The Double Taxation Relief (Taxes on Income) (Italy) Order 1990

Made: 19th December 1990

At the Court at Buckingham Palace, the 19th day of December 1990 Present, The Queen’s Most Excellent Majesty in Council

Now, therefore, Her Majesty, in exercise of the powers conferred upon Her by section 788 of the said Act, and of all other powers enabling Her in that behalf, is pleased, by and with the advice of Her Privy Council, to order, and it is hereby ordered, as follows:—

1

This Order may be cited as the Double Taxation Relief (Taxes on Income) (Italy) Order 1990.

2

It is hereby declared—

• (a) that the arrangements specified in the Convention set out in Part I of the Schedule to this Order and in the Exchange of Notes constituting an Agreement set out in Part II of that Schedule have been made with the Government of the Italian Republic with a view to affording relief from double taxation in relation to income tax, corporation tax or capital gains tax and taxes of a similar character imposed by the laws of Italy;

• (b) that those arrangements include provisions with respect to the exchange of information necessary for carrying out the domestic laws of the United Kingdom and the laws of Italy concerning taxes covered by the arrangements including, in particular, provisions about the prevention of fiscal evasion with respect to those taxes; and

• (c) that it is expedient that those arrangements should have effect.

SCHEDULE

PART I — CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND AND THE GOVERNMENT OF THE ITALIAN REPUBLIC FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME

The Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Italian Republic;

Desiring to conclude a new Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income;

Have agreed as follows:

ARTICLE 1 — Personal scope

This Convention shall apply to persons who are residents of one or both of the Contracting States.

ARTICLE 2 — Taxes covered

ARTICLE 3 — General definitions

ARTICLE 4 — Fiscal domicile

ARTICLE 5 — Permanent establishment

ARTICLE 6 — Income from immovable property

ARTICLE 7 — Business profits

ARTICLE 8 — Shipping and air transport

ARTICLE 9 — Associated enterprises

Where

• (a) an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or

• (b) the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State,

and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly.

ARTICLE 10 — Dividends

ARTICLE 11 — Interest

ARTICLE 12 — Royalties

ARTICLE 13 — Capital gains

ARTICLE 14 — Independent personal services

ARTICLE 15 — Dependent personal services

ARTICLE 16 — Directors' fees

Directors' fees and other similar payments derived by a resident of a Contracting State in his capacity as a member of the board of directors of a company which is a resident of the other Contracting State may be taxed in that other State.

ARTICLE 17 — Artistes and athletes

ARTICLE 18 — Pensions

ARTICLE 19 — Government service

ARTICLE 20 — Teachers

ARTICLE 21 — Students and business apprentices

Payments which a student or business apprentice who is or was immediately before visiting a Contracting State a resident of the other Contracting State and who is present in the first-mentioned Contracting State solely for the purpose of his education or training receives for the purpose of his maintenance, education or training shall not be taxed in that first-mentioned State, provided that such payments arise from sources outside that State.

ARTICLE 22 — Other income

ARTICLE 23 — Miscellaneous rules applicable to certain offshore activities

ARTICLE 24 — Elimination of double taxation

ARTICLE 25 — Non-discrimination

ARTICLE 26 — Mutual agreement procedure

ARTICLE 27 — Exchange of information

ARTICLE 28 — Members of diplomatic or permanent missions and consular posts

Nothing in this Convention shall affect any fiscal privileges accorded to members of diplomatic or permanent missions or consular posts under the general rules of international law or under the provisions of special agreements.

ARTICLE 29 — Refunds

ARTICLE 30 — Entry into force

ARTICLE 31 — Termination

This Convention shall remain in force until terminated by one of the Contracting States. Either Contracting State may terminate this Convention, through the diplomatic channel, by giving notice of termination at least six months before the end of any calendar year. In such event, this Convention shall cease to have effect:

• (a) in the United Kingdom:

• (i) in respect of income tax and capital gains tax, for any year of assessment beginning on or after 6th April in the calendar year next following that in which the notice is given;

• (ii) in respect of corporation tax, for any financial year beginning on or after 1st April in the calendar year next following that in which the notice is given;

• (iii) in respect of petroleum revenue tax, for any chargeable period beginning on or after 1st January in the calendar year next following that in which the notice is given;

• (b) in Italy:

in respect of income of taxable periods beginning on or after 1st January in the year following that in which the notice is given.

In witness whereof the undersigned, duly authorised thereto by their respective Governments, have signed this Convention.

Done in duplicate at Pallanza this 21st day of October 1988 in the English and Italian languages, both texts being equally authoritative.

For the Government of the United Kingdom of Great Britain and Northern Ireland:

Geoffrey Howe

For the Government of the Italian Republic:

Giulio Andreotti

PART II — EXCHANGE OF NOTES

Pallanza

21st October 1988

Your Excellency,

I have the honour to refer to the Convention between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Italian Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income which has been signed today and to propose on behalf of the Government of the United Kingdom that for the purpose of that Convention it shall be understood that:

• (1) Notwithstanding the provisions of Article 30 (Entry into force), Article 8 (Shipping and air transport) shall have effect as respects profits derived during any taxable period beginning on or after the 1st January 1974.

• (2) With reference to paragraph (1) of Article 26 (Mutual agreement procedure), the expression “irrespective of the remedies provided by the domestic law” shall not be understood to mean that the time limits prescribed by domestic law shall not be observed; a claim under Article 26 shall not be entertained where the taxpayer has not taken the appropriate action under domestic law to prevent such time limits from expiring.

• (3) With further reference to paragraph (1) of Article 26 (Mutual agreement procedure), nothing herein contained shall reduce any longer time limit available to such resident for this purpose under the law of the Contracting State of which he is a resident.

• (4) With reference to paragraph (3) of Article 29 (Refunds), the provisions herein contained shall not be construed as preventing the competent authorities of the Contracting States from mutually agreeing upon a different procedure for the granting of tax benefits provided by the Convention.

• (5) If, in accordance with Article 9 (Associated enterprises) of the Convention, a redetermination has been made by one Contracting State with respect to a person, the other Contracting State shall, to the extent it agrees that such redetermination reflects arrangements or conditions which would be made between independent persons, make the appropriate adjustments with respect to persons who are related to such person and are subject to the taxing jurisdiction of that State. Any such adjustment shall be made only in accordance with the mutual agreement procedure in Article 26 (Mutual agreement procedure) of the Convention and with paragraph (6) of this Exchange of Notes.

• (6) With respect to Article 26 (Mutual agreement procedure) of the Convention, it is understood that an adjustment of taxes pursuant to that Article may be made only prior to the final determination of such taxes. It is further understood that, in the case of Italy, the preceding sentence means that invoking the mutual agreement procedure does not relieve a taxpayer of the obligation to initiate the procedures of domestic law for solving tax disputes.

• (7) With regard to paragraph (7) of Article 10 (Dividends), paragraph (6) of Article 11 (Interest), paragraph (4) of Article 12 (Royalties) and paragraph (2) of Article 22 (Other income), the last sentence appearing therein cannot be construed as failing to take account of the principles set out in Articles 7 (Business profits) and 14 (Independent personal services) of the Convention.

If the foregoing proposal is acceptable to the Government of the Italian Republic, I have the honour to suggest that the present Note and Your Excellency’s reply to that effect shall be regarded as constituting an Agreement between the two Governments in this matter which shall enter into force on the same date as the Convention.

Please accept, Your Excellency, the assurance of my highest consideration.

Geoffrey Howe

His Excellency the Minister of Foreign Affairs of the Italian Republic.

Pallanza

21st October 1988

Your Excellency,

I have the honour to acknowledge receipt of your Excellency’s Note of today which reads as follows:

I have the honour to refer to the Convention between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Italian Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income which has been signed today and to propose on behalf of the Government of the United Kingdom that for the purpose of that Convention it shall be understood that: (1) Notwithstanding the provisions of Article 30 (Entry into force), Article 8 (Shipping and air transport) shall have effect as respects profits derived during any taxable period beginning on or after the 1st January 1974. (2) With reference to paragraph (1) of Article 26 (Mutual agreement procedure), the expression “irrespective of the remedies provided by the domestic law” shall not be understood to mean that the time limits prescribed by domestic law shall not be observed; a claim under Article 26 shall not be entertained where the taxpayer has not taken the appropriate action under domestic law to prevent such time limits from expiring. (3) With further reference to paragraph (1) of Article 26 (Mutual agreement procedure), nothing herein contained shall reduce any longer time limit available to such resident for this purpose under the law of the Contracting State of which he is a resident. (4) With reference to paragraph (3) of Article 29 (Refunds), the provisions herein contained shall not be construed as preventing the competent authorities of the Contracting States from mutually agreeing upon a different procedure for the granting of tax benefits provided by the Convention. (5) If, in accordance with Article 9 (Associated enterprises) of the Convention, a redetermination has been made by one Contracting State with respect to a person, the other Contracting State shall, to the extent it agrees that such redetermination reflects arrangements or conditions which would be made between independent persons, make the appropriate adjustments with respect to persons who are related to such person and are subject to the taxing jurisdiction of that State. Any such adjustment shall be made only in accordance with the mutual agreement procedure in Article 26 (Mutual agreement procedure) of the Convention and with paragraph (6) of this Exchange of Notes. (6) With respect to Article 26 (Mutual agreement procedure) of the Convention, it is understood that an adjustment of taxes pursuant to that Article may be made only prior to the final determination of such taxes. It is further understood that, in the case of Italy, the preceding sentence means that invoking the mutual agreement procedure does not relieve a taxpayer of the obligation to initiate the procedures of domestic law for solving tax disputes. (7) With regard to paragraph (7) of Article 10 (Dividends), paragraph (6) of Article 11 (Interest), paragraph (4) of Article 12 (Royalties) and paragraph (2) of Article 22 (Other income), the last sentence therein cannot be construed as failing to take account of the principles set out in Articles 7 (Business profits) and 14 (Independent personal services) of the Convention. If the foregoing proposal is acceptable to the Government of the Italian Republic, I have the honour to suggest that the present Note and Your Excellency’s reply to that effect shall be regarded as constituting an Agreement between the two Governments in this matter which shall enter into force on the same date as the Convention.

In reply, I have the honour to state that the Italian Government accept the proposal made therein and agree that Your Excellency’s Note and the present reply shall constitute an Agreement between the Italian Government and the United Kingdom Government in this matter.

Please accept, Your Excellency, the assurances of my highest consideration.

Giulio Andreotti

His Excellency the Secretary of State for Foreign and Commonwealth Affairs of the United Kingdom of Great Britain and Northern Ireland.

Signed

G. I. de Deney — Clerk of the Privy Council

Explanatory note

(This Note is not part of the Order)

The Convention with Italy set out in the Schedule to this Order (“the new Convention”) replaces the Convention signed on 4th July 1960 and set out in the Schedule to the Double Taxation Relief (Taxes on Income) (Italy) Order 1962 (S.I. 1962/2787), as amended by the Protocol signed on 28th April 1969 and set out in the Schedule to the Double Taxation Relief (Taxes on Income) (Italy) Order 1973 (S.I. 1973/1763).

The new 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). Shipping and air transport profits are to be taxed only in the country in which the place of effective management is situated (Article 8). The new Convention includes rules for determining taxable profits when a company in one country is related to a company in the other (Article 9).

The Dividends Article (Article 10) takes account of the imputation systems of company taxation in the United Kingdom and Italy. Where a company resident in one country pays a dividend to a company resident in the other country which controls 10 per cent or more of its voting power, the company receiving the dividend will be entitled to a tax credit equal to one half of the tax credit which would be payable to an individual resident in the other country less a sum of not more than 5 per cent of the aggregate amount of the dividend and the half tax credit. Where the recipient is an individual or a company controlling less than 10 per cent of the voting power of the paying company, the tax credit payable will be equal to the tax credit which would be payable to an individual resident in the other country less a sum not exceeding 15 per cent of the aggregate of the dividend and the tax credit. The Article provides that entitlement to the tax credit may be withdrawn where the recipient of a dividend cannot show, if required to do so, that the shareholding in question was acquired for bona fide commercial reasons or in the ordinary course of making or managing investments and it was not the main object nor one of the main objects of that acquisition to obtain entitlement to the tax credit.

In general, interest (Article 11) may be taxed in the country in which it arises, but the rate will be limited to 10 per cent where the beneficial owner of the interest is a resident of the other country. For various categories of interest (eg where the interest is paid by the Government of the source country) the country of source will exempt from tax interest paid to a resident of the other country.

The rate of tax on royalties in the source country is not to exceed 8 per cent of the gross amount flowing to the other country (Article 12).

Income from immovable property and gains derived from such property may be taxed in the country in which the property is situated (Articles 6 and 13).

The earnings of temporary business visitors are, subject to certain conditions, to be taxed only in the country of the taxpayer’s residence (Articles 14 and 15). Fees received by a resident of one country in his capacity as a director of a company resident in the other may be taxed in the latter country (Article 16). Income derived from the activities of artistes and athletes may be taxed in the country in which these activities are exercised (Article 17). The remuneration of visiting teachers (Article 20) and certain payments made to visiting students and business apprentices are, in general, to be exempt from tax in the country visited (Article 21).

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).

Special rules are included to cover income and profits from activities connected with offshore oil and gas exploration or exploitation (Article 23). Trading profits arising from such activities are normally deemed to arise through a permanent establishment or a fixed base and may therefore be taxed in the country in which the activities are carried on. Employees are, in general, to be taxed only in the country in which the employment is exercised.

Where income continues to be taxable in both countries, relief from double taxation will be given by the country of the taxpayer’s residence in respect of tax imposed by the other country (Article 24). In the case of dividends, the United Kingdom will give credit for underlying tax paid in Italy if the United Kingdom company receiving the dividends owns at least 10 per cent of the capital in the Italian company.

There are provisions safeguarding nationals and enterprises of one country against discriminatory taxation in the other country (Article 25) and for consultation and exchange of information between the taxation authorities of the two countries (Articles 26 and 27).

The new Convention will enter into force thirty days after the date on which instruments of ratification are exchanged and will have effect, in the case of shipping and air transport profits for taxable periods beginning on or after 1st January 1974 (under the Exchange of Notes) and, in all other cases, in the calendar year next following that in which the instruments of ratification are exchanged (Article 30). The date of entry into force will in due course be published in the London, Edinburgh and Belfast Gazettes .

Footnotes

[^f00001]: 1988 c. 1; section 788 is extended by section 10 of the Capital Gains Tax Act 1979 (c. 14).