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

Made: 19th December 1991

At the Court at Buckingham Palace, the 19th day of December 1991 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) (Iceland) Order 1991.

2

It is hereby declared—

• (a) that the arrangements specified in the Convention set out in the Schedule to this Order have been made with the Government of the Republic of Iceland 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 Iceland;

• (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 Iceland concerning taxes covered by the arrangements; and

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

SCHEDULE — CONVENTION

BETWEEN THE GOVERNMENT OF THE UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND AND THE GOVERNMENT OF THE REPUBLIC OF ICELAND FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME AND CAPITAL GAINS

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

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

Have agreed as follows:

ARTICLE I — 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 establishments

ARTICLE 6 — Income from real property

ARTICLE 7 — Business profits

ARTICLE 8 — Shipping and air transport

ARTICLE 9 — Associated enterprises

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, annuities, alimony and social security payments

ARTICLE 19 — Government service

ARTICLE 20 — Students

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 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 21 — Other income

ARTICLE 22 — Elimination of double taxation

ARTICLE 23 — Non-discrimination

ARTICLE 24 — Mutual agreement procedure

ARTICLE 25 — Exchange of information

ARTICLE 26 — 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 27 — Entry into force

ARTICLE 28 — Termination

This Convention shall remain in force until terminated by one of the Contracting States. Either Contracting State may terminate this Convention by giving notice of termination, through the diplomatic channel, at least six months before the end of any calendar year after the year 1995. 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 notice is given, and subsequent years;

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

• (b) in Iceland: in respect of taxes on income and capital gains for any year of assessment of taxes chargeable on income and capital gains of the calendar year (including accounting periods ending in any such year) next following that in which the notice of termination is given, and subsequent years.

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

Done in duplicate at Reykjavik this 30th day of September 1991 in the English and Icelandic languages, both texts being equally authoritative.

Signed

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

Explanatory note

(This note is not part of the Order)

The Convention with the Republic of Iceland is set out in the Schedule to this Order.

Provision is made 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 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 system of company taxation in the United Kingdom. Where the recipient is an individual resident of Iceland or an Icelandic company controlling less than 10 per cent of the voting power of the United Kingdom company, the tax credit payable will be equal to the tax credit which would be payable to a United Kingdom resident individual less a sum not exceeding 15 per cent of the aggregate of the dividend and the tax credit. The Article provides that entitlement to a tax credit may be withdrawn where the recipient of a dividend cannot show, if required to do so, that the shareholding 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.

The Dividends Articles also provides that the rate of Icelandic withholding tax on dividends paid to a United Kingdom company controlling at least 10 per cent of the capital of the Icelandic company paying the dividend will be limited to a maximum of 5 per cent. In all other cases the Icelandic withholding tax will not be more than 15 per cent.

Subject to certain anti-abuse provisions the country of source will exempt from tax interest and royalties paid to a resident of the other country (Articles 11 and 12).

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). 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). Payments made to visiting students and business apprentices are, in general, to be exempt from tax in the country visited (Article 20).

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). Capital gains arising from the disposal of movable property are normally to be taxed only in the country of the taxpayer’s residence. Gains arising from the disposal of assets of a permanent establishment or fixed base which the taxpayer has in the other country may be taxed in the other country.

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 22). There are provisions safeguarding nationals and enterprises of one country (Article 23). Provision is made for consultation and exchange of information between the taxation authorities of the two countries (Articles 24 and 25).

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 6th April in the following calendar year (Article 27). The date of entry into force will in due course be published in the London, Edinburgh & Belfast Gazettes.

Footnotes

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