Income Tax Act 2007 section 911

Double taxation arrangements: deduction at treaty rate

Section 911 allows a company paying royalties to deduct income tax at the reduced rate specified in a double taxation treaty, rather than the standard rate, where it reasonably believes the recipient is entitled to treaty relief.

• When a company pays a royalty and is required to deduct income tax from it, it may apply the lower treaty rate instead of the standard rate if it reasonably believes the recipient qualifies for relief under a double taxation arrangement.
• The treaty rate is the rate of income tax applicable to the recipient under the relevant double taxation arrangement between the UK and the other country.
• If the recipient turns out not to be entitled to treaty relief at the time of payment, the deduction at the treaty rate is treated as if it had never been permitted, and the full standard rate applies retrospectively.
• The company's belief that the recipient qualifies for treaty relief must be reasonable at the time the payment is made.