The Double Taxation Relief (Taxes on Income) (Azerbaijan) Order 1995

Made: 15th March 1995

At the Court at Buckingham Palace, the 15th day of March 1995 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) (Azerbaijan) Order 1995.

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 Azerbaijan 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 Azerbaijan;

• (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 Azerbaijan 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 AZERBAIJAN 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 Azerbaijan;

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 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 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 — Limitation of relief

ARTICLE 24 — Partnerships

Where, under any provision of this Convention, a partnership, joint venture or other entity is entitled, as a resident of Azerbaijan, 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, joint venture or other entity who is a resident of the United Kingdom on his share of such income or capital gains; but any such income or gains shall be treated for the purposes of Article 22 of this Convention as income or gains from sources in Azerbaijan.

ARTICLE 25 — Non–discrimination

ARTICLE 26 — Mutual agreement procedure

ARTICLE 27 — Exchange of information

ARTICLE 28 — Members and employees of diplomatic or consular establishments and permanent missions

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

ARTICLE 29 — Entry into force

Each of the Contracting States shall notify to the other through diplomatic channels the completion of the procedures required by its 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 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;

• (b) in Azerbaijan:

• (i) in respect of taxes withheld at source, for amounts paid or credited on or after 1st January in the calendar year next following that in which the Convention enters into force;

• (ii) in respect of other taxes, for taxable periods beginning on or after 1st January in the calendar year next following that in which the Convention enters into force.

ARTICLE 30 — 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 beginning after the expiry of five years from the date of entry into force of the Convention. In such event, the 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;

• (b) in Azerbaijan:

• (i) in respect of taxes withheld at source, for amounts paid or credited on or after 1st January in the calendar year next following that in which the notice is given;

• (ii) in respect of other taxes, for taxable periods beginning on or after 1st January 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 23rd day of February 1994 in the English language.

PART II — EXCHANGE OF NOTES

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 Republic of Azerbaijan 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 23rd February 1994 and to make on behalf of the Government of the United Kingdom the following proposals for the purpose of applying:

Article 2: Taxes covered

Article 4: Residence

Article 5: Permanent establishment

The Contracting States agree that the applicability of the second sentence of Article 5(6) falls to be considered on a case by case basis and in the light of all the facts.

Article 8: Shipping and air transport

Article 11: Interest

Article 26: Mutual Agreement Procedure

Article 29: Entry into Force

Capital

I avail myself of this opportunity to extend to Your Excellency the assurance of my highest consideration.

I am in receipt of your note dated 23rd February 1994 which states 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 Republic of Azerbaijan 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 23rd February 1994 and to make on behalf of the Government of the United Kingdom the following proposals for the purpose of applying: The Contracting States agree that the term “substantial changes” in Article 2(4) includes changes in the rates, base or structure of the tax system, or the introduction of new or substituted taxes in either Contracting State, but does not include minor changes. 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 under the terms of Article 4(3), they shall have regard to such factors as the place of effective management, the place where it is incorporated, the place where it is registered for the purposes of taxation and any other relevant factors. With respect to paragraph 2(f) the Contracting States agree that the term installation includes a drilling rig or ship used for the exploration of natural resources. The Contracting States agree that the applicability of the second sentence of Article 5(6) falls to be considered on a case by case basis and in the light of all the facts. The provisions of Article 8(3) shall apply only to so much of the profits derived from the participation in a pool, a joint business or an international operating agency as is attributable to the participant in proportion to its share in the joint operation. The competent authorities of the Contracting States shall if necessary settle by mutual agreement the mode of application of the limitation imposed by Article 11(2). With reference to paragraph (2), the Government of the United Kingdom takes note of the view of the Government of Azerbaijan that provision should be made for a procedure of binding arbitration with a view to the avoidance of taxation which is not in accordance with the Convention where one of the competent authorities fails to resolve the case by mutual agreement with the competent authority of the other Contracting State. In the event of a change in the domestic law of the United Kingdom to permit such a procedure of binding arbitration to be entered into, the competent authority of the United Kingdom will notify the competent authority of Azerbaijan with a view to the negotiation of a Protocol to this Convention which will provide for a binding arbitration procedure. With reference to paragraph (4), the Contracting States agree that in the event that the domestic law of both States is amended to permit an oral exchange of opinion to take place through a Commission consisting of the competent authorities of the Contracting States, they are ready to use such a procedure. The Contracting States agree that notwithstanding paragraphs (a) and (b) the provisions of this Convention shall, as a practical matter, be applied to transactions entered into on or after 18th October 1991 where this would afford any greater relief from tax than is due under the domestic law of either Contracting State. In the case of any difficulties or doubts arising as to the interpretation or application of the provisions of this Convention in respect of transactions entered into between 18th October 1991 and the entry into force of this Convention the competent authorities of the Contracting States shall endeavour to resolve these by mutual agreement. The Contracting States agree that if either Contracting State introduces a capital tax under its domestic law, both Contracting States will participate without delay in negotiations for a Protocol to this Convention with a view to extending the scope of this Convention to include the above–mentioned capital tax. If the foregoing proposals are acceptable to the Government of the Republic of Azerbaijan, I have the honour to suggest that the present Note and Your Excellency’s reply to that effect should be regarded as constituting an agreement between the two Governments in this matter, which shall enter into force at the same time as the entry into force of the Convention. I avail myself of this opportunity to extend to Your Excellency the assurance of my highest consideration.

The foregoing proposals being acceptable to the Government of the Republic of Azerbaijan, I have the honour to confirm that Your Excellency’s Note and this reply shall be regarded as constituting an agreement between the two Governments in this matter which shall enter into force at the same time as the entry into force of the Convention.

I take this opportunity to renew to Your Excellency the assurance of my highest consideration.

Signed

N. H. Nicholls — Clerk of the Privy Council

Explanatory note

(This note is not part of the Order)

The Convention with Azerbaijan 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 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, in general, exceed 10 per cent of the gross amount if the recipient is either a company controlling 30 per cent of the voting power of the company paying the dividends or is a company which has invested 100,000 United States dollars or an equivalent amount in local currency in the share capital of the company paying the dividends. In other cases, such dividends may also be taxed in the source country, but, in general, at a rate not exceeding 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, in general, 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, in general, exceed 5 per cent of the gross amount of royalties paid in respect of copyright of literary or artistic work, and 10 per cent of the gross amount in other cases (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 and annuities are to be taxed only in the recipient’s country of residence (Article 18). Government Service remuneration is normally taxable only by that Government (Article 19). Certain payments made to visiting students and business apprentices are to be exempt from tax in the country visited (Article 20). 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 21).

Where income continues to be taxable in both countries credit will be given in the taxpayer’s country of residence for tax imposed in the other country. In the case of dividends, the United Kingdom will give credit for underlying tax paid in Azerbaijan 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 22).

There are provisions safeguarding nationals and enterprises of one country against discriminatory taxation in the other country (Article 25), and for consultation (Article 26) and exchanges of information (Article 27) 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 the London, Edinburghand Belfast Gazettes.

Footnotes

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

[^f00002]: As amended by subsequent Exchange of Notes dated 9th September 1994.