C1Part 15Deduction of income tax at source
Chapter 8Chapters 6 and 7: special provision in relation to royalties
Deduction at special rates
911Double taxation arrangements: deduction at treaty rate
1
This section applies if—
a
a company pays a royalty from which it is required to deduct a sum representing income tax under Chapter 6 or 7,
b
the income tax in respect of the payment is collectible under Chapter 15 or 16, and
c
the company reasonably believes that, at the time the payment is made, the payee is entitled to relief in respect of the payment under double taxation arrangements.
2
The company may calculate the sum to be deducted from the payment under Chapter 6 or 7 by reference to the treaty rate.
3
But, if the payee is not at the time entitled to such relief, this Part has effect as if subsection (2) had never applied in relation to the payment.
4
In this section “the treaty rate” means the rate of income tax appropriate to the payee under the arrangements.
912Power to make directions disapplying section 911
1
This section applies if an officer of Revenue and Customs is not satisfied that the payee will be entitled to relief under double taxation arrangements in respect of one or more payments of royalties that a company is to make.
2
The officer may direct the company that section 911 is not to apply to the payment or payments.
3
A direction under subsection (2) may be varied or revoked by a later direction.
913Interpretation of sections 911 and 912
1
In sections 911 and 912 “royalty” includes—
a
a payment received as consideration for the use of, or the right to use, a copyright, patent, trade mark, design, process or information, and
b
the proceeds of the sale of the whole or part of any patent rights.
2
In sections 911 and 912 “payee” means the person beneficially entitled to the income in respect of which the payment is made.
Discretion to make payments gross
914EU companies: discretion to make payment gross
1
This section applies if—
a
a company makes a royalty payment and, at the time the payment is made, the company reasonably believes that the payment is exempt from income tax as a result of section 758 of ITTOIA 2005 (exemption for certain interest and royalty payments), but
b
there is a duty to deduct a sum representing income tax from the payment under section 903(7) or 906 if the payment is not in fact exempt.
2
The company may make the payment without deducting a sum representing income tax under section 903(7) or 906 (as the case may be).
3
But if the payment is not in fact exempt from income tax as a result of section 758 of ITTOIA 2005, this Part has effect as if subsection (2) had never applied in relation to the payment.
915Power to make directions disapplying section 914
1
This section applies if an officer of Revenue and Customs is not satisfied that one or more payments to be made by a company will be exempt from income tax as a result of section 758 of ITTOIA 2005 (exemption for certain interest and royalty payments).
2
The officer may direct the company that section 914 is not to apply to the payment or payments.
3
A direction under subsection (2) may be varied or revoked by a later direction.
916Duty of payee to notify if payment not exempt
1
This section applies if before a payment of a royalty is made, the company beneficially entitled to the income in respect of which the payment is to be made—
a
believed that the payment was exempt from income tax as a result of section 758 of ITTOIA 2005 (exemption for certain interest and royalty payments), but
b
has subsequently become aware that any of conditions A to C in that section have ceased to be met.
2
The company must without delay notify—
a
an officer of Revenue and Customs, and
b
the company which is to make the payment.
917Supplementary
1
If section 763 of ITTOIA 2005 (special relationships) applies, sections 914 to 916 have effect in relation to only so much of the payment as does not exceed the arm's length amount (within the meaning of that section).
2
Expressions used in sections 914 to 916 and in sections 757 to 767 of ITTOIA 2005 have the same meaning in sections 914 to 916 as in those sections.
F1Tax avoidance
S. 917A and cross-heading inserted (with effect in accordance with s. 41(2) of the amending Act) by Finance Act 2016 (c. 24), s. 41(1) (with s. 41(3)(4))
917ATax avoidance arrangements
1
This section applies if and to the extent that—
a
a person (“the payer”) makes an intellectual property royalty payment,
b
the payment is received by a person (“the payee”) who is connected with the payer, and
c
the payment is made under DTA tax avoidance arrangements.
2
Any duty under Chapter 6 or 7 to deduct a sum representing income tax at any rate applies without regard to any double taxation arrangements.
3
Any income tax deducted by virtue of subsection (2) may not be set off under section 967 or 968 of CTA 2010.
4
In this section—
“arrangements” (except in the phrase “double taxation arrangements”) includes any agreement, understanding, scheme, transaction or series of transactions, whether or not legally enforceable;
“DTA tax avoidance arrangements” means arrangements where, having regard to all the circumstances, it is reasonable to conclude that—
- a
the main purpose, or one of the main purposes, of the arrangements was to obtain a tax advantage by virtue of any provisions of a double taxation arrangement, and
- b
obtaining that tax advantage is contrary to the object and purpose of those provisions;
- a
“intellectual property royalty payment” means a payment referred to in section 906(2)(a) or (3)(a);
“receive” means receive—
- a
directly or indirectly;
- b
by one payment or by a series of payments;
- a
“tax advantage” is to be construed in accordance with section 208 of FA 2013.
5
For the purposes of this section the payer is connected with the payee if the participation condition is met as between them.
6
Section 148 of TIOPA 2010 (when the participation condition is met) applies for the purposes of subsection (5) as for the purposes of section 147(1)(b) of that Act, but as if references to the actual provision were to the provision made or imposed between the payer and the payee in respect of the arrangements under which the payment is made.
Pt. 15 modified (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), ss. 551(4), 1329(1) (with Pts. 1, 2, Sch. 2 para. 78)