Income Tax Act 2007 section 917A

Tax avoidance arrangements

Section 917A counters the misuse of double taxation agreements to avoid UK withholding tax on intellectual property royalty payments made between connected parties.

• Where an intellectual property royalty payment is made to a connected party under arrangements whose main purpose is to exploit a double taxation agreement for a tax advantage contrary to that agreement's objectives, the normal duty to deduct income tax at source applies regardless of the double taxation agreement.
• Income tax deducted under this rule cannot be set off against the recipient's corporation tax liability.
• Two parties are treated as connected if the "participation condition" is met between them — broadly, where one party controls or has a significant interest in the other, or both are under common control.
• "Arrangements" is defined very widely to include any agreement, understanding, scheme, transaction, or series of transactions, whether or not legally enforceable.