1991

Explanatory Note

(This note is not part of the Order)

The Convention with the Czech and Slovak Federal Republic is set out in the Schedule to this Order.

The Convention provides for business profits not arising through a permanent establishment to be taxed only in the country of the taxpayer’s residence. Profits attributable to a permanent establishment may be taxed in the country in which the permanent establishment is situated (Articles 5 and 7). Profits arising from the operation of ships or aircraft in international traffic are to be taxed only in the country in which the place of effective management of the enterprise is situated (Article 8).

This convention includes rules for determining taxable profits when a company in one country is related to a company in the other (Article 9).

The rate of tax imposed in the country of source on dividends derived by a resident of the other country is normally not to exceed 5 per cent of the gross amount of the dividends where the dividend is paid to a company which controls at least 25 per cent of the voting power in the paying company, and 15 per cent of the gross amount of the dividends in all other cases (Article 10).

The country of source will exempt from tax interest and royalties paid to a resident of the other country (Articles 11 and 12).

Provision is made for income arising from immovable property and gains from the alienation of that property to be taxed in the country in which the property is situated (Articles 6 and 13).

The earnings of temporary business visitors and some other individuals are, subject to certain conditions, to be taxed only in the country of the taxpayer’s residence (Articles 14 and 15).

Income derived in respect of the personal activities of entertainers and athletes may normally be taxed in the country in which those activities are exercised (Article 17). Certain payments made to visting student or business apprentices are, subject to certain conditions, to be exempt from tax in the country visited (Article 20).

Government service salaries and pensions are normally to be taxed by the paying Government only (Article 19) while other pensions are to be taxed only in the country of the taxpayer’s residence (Article 18).

Where income continues to be taxable in both countries, relief from double taxation will be given, in effect, in accordance with the laws of each country. In the case of dividends, the United Kingdom will give credit for underlying tax paid in Czechoslovakia where the recipient of the dividend is a United Kingdom company which controls at least ten per cent of the voting power in the paying company (Article 22).

There are provisions safeguarding nationals and enterprises of one country against discriminatory taxation in the other country (Article 23) and for consultation (Article 24) and exchange of information (Article 25) between the taxation authorities of the two countries.

The Convention will enter into force when the legislative procedures in both countries have been completed, and will have effect in the United Kingdom from April 1st (in respect of corporation tax) and April 6th (in respect of income tax and capital gains tax) in the following calendar year (Article 27). The date of entry into force will in due course be published in the London, Edinburgh and Belfast Gazettes.