The Double Taxation Relief (Taxes on Income) (Estonia) Order 1994

Made: 14th December 1994

At the Court at Buckingham Palace, the 14th day of December 1994 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) (Estonia) Order 1994.

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 Republic of Estonia 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 Estonia;

• (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 Estonia 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 REPUBLIC OF ESTONIA FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME AND ON CAPITAL GAINS

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

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 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 — Residence

ARTICLE 5 — Permanent establishment

ARTICLE 6 — Income from immovable 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 or any other similar organ of a company which is a resident of the other Contracting State may be taxed in that other State.

ARTICLE 17 — Artistes and sportsmen

ARTICLE 18 — Pensions

ARTICLE 19 — Government service

ARTICLE 20 — Students

Payments which a student or an apprentice or trainee, 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 the first—mentioned State, provided that such payments arise from sources outside that State.

ARTICLE 21 — Professors and teachers

ARTICLE 22 — Other income

ARTICLE 23 — Elimination of double taxation

ARTICLE 24 — Limitation of relief

ARTICLE 25 — Partnerships

Where, under any provision of this Convention, a partnership is entitled, as a resident of Estonia, to exemption from tax in the United Kingdom on any income or capital gains, that provision shall not be construed as restricting the right of the United Kingdom to tax any member of the partnership who is a resident of the United Kingdom on his share of such income or capital gains; but any such income or capital gains shall be treated for the purposes of Article 23 of this Convention as income or gains from sources in Estonia.

ARTICLE 26 — Non—discrimination

ARTICLE 27 — Mutual agreement procedure

ARTICLE 28 — Exchange of information

ARTICLE 29 — Members of diplomatic or permanent missions and consular posts

Nothing in this Convention shall affect the 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 30 — Entry into force

The Governments of each of the Contracting States shall notify to the other through the diplomatic channel the completion of the procedures required by law for the bringing into force of this Convention. This Convention shall enter into force on the date of the later of these notifications and shall thereupon have effect:

• (a) in Estonia:

• (i) in respect of taxes withheld at source, on income derived on or after the first day of January in the calendar year next following the year in which the Convention enters into force;

• (ii) in respect of other taxes on income, for taxes chargeable for any tax year beginning on or after the first day of January in the calendar year next following the year in which the Convention enters into force;

• (b) 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 Convention enters into force;

• (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 Convention enters into force.

ARTICLE 31 — Termination

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

• (a) in Estonia:

• (i) in respect of taxes withheld at source, on income derived on or after the first day of January in the calendar year next following the year in which the notice is given;

• (ii) in respect of other taxes on income, for taxes chargeable for any tax year beginning on or after the first day of January in the calendar year next following the year in which the notice is given;

• (b) 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.

In witness whereof the undersigned, duly authorised thereto have signed this Convention.

Done in duplicate at London this 12th day of May 1994 in the English and the Estonian languages, both texts being equally authentic.

PART II — EXCHANGE OF NOTES

London

12th May 1994

Excellency

I have the honour to refer to the Convention between the Government of Estonia and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains which was signed on 12th May 1994 and to make on behalf of the Government of Estonia the following proposals for the purpose of applying:

Article 2 and Article 22

1

The United Kingdom takes note of the fact that the existing taxes as listed in the Convention are subject to a substantial programme of reform and wherever:

• (i) in respect of Article 2 it is not possible to agree that a particular new tax satisfies the conditions of paragraph (4) of this Article; or

• (ii) in respect of Article 22, insofar as this relates to the taxation of items of income of a resident of a Contracting State which are not dealt with in the foregoing Articles of this Convention and which arise in the other Contracting State, the amount of tax involved appears to the competent authority of Estonia to upset the balance of this Convention;

the United Kingdom is ready to negotiate an amending Protocol to the Convention without delay.

Article 4(3)

2

Where a person other than an individual is a resident of both Contracting States and the competent authorities of the contracting States endeavour to determine its status by mutual agreement, they shall have regard to such factors as the place of effective management, the place where it is incorporated or otherwise constituted and any other relevant factors.

Article 5(6)

3

The Contracting States agree that:

• (i) where the transactions between the agent and the enterprise are made under arm’s length conditions, the second sentence of paragraph (6) shall not apply; and

• (ii) in considering whether the activities are devoted wholly or almost wholly on behalf of that enterprise, the Contracting States shall have regard to any relevant factors during any 12 month period commencing or ending in the fiscal year concerned. In particular, if the relevant activities are devoted wholly or almost wholly on behalf of that enterprise for a period exceeding 9 months within that period of 12 months, they will be considered to have been so devoted in that fiscal year.

Article 6(3)

4

The Contracting States understand that all income and gains arising from the alienation of immovable property in a Contracting State may be taxed in that Contracting State in accordance with Article 13 of this Convention.

Article 7(3)

5

In determining the profits of a permanent establishment, it is understood that expenses to be allowed as deductions by a Contracting State include only expenses that are deductible under the domestic laws of that State.

Article 11

6

The Contracting States confirm that they will meet on a date to be agreed and provided that five years have elapsed since this Convention entered into force with a view to negotiating by means of a Protocol a reduction to zero in the rate of tax to be charged under paragraph (2) of this Article in respect of a loan made, guaranteed or insured by a financial institution of a public character.

Article 12

7

The contracting States agree that where Estonia agrees to a lower rate of tax than 5 per cent in respect of the royalties specified in paragraph (2)(a) of Article 12 to 10 per cent in respect of any other royalties in any Convention between Estonia and a third State which is a member of the Organisation for Economic Co—operation and Development at the date of signature of this Convention, and that Convention enters into force either before or after the date of entry into force of this Convention, the competent authority of Estonia shall notify the competent authority of the United Kingdom of the terms of the relevant paragraph in the Convention with that third State immediately after the entry into force of that Convention and such lower rate of tax shall be substituted in Article 12 of this Convention for 5 per cent in respect of the royalties specified in paragraph (2)(a) or 10 per cent in respect of any other royalties with effect from the date of entry into force of that convention, or of this Convention, whichever is the later.

Article 24(2)

8

It is understood that incentives to promote foreign investment shall not include incentives promoting only domestic investment.

Signed

R. P. Bulling — Deputy Clerk of the Privy Council

Explanatory note

(This note is not part of the Order)

The Convention with Estonia is set out in the Schedule to the Order.

The 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).

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

Air transport and shipping profits are to be taxed only in the residence state of the operator (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 rate of tax imposed in the country of source on dividends derived by a resident of the other country shall not exceed 5 per cent of the gross amount of the dividends when the beneficial owner is a company controlling at least 25 per cent of the voting power in the company paying the dividends. In all other cases the rate of tax shall not exceed 15 per cent of the gross amount of the dividends (Article 10).

The rate of tax imposed in the country of source on interest derived by a resident of the other country is not to exceed 10 per cent of the gross amount of the interest flowing to the other country. Certain categories of interest (e.g. interest paid to the Government of the other country) will be exempt from tax in the source state (Article 11).

The rate of tax imposed in the country of source on royalties flowing to the other country shall not exceed 5 per cent of the gross amount of royalties paid in respect of industrial, commercial and scientific equipment. In all other cases, such royalties may also be taxed in the source country, but, in general, at a rate not exceeding 10 per cent of the gross amount (Article 12).

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 that other country (Article 13).

The earnings of temporary business visitors and some other individuals 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 country may be taxed in the latter country (Article 16). Income derived from the activities of artistes and sportsmen may be taxed in the country in which those activities are exercised, with certain exemptions (Article 17). Occupational pensions (other than those paid in respect of Government Service) and annuities are to be taxed only in the recipient’s country of residence (Article 18). Government Service remuneration and pensions are normally taxable only by the paying Government (Article 19). Certain payments made to visiting students and business apprentices are to be exempt from tax in the country visited (Article 20). Income derived from the activities of professors and teachers engaged in teaching or research (subject to certain conditions and limitations) may be exempt from tax in the country in which those activities are carried out (Article 21). Other income not specified in the Convention (with the exception of income paid out of trusts or the estates of deceased persons in the course of administration) shall be taxable only in the taxpayer’s country of residence, as long as it is not associated with a permanent establishment in the country of source (Article 22).

Where income continues to be taxable in both countries credit will be given in the taxpayer’s country of residence for tax imposed by the other country. In the case of dividends, the United Kingdom will give credit for underlying tax paid in Estonia where the shareholder is a United Kingdom company which controls at least 10 per cent of the voting power in the company paying the dividends. (Article 23).

There are provisions safeguarding nationals and enterprises of one country against discriminatory taxation in the other country (Article 26), and for consultation (Article 27) and exchanges of information (Article 28) between the taxation authorities of the two countries.

The Convention will enter into force on the date of the later of the notifications by each country of the completion of the procedures required by its law to bring the Convention into force. The Convention is to take effect in the United Kingdom on or after 1st April in respect of corporation tax and on or after 6th April for income tax and capital gains tax in the calendar year next following that in which it enters into force. The date of entry into force will in due course be published in theLondon, EdinburghandBelfast Gazettes.

Footnotes

[^f00001]: 1988 c. 1; section 788 is extended by section 277 of the Taxation of Chargeable Gains Act 1992 (c. 12).