TABLE OF CONTENTS (CONTINUED)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP57-00384R000400040028-5
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 55
• Document Creation Date: December 20, 2016
• Document Release Date: September 10, 2001
• Sequence Number: 28
• Publication Date: August 1, 1946
• Content Type: OUTLINE

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TABLE OF CONTENTS (continued)
Pale
V. Capitation and Head Taxes. 45
B. Indirect Taxes . . . . . . . . . . . . . . . . . . . 46
I. Sales Taxes. . . . . . . . . . . . . . . . . . . . 46
a. Retail Sales Taxes . . . . . . . . . . . . . . 46
b. Manufacturer's, Wholesaler's, Importer's Sales
Taxes and Turnover Taxes. . . . . . . . . . . . 46
c. Excises on the Sale of Services . . . . . . 47
VI. Taxes on Transportation and Communications . . . . 47
VII. Stamp Duties . . . . . . . . . . . . . . . . . . . . 47
VIII. Occupational, License and Franchise Taxes on the
Practice of a Profession or Craft, or in the
Carrying on of a Business . . . . . . . . . . . . . . 48
A. Licenses . . . . . . . . . . . . . . . . . . . . 48
B. Taxes on the practice of a profession, etc. . . 56
IX. Social Security Taxes . . . . . . . . . . . . . . . . 56
Introductory
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Introductor Note
Residence and domicile
(i) The terms "residence" and "domicile" have quite distinct meaning-.>
for the purposes of United Kingdom tax law.
(ii) The residence of an individual is determined for each income tax
year (beginning on 6 April) by reference to the facts in that year. The
great mass of the population whose home in the ordinary sense is in the
United Kingdom and who, if they go abroad for business or pleasure, go for
short periods only, are resident in the United Kingdom irrespective of their
nationality. If an individual in this class goes abroad for a long period,
he may cease to be resident in the United Kingdom for tax purposes, but if he
returns for regular visits he may be regarded as remaining resident throughout.
A visitor to this country from abroad, whatever his nationality or place of
domicile, becomes resident in the United Kingdom for any income tax year in
which he is actually in the United Kingdom for a period or periods equal in
the whole to six months. If he maintains a place of abode in the United
Kingdom available for his use, he is resident in the United Kingdom for any
year in which he pays a visit, however short, to the United Kingdom. Moreover,
even though he satisfies neither of these conditions, he is regarded as
resident in the United Kingdom if he visits the United Kingdom year after
year, so that the visits become in effect part of his habit of life, and the
annual visits are for a substantial period or periods of time. Generally an
average annual stay amounting to three months would be regarded as substantial,
and the visits would be regarded as having become "habitual" after four years,
but such a visitor would be regarded as resident from the start if it were
clear-then that substantial regular visits were to be made.
(iii) An individual is domiciled in that country which is considered by the
the law to be his permanent home. Generally this is the country which is in
fact his permanent homes but there are special rules relating to certain
cases. Every individual at birth has the domicile of his father (or his
mother in the case of an illegitimate child). The domicile of a minor changes
automatically with that of the parent except that a woman of whatever age
acquires on marriage the domicile of her husband. The domicile of a married
women follows that of her husband throughout their married life.' In other
cases the "domicile of origin", that is, the domicile which an individual
has on reaching the age of twenty-one, remains unless he acquires a "domicile
of choice", which he can do only if he leaves the country of his domicile of
origin, and takes up his residence in another country with the intention of
making his permanent home there. A domicile of choice is lost by departure
from the country of such domicile without the intention of returning there
to live; the domicile of origin then revives unless a new domicile of choice
/is acquired.
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is acquired. It is thus impossible to without a domicile or to b3
domiciled in more than one country at a time.
(iv) In addition to the conceptions of domicile and residence, United
Kingdom tax law uses the term "ordinary residence". The great mass of the
population of the United Kingdom are ordinarily resident there; an
individual in this class would remain ordinarily resident even if he went
abroad for a long period, if he returned for regular visits during his
period of absence. A visitor to the United Kingdom from abroad if he pays
habitual visits, year after year, which are such as to render him resident
in the United Kingdom, is also regarded as being ordinarily resident in the
United Kingdom.
(v) The term "domicile" is only of relevance for the purposes of
income tax in relation to income from abroad, and the term "ordinary
residence" is of importance only
(a) in the case of British subjects in relation to income
from abroad
and (b) generally in relation to income from certain British
Government securities issued with the condition that
exemption from tax attaches to the interest going to
persons not "ordinarily resident" in the United Kingdom.
The term "domicile" is, however, of major importance in relation to
death duties.
(vi) By reference to the principles of United Kingdom tax law as
explained above it is possible for an individual to be resident and
ordinarily resident in more than one country`for,the same income tax year.
(vii) A company, wherever incorporated, is regarded as being both
resident and ordinarily resident in that country in which the central
management and control of its busdness is situated. The residence,
domicile, or nationality of the shareholders is irrelevant. A company
can normally be resident only in one place at a time.
(viii) The nationality or residence of a ship or aircraft is not relevant
for United Kingdom tax law. The taxation of the profits depends upon the
residence of the person to whom the profits accrue.
(ix) The terms "domicile", "resident", and "ordinarily resident" are not
defined in the Income Tax Acts., Some guidance as to the meaning of the
term "resident" is given in Rule 3, Miscellaneous Rules applicable to
Schedule D, and Rule 2, General Rules applicable to Schedules A, B, C, D and E,
Income Tax Act, 1918, but in the main their meaning has been defined by dicta
in a long series of High Court cases e.g., Cooper v. Cadwalader, 5.T.C.l01.
Loewenstein v. De Salis, 10 T.C.424, Reid v. C.I.P., 10 T.C.673, Levene v.
C.I.R. 14 T.C.li-86, and Lysaght v. C.I.R. 13 T.C.511 regarding individuals,
/and De Beers
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and Do Beers Consolidated Mines Ltd. v. Howe 5 T.C.198 and Todd v.
Egyptian Delta Land and Investment Co. Ltd., 14 T.C.119 regarding; companies.
Double Taxation Conventions
(i) The United Kingdom has entered into comprehensive double taxation
conventions with the United States of America, Canada, Australia,
New Zealand, Southern Rhodesia, Nigeria, Sierra Leone, Gold Coast, Gambia,
Nyasaland, Aden, Palestine, Cyprus, British Honduras, Antigua,
St. Christopher and Nevis, Montserrat, Virgin Islands, British Guiana,
Mauritius, Northern Rhodesia, Seychelles, Trinidad and the Netherlands.
(The convention with the Netherlands has not yet been ratified.) All
these conventions are in substantially similar terms and any reference
in the following pages to double taxation conventions made by the United
Kingdom refers to all these conventions, except where expressly stated.
(ii) The convention between the United Kingdom and South Africa is
narrower in scope than those referred to above, and is mentioned.
specifically wherever it is applicable.
(iii) Limited agreements relating to specific matters (air and sea
transport and certain agencies) are described under the relevant headings.
(iv) The Fiscal Commission, it, is understood, already has copies of all
these agreements.
(v) The United Kingdomts views on the London and Mexico Model Draft
Convention have already been supplied.
Eire
Under a double taxation agreement with Eire (made in 1926, and
reproduced in the Second Schedule to the Finance Act, 1926), unique of
its kind so far as the United Kingdom is concerned, persons resident in
Eire and not resident in the United Kingdom are totally exempt from United
Kingdom income tax and sur-tax. Persons who are resident in both. Eire
and the United Kingdom are charged to tax in both countries, but the double
taxation is eliminated by each country giving relief at half' the "appropriate"
rate of United Kingdom tax-or Eire tax, whichever is the lower; the general
effect is to eliminate the lower of the two taxes.
To avoid constant repetition, this agreement is not referred to in the
notes which follow, but any reference to the income tax liability of persons
who are not resident in the United Kingdom is to be read as excluding
residents in Eire and any reference to income arising abroad. is to be read,
as exclusive of income arising in Eire.
Individuals and companies
In general, the United Kingdom income tax law makes no distinction
between individuals and companies. Where a distinction does exist. it is
brought out in the following notes by the use of the word "individual" or
/"company"
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"company" (which includes any corporate body). The terms "taxpayer",
"person", "recipient", etc., should be read as applying equally to an
individual or a company.
International Reciprocity
United Kingdom law makes no exceptions to the general rule on a
basis of reciprocity, except under a double taxation convention.
/QUESTIONNAIRE
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QUESTIONNAIRE
A. Direct Taxes
I. Inc, oze Tax
a. Structure and underlying principles of income tax stem
(i) United Kingdom income tax is chargeable on the taxpayer's total
income from all sources. The various categories of income are grouped
under five schedules as follows:
Schedule A: income from ownership of land, buildings and other
horeditamente.
Schedule B: income from occupation of lands.
Schedule C: interest, dividends and annuities payable out of the
the public revenue, British, Dominion, Colonial or
foreign.
Schedule D: profits and income grouped under the following six
heads or "Cases":
Case I: Profits of a Trade.
Case II: Profits of a profession or vocation.
Case III: Interest (except interest charged under
Schedule C), discounts, and certain profits
from lands.
Case IV: Income from securities outside the
United Kingdom.
Case V: Income from other possessions outside the
United Kingdom.
,Case VI: Income not charged under any other heading.
Schedule E: income from an office, employment or pension.
(ii) These Schedules prescribe rules for computing the amount of income
in each category and define the deductions allowable. They also lay down
the methods by which the tax is to be assessed and collected, but.they do
not constitute separate scheduler taxes, since the taxpayer's total liability
depends upon. the aggregate amount of his income under all the Schedules.
(iii) Income from sources within the United Kingdom is in general
chargeable to tax irrespective of the nationality or place of residence of
the recipient. The only exceptions to this rule are:
(i) the interest on certain British Government securities is
exempt from tax if the owner of the securities is not ordinarily
resident in the United Kingdom (Section !.6, Income Tax Act, 1918).
(ii) under double taxation conventions between the United Kingdom and
foreign and Dominion countries, certain categories of income
arising in the United Kingdom are exempt from tax if the recipient
i
i
s res
dent in
United Kingdom,
/(iv) Income
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(iv) Income from sources outside the United Kingdom is chargeable to
tax only if the recipient is resident in the United Kingdom. Normally the
charge extends to the full amount of the incomeari`sing, whether it is
received in the United'Kingdom or not, (Rule 1, Case N and fulel1, Case V.
Schedule D. Income Tax Act, 1918), but the charge is limited to the amount
of income remitted to &--receive'd in the United Kingdom in the following
(i)
earned income (salary, wages, pension) arising abroad to any
individual (see reply under AIte)(i)(ii) and (2) as to
business profits).
(ii) all income arising abroad.where the.recipient,'though resident
in the Unite. Kingdom, is not domiciled there or, being a
British subject, is not ordinarily resident` there. (Rule 2,
Case IV and Rules 2 and 3, Case V, Schedule D, Income Tax
Act, 1918).
(v) The total income of a taxpayer is the aggregate amount of his
? income from all sources, computed in each case by reference to the rules
set out above, including, in the case of a harried man, the income of. his
(vi) In the case of an individual resident inthe United Kingdom (whatever
his nationality or place of domicile),. an allowance in respect of his
earned income (at present one-fifth but not more than L+00), a personal
wife. (General Rule 16(a)).
for dependents are deducted from his total income in arriving at his
allowance for himself (increased if he is married) and certain allowances
taxable income. Of the.balance, for the income tax year 1948/49, the first
L50 of the taxable income is then charged to tax at 3/- in the I, the next
L200 is chargeable at 6/- in the L, and the remainder is chargeable at 9/-
total income.
(viii) A company is c a Fgeable to tax at the rate of 9/ in the Lon its
I J_
.
France, and to residents in the Netherland, irrespective of their naticnality.
in the L. From the amount so charged, a measure-of relief is Given subject
to certain conditions, in respect of life assurance premiums. (Amounts of
allowances and rates of tax are]Taic, down gnnual1y in the Finance Act.)
(vii) An individual who is not resident in the United Kin doom is normally
chargeable at the rate of 9/- in the L on his total income, without earned
income relief or any allowances for family circumstances and without the
benefit of the reduced, rates of tax. British subjects, ,however, and certain
other classes of persons, are allowed a proportion of these allowances and
reliefs On when they are not resident in 'the United Kingdom, the proportion
being the ratio which their income from United Kingdom sources bears to their
total world income (+ Section 2~-, Finance Act, 1920). This treatment has been
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/(ix) Sur-tax
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(ix) Sur-tax is imposed on individuals, but not on companies (except in
the circumstances described at o 6. (c)) (vi)) whose total income
chargeable to United Kingdom tax exceeds =2,000. The tax is charged at
graduated rates rising from 2/- in the L on the first x;500 by which the
total income (as determined for income tax) exceeds 12,000 to 10/6 in the ?,
on the amount by which the total income exceeds X20,000.
(x) The income tax and cur-tax so determined may be reduced by credit
for foreign taxes imposed by the country of origin on any items of foreign
income charged to United Kingdom tax, if such credit is provided for in
a reciprocal double taxation agreement with the country imposing the tax,
but credit is only allowable to residents of the United Kingdom (whether
or not they are also resident elsewhere, and irrespective of their
domicile or nationality), and is confined to the United Kingdom tax
appropriate to the income.
(xi) In the absence of a double taxation agreement there is no relief for
foreign tax (except that it is deductible from the-income chargeable to
United Kingdom tax) but a measure of relief for Dominion or Colonial income
tax is provided by Section 27, Finance Act 1920. This relief is allowed
to any person (individual or company) wherever resident or domiciled, who
has borne both United kingdom and Dominion or Colonial tax on any item
of income. It takes the form of a reduction of the United Kingdom tax
by an amount equal to tax on the amount of the doubly-taxed. income at
a rate equal to the Dominion or Colonial rate of tax or one half of the
appropriate rate of United Kingdom tax, whichever is the less. When this
relief is claimed., the amount of the Dominion or Colonial tax is not
allowed as a deduction in computing the amount of the income, except that,
if the Dominion or Colonial rate exceeds half the appropriate United Kingdom
rate, so that the relief falls short of the full measure of double taxation,
the unrelieved part of the Dominion or Colonial tax is allowed to be
deducted in computing the amount of the income unless the Dominion or
Colony itself grants relief in respect of such part of the double taxation.
(xii) The answers to the specific questions are therefore:
1. (a) No
(b) Yes
(1)(i) and (ii) No
(2)(i) Yes
(ii) No
(3) Yes
(c) No
(d) See paragraph (ix) above.
/b. Income
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b. Income from real Zoperty
'age 17
(i) United Kingdom income tax is chargeable in respect of income
from real property situated in the United Kingdom, without regard to
the nationality, domicile, or residence of'the person receiving the income.
(ii) Income from real property situated outside the United Kingdom
is chargeable to. United Kingdom income tax if it accrues to a person :,Tho
is resident in the United Kingdom. The measure of the income will be the
full amount arising, whether'it is remitted to or received in this country
or not, except that the charge is limited to the amount remitted to or
received in the United Kingdom in the case`of a taxpayer who, though
resident in the United Kingdom, is domiciled elsewhere and in the case
of a British subject who, though resident in the United Kingdom, is -roil
ordinarily resident there. he charge is similarly limited if the income
in question is immediately derived by the taxpayer from the carrying on
by him of a trade outside the United Kingdom either solely or in
partnership.
(iii) In the case of.income derived by a resident in the United Kingdom
from real property situated in a country with which the United Kingdom
f' has a comprehensive double taxation convention, the income is still
chargeable to United Kingdom tax as described above (but without any
deduction for foreign income tax) but any tax charged in the other
country upon that income or upon that part of it which is charged to
United Kingdom tax, is allowed as a credit .
(iv) The answer to questions (a) and (b) is therefore that the
nationality, domicile., or residence of the owner is irrelevant inthr: case
of property situated in the United Kingdom. Tax is only chargeable in
respect of property situatedoutside the tnited Kingdom if the owner is
resident. in the United Kingdom. The onlymodification introduced. by
international tax agreements? is as shown in (iii) above.
2. (i) As regards real property situated in the United Kingdom, United
Kingdom tax law distinguishes between income from the ownership of the
property, which is chargeable under Schedule A, and income from+the
occupation of land, which ise chargeable under Schedule B.
(ii) Tax is chargeable under Schedule A on the net annual value of
the property, that is, the rent at which the property is let, or is
worth to be let, by the year (the gross annual value),'lees a deduction for
the cost of repairs (No. I and Rule 5 of No. V of Schedule A). The tax is
normally payable by the occupiers but he has a right to deduct it'from any
.rent he pays, so it is ultimately borne'by the owner (Rule l of No. VIII of
Schedule A). If the owner is himself the occupier, he himselfpays and
bears the tax. Where there is a'sub-letting, the occupier deducts the tax
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from the rent he pays to the lessee,..who in his turn deducts tax from the rant
he pays to the owner. -
(iii) I-There the rent receivable exceeds the assessment made on the
property under Schedule A the recipient is chargeable to tax under Case VI of
Schedule D in respect of the amount by which the rent exceeds the Schedule A
assessment (Sections 13 to 16, Finance Act, 1940). This rule also applies
where the rent includes a payment for the use of furniture.
(iv) In the case of quarries, mines, ironworks, gasworks, waterworks,
canals, docks, railways, ferries and similar concerns, the annual value is
computed, not by reference to real or hypothetical rent, but by reference
to the profits actually made (Rules 1, 2 and 3, No. III of Schedule A). In
these cases therefore there is no separate charge of tax in respect of the
ownership of land, but one charge on the entire business profits (see
Section e, 6 (c) (viii) below).
(v) Income from the occupation of land is chargeable in various ways.
Income from agriculture and livestock-raising is at present chargeable
by reference to the actual profits derived (see Section e below), if the
gross annual value of the land for Schedule.A purposes e-:ceeds L100 (Sections
10 and 11> Finance Act 1941)If the s > > gross annual value is x.,100 or less, tax
is charged under Schedule B on three times that gross annual value unless
the farmer shows that his actual profits were less than that figure (Rule 6
of Schedule B). For the year 1949-50 and subsequent years, however, all
farmers are to be charged by reference to their actual profits (Section 31,
Finance Act, 1948). Market gardens and nurseries have always been charged
by reference to the actual profits (Rule 8, Schedule B).
(vi) The occupier of land not used for farming (e.g., parks, playing
fields) is charged under Schedule B in respect of income deemed to be derived
from the occupation of the land on an amount equal to one-third of the gross
annual value of the land. This basis also applies to wood_Lands, except that
if they are managed on a commercial basis the taxpayer may elect to be
charged by reference to his actual profits.
(vii) If the-land is used for business purposes the amount of the
Schedule B assessment is deducted in computir)Z the business profits
chargeable under Schedule D. For the year 1949-50 and subsequent years,
however, tax under Schedule B will not be charged on land used for business
purposes; all income from the occupation of land. for business purposes will
then be charged on the actual profits derived and not by reference to the
annual value.
(viii) The answers to the specific questions under (b) 2 are therefore:
? /(a) Yes
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The only modification introduced by international tax agreements is as
(e) No.
(b) Yesy (see
(a) Yes
(v) above
(ii) and (iii) 'above as regards perperty in the
United Kingdom and 1-(ii) as regards property outside
the United= Kingdom)
"(a) Yes'(see (iv) above)
shown in 1 (iii) above.
1.
other natural deposits (unless taxed as income r^om
real property)
(a) and (b) (i) Income from royalties derived from natural'
not ordinarily resident in the $nitedKingdom, in which cases tax.,
ohar eable only on the amount of the income which is remitted otie
person is not domiciled in the trited Kingdom or beinga rush? sub jet
amot1nt (less any income tax imposed thereon in the country of origin)
Whether the income is remitted to the"tTnited Kingdom or not, unless the
the United Kingdom is chargeable to United Kingdom income tax on Uit3 full"
income tax irrespective of 'the nationality or, domicile of the payee or' payor.
from such royalties derived from natu-rai
(ii), Income h .
res&Wc'es 6ut6idethe United Kingdom and arising to a person residing in
resources situated in the United Kingdom is chargeable tonzite SC OM
United Kingdom.
(c) The taxation of the royalties does not therefore
The answers bo the specific questions are therefore:
juices abroad if the recipient 36 resic?er_t in t
United T nadom.
To no extent.
(vi) and (vii) above
,
modification introduced by international tax agreements i the
1. 4
'
described in b.l. (iii)
4s e d,6
United 4ngdom. Tax is only chargeable on such income
or payer irrelevantnin the case of resources n the
(a) and (b) the nationality, domicile, or residence of the payee
d. Tncome from me tgages.on real property, ships or aircraft (including
t~rt apewbon sr if they are considered as interests in realty, rather
L. no ar;e bonds is liable to 7nited Kin(Tdom income tax under Case- l of
-77
(i) All interest arising from sources in the United Kingdom under mortga;e;
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Schedule D of the Income Tax Act, 1918. The normal procedure is to charge
tax at the standard rate in respect of the interest on the mortgagor, who is
entitled to deduct and retain an equivalent amount on paying the interest to
the mortgagee. In certain circumstances, as an alternative, a direct
assessment may be made upon the mortgagee.
(ii) Interest arising from sources outside the United Kingdom under
mortgages or mortgage bonds is liable to United Kingdom income tax only
if the person entitled to the interest is resident in the United Kingdom.
The liability is under Case IV of Schedule D and is normally computed on
the basis of the full, amount arising, but if the person entitled to the
interest is not domiciled in the United Kingdom, or is a British subject not
ordinarily resident in the United Kingdom, or if the mortgage or mortgage
bond forms part of the investments of the foreign life assurance fund of an
assurance company, the liability is based upon the amount received in the
United Kingdom.
(iii) In considering in any particular case whether the interest arose
from a source inside or outside the United Kingdom, it would be necessary
to take into account all the relevant circumstances, and it is, therefore,
impossible to lay down any general rule. If, however, the interest were
paid by a person in the United Kingdom out of funds in the United Kingdom,
that would constitute prima facie evidence that it arose from a United
Kingdom source. The considerations to be taken into account in, deciding
this question would not include the nationality of the mortgagee or mor.tgagort
and would. be unlikely to include the place of origin or use of the capital
secured by the mortgage.
(iv) The answer. to question 1(a) is therefore that a resident in the
United Kingdom is chargeable to tax irrespective of his nationality or
domicile or of the source of the income. A non-resident is chargeable if
the income arises in the United Kingdom.
The effect of the considerations referred to in questions (b), (c), (d)
and (e) depends on all the circumstances of each case.
A similar provision in the convention between the United Kingdom and
the Netherlands applies to interest on mortgages of ships or aircraft,
International tax agreements modify these rules as follows:
The double taxation conventions between the United Kingdom and the
United States of America and Southern Rhodesia provide that interest
arising from sources in the United Kingdom to a person who is resident
in the United States of America or Southern Rhodesia and. is not resident
or trading in the United Kingdom shall be exempt from. United Kingdom tax.
but not of real property..
Business
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e. Business profits
1. (a) and (b) (i) Business'profits from activities carried on in the
United Kingdom are chargeable to tax irrespective of the nationality or
domicile of the person or legal entity receiving the profits.
(ii) The general rule is'that the profits arising from
all business activities carried on in the ited Kingdom are chargeable
on their full amount. This rule is modified1where profits arise to a
non-resident person from the sale of goods or produce manufactured or
produced by him out of the United Itingaom in such a case the charge to
tax may on application be restricted to the "merchanting" profit, that is
to the profits which might reasonably be expected to have been earned by a
merchant or where the goods are retailed hy;or on behalf of the manufacturer
or producer, by a retailer of the goods sold who had bought from the
manufacturer or producer direct. (Rule 12 of the General Rules applicoible
to All Schedules).
(iii) The profits from business activities carried on
outside the United Kingdom as part of a trade or business carried on in
.,the United Kingdom by a resident person e.g. the foreign branch of such
a trade or business, are included in the charge on the full profits of the
trade or business.
(iv) A trade or business controlled by a person residing in
the United Kingdom is chargeable on its full profits although the business
activities may be mainly carried on outside the United Kingdom (San Patio
Railway Company v. Carter 3 l'.C.407; Ogilvie (Brazilian). , v. Kitten.,
5 T.C.338); De Beers Consolidated Mines Ltd. v. Howe, 5 T.C.193).
(v) The profits from a 'trade or business carried on In
partnership outside the United Kingdom which arise to a sleeping partn.r
residing in the United Kingdom who takes no`part in the trade or business
rank as income from a foreign possession an the charge to tax is in'respect
of only so much of the profit as is remitted to the United Kingdom
(Colguhoun v. Brooks, 2 T.C.490).
(vi) Income Tax chargeable in a country with which the
United Kin dem has a comprehensive double taxation convention in respect of
entirely out of the tea Kingdom and are not part of any business carried
2, (a) Yes. Where the foreign nctivitiies form a business carried c-i
the United Kingdom and South Africa.
A similar provision is ' containedin the double taxation convention b'et?w;aoen
the business profits of a permanent establishment in that country of a
United Kingdom enterprise is allowed as a credit against the United Kingdom
tax on that party of the profits of the enterprise which is attributable, to
that permanent establishment (without allowing any deduction for forei,_gi tax).
D`(='87-00384R000400010028-5'j
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Page 16
on in the'United Kingdom, it is only the amount of the profits received in
the United Kingdom that is chargeable to tax (see 1(ii) above).
3.
(b)
(1)
No.
(2)
No.
(3)
No.
See
(a).
(a)
A foreign enterprise is not taxed in respect of profits arising
outside the United Kingdom.
(b) Foreign enterprises, whether carried on by individuals or by
corporate bodies, are normally chargeable to tax on the profits of trading
in the United Kingdom through a permanent establishment or through an agent.
4. (1) Liability arises if two conditions are satisfied, namely,'the
existence of a permanent establishment (e.g. a branch) or an agent in the
United Kingdom, and trading in (and not merely trading with) the
United Kingdom.
(ii) A trustee, guardian, tutor, curator, committee, factor, agent,
receiver, branch, or manager in the United Kingdom, whether he actually
receives profits on behalf of the non-resident or not, satisfies the
.first condition, but a bona fide broker or general commission agent
acting as such does not. The occasional presence in the United Kingdom of
an agent or travelling salesman on behalf of a foreign enterprise would
not normally give rise to any income tax liability. (General Rules 5, 6,
and 10.)
(iii) It is not possible to define what constitutes trading in the
United Kingdom. It may be said, however, that the expression normally
includes the sale of goods under contracts made in the United Kingdom, and
the manufacture of goods or performance of services in the United Kingdom,
but it does not include the nnre purchase of goods in the United Kingdom,
nor the mere soliciting of orders which are transmitted abroad for
acceptance.
(iv) A large number of High Court cases might be quoted to illustrate
these principles; typical ones are Sulley v. A.G. 2 T.C.1L9, Grainger & Son v.
Gough 3 T.C.1+62, Smidth & Co. v. Greenwood 8 T.C.193, MacLa_ne & Co. v.
Eccott 10 T. C. 43l,. W. H. Muller & Co. (London) Ltd. v. Lethem 1.3 T. C.126.
(v) The answers to the specific questions are therefore:
(a) the maintenance of a fixed place of business in the United
Kingdom normally renders the enterprise liable to United Kingdom
tax on profits arising. from trading in the United Kingdom.
(b) A permanent employed representative in the United Kingdom would
render the enterprise liable to United Kingdcm tax as in (a).
1(c) Normally
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(c) Normally no liability.
(d) The existence in the Unitea Kingdom of a subsidiary corn any
of a foreign parent company does not give rise to t7nited
Kingdom liability in respect of the parent company's
activities unless the subsidiary in fact acts as agent of
the parent company, but if profits which might be expected
to accrue to the subsidiary company are diverted to the
parent company, such. diverted profits may be taxed as though
the subsidiary were an ageht'of the parent. (This provision
does not apply where the parent is a British, Dominion or
Colonial Company). (General Rule 7).
(e) None.
(vi) Under reciprocal agreements made under Section 17, Finance'Act,
1930, with Sweden, Switzerland, Finland, )Newfoundland, Greece, Norway and
France business profits derived by an enterprise of one of those countries
through an agency in he United Kingdom are exempt from United Kingdom
income tax unless the agent has a general' authority to negotiate and
conclude contracts or unless he has a stock of goods in the United Kingdom
from which he regularly fills orders, but if such stock is merely held for
convenience of delivery and not for purposes of display, no liability
arises on profits of sales made under contracts concluded in the other
country.
(vii) Substantially similar rules apply to enterprises of countries
with which the United Kingdom has made comprehensive double taxation
conventions, and to South Africa. (See introductory Note).
5. (i) There is no variation to the general rule that the resident
enterprises are chargeable on the whole of 'their world profits and
non-resident enterprises on the whole of.`the profits made from trading;
(ii) The answers to the specific questions are therefore:
premium income.
which the premium income earned in' the United Kingdom bears to the world
in the United Kingdom. Mainly therefore'profits are ascertained from the
accounts of the enterprise, though in certain circumstances, where prc,fits
cannot be ascertained in the case,of a non-resident enterprise, the prof its
may be taken as a percentage of turnover (General Rule 8 Income Tax Act),
1918). In the case of a foreign assurance company carrying on the
business of life insurance in the'United`Kingdom; the income from the
investments of the life assurance fund chargeable to tax in the Unitec_
Kingdom is taken to be the proportion of the fundTs total investment ~.ncome
(a) only in exceptional cases
+p r4; , orTR ' 2 0 4
,a
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Page 18
(b)
(1)
this is the normal rule
(2)
only in exceptional cases
(c)
only in exceptional cases.
6. (a) Enterprises operating wholly or partly in a British Dominion
or Colony are subject to United Kingdom income tax in accordance with the
ordinary rules. The special provisions for Dominion or Colonial income
tax relief described in paragraph a (xi) are applicable, however, where no
double taxation convention providing for tax credits exists.
(b) No special rules.
(c) (i) Financial institutions generally. Under the general law
these institutions receive any income from interest, dividends, etc., under
deduction of income tax, in the same way as other recipients of income
which is taxable by deduction at the source, although the interest,
dividends, etc. may constitute gross receipts of their financial business.
In order to avoid double taxation, such income is excluded in computing
the profits directly chargeable to tax under Case I of Schedule D.
(ii) Life Assurance Companies
Life assurance business is treated as a separate business apart
from any other business carried on by the same company. (Income Tax
Act, 1918, Schedule D, Cases I and II, Rule 15.) Life Assurance companies
are liable to bear tax in respect of their life assurance business either
on profits (under Case I of Schedule D) or on the interest arising from
the investments of the Life Fund, whichever is greater (Clerical, Medical
and General Life Assurance Society v. Carter (10(59) 2 Tax Cases, +37, 22 C.B.D.
li.l4.) [There the charge is made upon interest and not upon profits, repayment
tf tax is made in respect of the management orpcr_scc of the business,
but so as not to reduce the charge below the amount which would be charged
if the assessment were--made upon profits. (Income Tax Act, 1918, Section 33.)
A life assurance company is thus always liable to be assessed in any year in
respect of its life assurance business on a sum which may exceed. but
can never be less than the profits of the previous (basis) year, as
ascertained by actuarial valuation.
In computing the profits of life assurance business for assessment
under Case I of Schedule D, such part of the profits as belongs to or is
allocated to or is reserved for or expended on behalf of policy holders of
annuitants is excluded. (Finance Act, 1923, Section 16.)
A life assurance company is chargeable to tax in respect of the
investment income of its foreign life assurance fund, so far as the income
is derived from securities etc. outside the United Kingdom, on the sums
received in the United Kingdom instead. of on the :full amount of such
income. (Rule 2(b)' of Case IV and Rule 3(b) of Case V. Schedule 1), Income Tax
Act, 1918), but if those sums are invested as part of the fund then they are
/not liable
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pace 19 ,
not liable to tax. (Section 46(3) of Income Tax Act, 1918.)
Further, where the foreign life assurance fund is invested in
certain United Kingdom Government securities, the income therefrom
is not liable to tax.- (Section 46(2) of Income Tax Act, 1918.)
(iii) Capital redemption business
Capital redemption business so far as it consists of carrying out
contracts effected after 1937 is also treated as a separate business
apart from any other business carried on by the same person. In ascertaining
whether a loss has been sustained in capital redemption business for the
purpose of applying the relief provisions in respect of trading losses
any income from investments held in connection with the capital redemption
business is treated as part of the profits of that business. (Section 27
of Finance Act, 1938?)
(iv) United Kingdom branches of Life Assurance Companies with
their head offices outside the United lingdom. A proportion of the investment
income of the Company's life assurance fun'd`(excluding any annuity fun(l)
wherever the income is received is deemed to be profits within Schedul(.: D
and is chargeable under Case III. The proportion is in the ratio of the
premiums received from policy. holders resident in the United Kingdom and
from policy holders resident abroad whose proposals were made to the
Company's office or agency in the United Kingdom to the total premiums
received by the Company. In the case of a'company whose head office i in
any British possession; some other basis may be prescribed for ascertaining
the proportion of the investment income to be charged.
The amount of any income or profits on which the company has been
otherwise charged to tax in respect of its life assurance business is set
against and proportionately satisfies the charged computed as above. (Rule 3
of the Rules applicable to Case III, Schedule D, Income Tax Act, 1918.)
(v) Sea and Air Navigation
The total profits derived from sea or air transport by a person
(whether individual or company) who is resident in the United Kingdom are
chargeable to United Kingdom tax.
A non-resident is chargeable to tax in respect of profits derived in
the United Kingdom from sea or air transport. These profits will be
computed in accordance with the ordinary rules as explained in 5 above.
Under. reciprocal agreements, exemptio'n'from tax is allowable to
persons who are not resident in the United Kingdom as follows:
United States: Profits from operating ships or aircraft documented
of re'istered in the United States derlvea' y an individual
's
resident in the United States or a corporation or partnership
organized under United States law.
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?age 20
Australia and South Africa: Profits from operating ships or aircraft
registered in the Dominion derived by a person (individual
or company) resident in the Dominion.
Southern Rhodesia: Profits from operating aircraft derived by a person
(individual or'company) resident in Southern Rhodesia.
All the other territories with which comprehensive double taxation
conventions have been made (see introductory note);
Profits from operating ships or aircraft derived by a person (individual or
company) resident in the other territory.
France: Profits from operating ships or aircraft registered in
France by a company managed and controlled in France.
Greece: 'Profits from operating ships registered in Greece by a person
resident in Greece or a company managed and controlled in
Greece.
Iceland, Finland, Norway, Sweden, Denmark: Profits from operating
ships derived by a person resident in the country concerned
or a company managed and controlled in that country.
Personal holding companies
There is no special tax on such companies. There are, however,
complicated provisions designed to prevent avoidance of sur,.tax by
individuals by means of what arc known as "ono-man" companies, :i.e., companies
under the control of not more then five persons. If such a company incorporated
in the United Kingdorl does not distribute to its members, in a form liable to
sur-tax, a reasonable part of its income (regard being had to the current
requirements of its business and to its requirements for maintenance and
development), a direction may be made that the whole of its income should be
treated as income of the members for sur-tax purposes. If the company does
not carry on any trade, but is an investment company, its income is
automatically apportioned among its members for sur-tax.
(vii) Moving Picture Producers and Distributors
There are no special rules applicable to these cases. The rentals
received are treated in the same way as the sale price of goods sold by a
trader. A foreign enterprise distributing films through an agency in the
United Kingdom is entitled to claim that the amount chargeable shall not
exceed the "merchanting" profit, i.e., the profit which would be made by an
independent distributor. Rentals paid to a non-resident producer are not
taxable in so far as they represent payment for a due proportion of the cost
gf production and of.the "production" profit.
Under the double taxation convention with the United States, film rentals
paid to a resident of the United States who is neither resident :nor trading
/in the United Kingdom
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in the United Kingdom are exempt from United Kingdom tax. Under the
other double taxation conventions 'except those with Canada, Australia and
New Zealand) the same result is achieved, though by different wording.
(viii) Otherarticular categories of enterprises
The only special rule applicable to quarries, mines, ironworks,
gasworks, waterworks, canals, docks, railways, ferries, and similar ccneerns
is a matter of form and not of substance. The annual value of property
occupied for the purp'os'e'of a business is normally allowed to be deducted
.from the profits of the business chargeable to tax under Schedule D, such
annual value being separately charged to tax under Schedule A. In the
cases mentioned, however, the whole income, including the annual value of
the property, is charged in one sum under Schedule D. In either event:
any rent paid to the owner of the property may not be deducted as an expense
in computing the profits, but tax may be deducted from any rent paid.
(ix), Charities
?Bod'ies of persons or trusts established for charitable purposes only
are exempt from income tax on all their income (with only minor and =common
exceptions) (Section 37 Income Tax Act, 1918 and Section 30, Finance Act,
1921) (C.I.R. v. Gull, 21 T.C.37l). This exemption does not extend to
charities established outside theUnited,Kingdom.
(d) No special rules.
(e) No special rules.
7. (i) As explained above, business profits from activities carried on in
the United Kingdom are chargeable to tax`irresp'ective of the nationality
or domicile of the person entitled to the profits, and business profits from}
activities carried on outside. the United Kingdom arising to a, person residing
in the United Kingdom are chargeable to tax (see 1 above).
(ii) Special provisions applicable to foreign life insurance companies,
and foreign operators of ships and aircraft have been mentioned above.
(See 6 above).
(iii) There are no other cases of difference of treatment of business
prof its. depending on the nationality or domicile~of the enterprise or the
location of the property or the origin of the income.
8. (a) There are no such provisions in United Kingdom income tax law.
A provision of this type in the lair relating to profits tax is mentioned
in 9(b) below.
(b) The application of double taxation agreements to business profits
has been dealt with above. (See 2, 4) 5, 6, (Sea and Air Navigation) above)
9. (a) Excess Profits Tax
chargeable as from the end of, that year.
This tax wasErepealed by the Finance Act, 19+6, and ceased to be
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Page 22
(b) Prof its Tax
(i) This tax, formerly known as the national defence contribution
was originally imposed by the Finance Act, 1937. As from the beginning
of 1947 the basis on which the tax is chargeable has been substantially
modified by the Finance Act, 1947. The tax as now imposed applies, with
certain exceptions, to trades or businesses (including businesses
consisting of the holding of.investments or other property) carried on
by a body corporate, or by an unincorporated society or other body, being
trades or businesses carried on in the United Kingdom or carried on abroad
by such a body or society ordinarily resident in the United Kingdom.
(ii) The tax is chargeable by reference to the profits and
distributions of profits for each "chargeable accounting period", which
is normally the yearly accounting period of the business. A. differential
rate is applicable to distributions. The profits of the trade or business
are required to be computed for the purpose of the tax on Income Tax
principles, subject to certain modifications. The most important
modifications are that interest on borrowed money is allowed as a deduction,
that investment income other than dividends and distributions of profit
received from bodies corporate chargeable to profits tax, i.e. other than
"franked investment income", is, with certain exceptions, required to be
included, and that the annual value of premises owned and occupied for the
purposes of the trade or business is not deducted..
,(iii) The tax is chargeable, as from 1 January 1947, at the rate of
25%, with relief at the rate of 15%, on profits not distributed. (Section 30,
Finance Act, 1947 as amended by Section 7, Finance (No.2) Act, 1947). In
effect, therefore, the rate of 25%, is chargeable only on distributed profits
and undistributed profits are chargeable at 10%. Where the distributions
in a particular period exceed the profits of the period, provision is made
for a charge on the excess so as to offset corresponding relief given for
previous periods in respect of profits not distributed.
(iv) No tax is, however, payable where the profits for a chargeable
accounting period of twelve months, including franked investment income,
do not exceed L2,000. Where the profits, including such income, exceed
L2,000 but do not exceed L12,000, an abatement is allowable equal to the
proportion of 1/5th.of the amount by which such profits fall short of
1112,000 which is apportionable to the profits chargeable to :Profits Tax, i.e.
to profits exclusive of franked investment income.
(v) The law relating to the tax includes special provisions under which
businesses carried on by persons not ordinarily resident in the United Kingdom
are chargeable to the tax only at the lower, i.e. 10% rate. In the case of
,/United Kingdom
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United Kingdom subsidiaries of foreign parent companies, provision i:;
made for the exclusion of dividends paid by the subsidiary to the parent
company in computing distributed profits chargeable at the 25% rate
(Section 39, Finance Act, 1947).
(vi) The comprehensive double taxation conventions listed in the
introductory note above apply to profits tax as well as to income ta--.
.The profits tax legislation also includes provision exempting from the
tax profits arising from the business of shipping, air transport and
certain agencies in cases where:
(i)
relief from income tax is granted by virtue of an
arrangement made with the Government of another country
relief from double taxation; and
or
(ii)
the other country grants reciprocal exemption from all taxes
on profits. (Rule 6, Fourth Schedule, Finance Act, 1937).
Existing arrangements to which this provision applies are those with
Sweden, Switzerland, Finland,, Newfoundland, Greece, Norway and France;
relating to agency profits described in 4 above, and those with France,
Greece, Iceland, Finland, Norway, Sweden and Denmark relating to sea and
air transport described in 6 above.
(c) There are no special rules relating to the taxation of ill.cit
profits..
f. Income from personal tangible property
1. (1) A person (individual or company) resident in the United Kingdom
is chargeable to tax in respect of his total income from all,sourcos
irrespective of his nationality or place of domicile, and without regard
to any of the considerations referred to in questions (a) to (f). In the
case of income from sources outside the,United Kingdom the liability of an
individual who, though resident in the United Kingdom, is not domiciled
in the United Kingdom or, being a British subject, is not ordinarily
resident in the United Kingdom, is limited to the amount of such income
remitted to pr received in the United Kingdom,
(ii) An individual or company not resident in the United Kingdom is
chargeable to tax in respect of all income from sources within the
United Kingdom, without regard to any of the other considerations referred
to, except as indicated below.
2. Most annual interest and all dividends arising in the United Kingdom
are subjected to taxation at the source, the payer of the income is
required to deduct income tax at the starndard rate of 9/- in the E, snd
to account for jLt to the Revenue authorities unless the payment ismede out
of income which, has already been subjected to tax at the standard rate in his
hand
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Page 2
hands. The profits of a company are charged to tax at the standard rate
without any deduction for dividends or annual interest payable out of
those profits, and the company is entitled to deduct tax at the standard
rate from such dividends and interest. If the recipient of the income
is entitled to personal allowances, proportionate personal allowances, or
any other relief from tax at the standard rate, repayment of an appropriate
part of the tax deducted from the dividends or interest may be claimed
from the Revenue authorities. Interest-arising in the United Kingdom which
is not subjected to taxation at the source is liable to direct assessment
in the hands of the recipient.
3. No.
4+, Certain British Government securities are issued with t:ae condition
that the interest thereon shall be exempt from United Kingdom income tax
if the beneficial owner is not ordinarily resident in the United Kingdom.
In some, but not all, of these cases the exemption does not apply to
exclude the interest from the computation of the profits of a financial
concern.
There are no other modifications of the general rule of the type
contemplated by question 4.
5. See 2 above.
Double taxation conventions
(i) All the comprehensive double taxation conventions to which the
United Kingdom is a party modify in some respects the rules set out above.
(ii) In every case, a resident in the United Kingdom, whether an
individual or a company, is allowed a credit against the United Kingdom
tax on income from abroad in respect of any tax imposed by the country of
origin of the income; the tax, if any, imposed by the country of origin is
commonly either reduced or entirely given up under the provisions of the
convention. Under most of these conventions a resident in the United Kingdom
who receives dividends from the other country is also allowed a credit in.
respect of the appropriate proportion of any tax paid on its profits by
the company paying the dividend in addition to any tax charged on the
dividend itself.
(iii) None of the conventions modifies the rule explained in 2 above,
whereby a United Kingdom company may deduct from its dividends the tax at
the standard rate paid upon its profits, but under all the conventions
an individual who resides in the other country and is neither resident in
the United Kingdom nor engaged in trade or business in the United Kingdom
is exempts from any United Kingdom sur-tax upon dividends from
United Kingdom sources.
/Under
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 Under the conventions with the United States, Southern Rhodesia and
the Netherlands, interest paid from a source within the United 3 ingdcm to
a person residing in the.other country who is neither resident nor trading
in the United Kingdom is exempt from United Kingdom income and sur-tax,
but in the case of the Netherlands the exemption excludes interest on
mortgages on real property. In the case of the United States and
Southern Rhodesia such exemption does not apply in the case of interest
paid by a company to another company which controls more than 50% of the
voting power of the company paying the interest. There is no. exemption
d' P or R I raq_' I
se_ 200 /O9/ 7:: QIA DP$ 003641 } ?l:} 004 0 8-
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of interest under the other conventions.,
g. Income from royalties on patents, etc.
t-.
1. (a) and (b) (i) Royalties paid in respect of the user of a patent,
trade mark, or similar property, are chargeable to United Kingdom income
tax if the recipient is resident in the United Kingdom, without regard to
the place of origin of the royalty. Such royalties are also chargeable
to tax if paid in respect of the user of ,a patent in the United Kingdom,
whether the recipient is resident in'the,United Kingdom or not, and
without regard to his nationality or place of domicile. Royalties ;paid
to a non-resident in respect of the user of a patent outside then
United Kingdom are not chargeable to tax.
(ii) Where a payment of patent royalties is made in respect of past
user extending over a period of two or more years, the person to whom the
'payment is made may claim an adjustment of his liability to income tax
(including sur-tax) to what it would have been if the royalty payment had
been spread over the number of complete years (subject to a maximum of
six) included in the period of user.
(iii) Where patent rights are sold outright for a capital sum-the
seller is charged to Income Tax upon that sum less any sum he may previously
have paid in acquiring the rights. The charge to tax applies to sales of
any patent rights by a resident and to sales of United Kingdom patent
rights by a non-resident. In the former case one-sixth of the sum is charged
to tax for the year of receipt and for each of the succeeding five years,
or at the option of the recipient the whole sum may be charged to tax for
the year of receipt. In the latter case. (sale by a non-resident) tax is
charged by deduction from the purchase price, but the_ non-resident
recipient may claim an adjustment of his liability to income tax (including
sur-tax) to what it would have been if the capital sum had been spread
evenly,over six years.
(iv) Expenses incurred by a trader in actually devising a patented
inve.tion or in connection with the grant or renewal of a patent are ._Lllowed
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Page 26
as a deduction from profits. Similar expenses incurred by a non-trader
are allowed as a set off against his income from patents.
(v) Earned income relief (see paragraph a(vi)) is allowable in
respect of any income from patents where the person receiving the income
actually devised the patented invention, whether alone or Jointly with any
other person.
(c) The origin of the capital used in the exploitation of the patent is
not relevant.
The above rules are modified by international tax agreements as
follows :
Where patent royalties are paid to a resident in any of the
countries with which the United Kingdom has made comprehensive double
taxation conventions' (except Canada) who neither resides nor trades in the
United Kingdom, the royalties are exempt from United Kingdom tax.
Income from royalties on copyrights and other intellectual properties
1. (a) and (b) (i) Copyright royalties received by an author residing
and exercising his profession in the United Kingdom are treated as forming
part of his professional profits and gains, and as such are charged to`' .
tax irrespective of his nationality or domicile, or of the country
protecting the copyright, or cf the nationality or domicile of the
licensee.
(ii) Where the usual place of abode of the recipient of copyright
royalties, other than in respect of cinematograph rights, paid by any
person in the United Kingdom is not within the United Kingdom, the royalties
are payable subject to deduction of income tax at the standard rate, after
makin- allowance for agent's commission. (Section 25 of the Finance Act,
1927, and Section 18 of the Finance Act, 1930.) This taxation. does not
depend on the nationality or domicile of the licenser or licensee, but does
not apply to royalties paid in resx)ect of copies of works exported from the
United Kingdom for distribution outside the United Kingdom.
(iii) The owner of a copyright in the United Kingdom, not being the
author, whose usual place of abode is in the United Kingdom, is chargeable
by direct assessment in respect of the royalties as being :income from
property in the United Kingdom, irrespective of his nationality or
domicile.
(iv) The owner of a copyright not in the United Kingdom who, not being
the author, resides in the United Kingdom is chargeable on the royalties
arising to him, unless he is not domiciled in the United Kingdom, or bei=ng
a British subject is not ordinarily resident in the United Kingdom, in
either of which cases he is chargeable only on the sums remitted to him in
the United Kingdom. /(v) Publishers
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(v) Publishers who carry on business in the United Kingdom are
chargeable on their profits from such business, including any profits from
the user of ;copyrights they have acquired.
(c) The origin of the capital used in the exploitation of the copyright
is not relevant.
The above rules are modified by'international tax agreements as
follows:
Where copyright royalties are paid to a resident in any of the
countries with which the United Kingdom has made comprehensive double
taxation conventions who neither resides nor trades in the, United Kingdom,
the royalties are exempt from United Kingdom tax. In the case of the
United States, the exemption extends also to rentals for cinematograph
films. In other cases, film rentals are dealt with as described in
(e) 6 (vii).
j. Private pensions and annuities
Pensions
1. (i) Pensions payable to persons who are resident in the United
Kingdom for income tax purposes are, in general, liable to income tax under
Schedule E of the Income Tax Act, 1918,on their full amount; but pensions
paid by or on behalf of an employer resident abroad are liable to tax
on.the basis of the amounts paid or received in, remitted to or brought
into the United Kingdom (under Case V of Schedule D or under Schedule E -
see Section 17, Finance Act, 1923, as to certain cases of former employees
of Dominion or Colonial Governments). This rule is subject to the further
exception that under double taxation conventions pensions paid for
services - other than services in connection with trade - rendered to the
following Governments are not charged to tax in the circumstances stated:
United States and Netherlands: exempt unless the pensioner is c.
British subject and not also an American or Dutch citizen. Canada,
South Africa and Southern Rhodesia: exempt if the remuneration was exempt.
British colonies listed in opening note: exempt unless the pensioner is
ordinarU y resident in the United Kingdom.
(ii) Pensions paid by United Kingdom employers to persons resident
abroad are in general liable to tax; but pensions paid for services
rendered outside the United Kingdom the earnings of which were not liable
to tax (see paragraph (k)) are not liable to tax if the pensioner is not
resident in the United Kingdom. Pensions paid by the United Kingdom
Government to persons resident in Australia or New Zealand are exempt from
United Kingdom tax under the double taxation conventions with those
countries.
11. , 10 ,
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'age 28
(iii) Pensions paid by employers resident outside the United Kingdom
to persons resident outside the United Kingdom are not liable to tax,
(iv) Wounds and disability pensions paid to members of the Armed
Forces, similar pensions paid by foreign governments, and certain
allowances to civilians in respect of war injuries, are not taxed.
(v) Subject to these general considerations the answers to the
specific questions, so far as pensions are concerned, are:
(a) The nationality of the payer is irrelevant. The nationality
of the payee may affect the amount of tax payable by a pensioner
resident abroad (cf. paragraph k(3)).
The domicile (i.e., the country of permanent home) of the payer
and payee is not relevant in deciding whether a pension is taxable
under Schedule E or Schedule D, Tase V; but as explained above the
residence of the payer may be relevant for this purpose.
(b) The place of payment of the income does not affect the liability
to tax.
(c) The liability to tax of a pension follows in general the
liability to tax of the remuneration for the services, as to which
the place of employment may be. relevant (see paragraph (k)).
Annuities
(vi) All annuities arising from sources in the United Kingdom (other
than annuities payable out of a public revenue, which are liable under
Schedule C) are liable to United Kingdom income tax under Case III of
Schedule D of the Income Tax Act, 1918. The normal procedure is to charge
tax at the standard rate in respect of the annuity on the payer who is
entitled to deduct and retain an equivalent amount on paying the annuity.
In certain circumstances., as an alternative, a direct assessment may be
made upon the annuitant.
(vii) Annuities arising from sources outside the United Kingdom are
liable to United Kingdom Income Tax only if the annuitant is resident in
the United Kingdom. The liability is normally computed on the basis of
the full amount arising, but If the annuitant is not domiciled in the
United Kingdom, or is a British subject not ordinarily resident in the
United Kingdom, or if the annuity arises from the investments of the
foreign life assurance fund of an assurance company, the liability is based
upon the amount received in the United Kingdom, The charge is in general
under Case V of Schedule D. except that in the case of-annuities payable
through a person in the United. Kingdom out of the public revenue of any
country outside the United Kingdom the charge is under Schedule C.
(viii) In considering in any particular case whether an annuity arose from
a source inside or outside the United Kingdom, it would be necessary to
/take into
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take into account all the relevant circumstances, and it is, therefore,
impossible to lay down any general rule. In the case of an annuity payable
under a private contract, however, if the annuity were paid by a person
in the Lni,6d Kingdom cut of funds in the Unite. din dom, that would
constitute prima facie evidence that it arose from a United Kingdom source.
The considerations to be taken into account in deciding this question would
not include the nationality of the payer or payee of the annuity.
(ix) The answers to the specific questions, so far as annuities are
concerned, are therefore:
(a) a resident in the United Kingdom is chargeable to tax in respect
of any annuity, wherever it arises, and irrespective cf his
nationality or domicile. A non-resident is chargeable in respectof an annuity from United Kingdom sources.
.(b) and (c). Both these considerations may be relevant
(see (viii) above).
Pensions and annuities.- international tax agreements
(x) Under all the comprehensive double taxation conventions mado
by the United Kingdom, and under the convention with South Africa, private
pensions and purchased annuities arising from United Kingdom sources to a
person who is resident in the other country and is not resident or
trading in the United Kingdom are exempt from U ited Kingdom tax.
k. Earned income from personal services private employment or liberal
professions (fees, wages, salaries-)
1. In general, a person who is resident in the United Kingdom is liable
to income tax on his earned income from all sources whether in the
United Kingdom or abroad; a person who is not so resident is liable to
United Kingdom tax on earned income only if it arises from sources within
the United Kingdom. In the case of income from United Kingdom source,
the liability (under Case II of Schedule D or Schedule E) is based on the
full income; in the case of income from sources outside the United Kingdom
the liability (under Case V of Schedule D) is based on the amounts
remitted to or received in the United Kingdom.
In general the source of the income depends on where the employment
or profession is exercised but there are some exceptions to this rule.
The income from a "public office or employment of profit in the United
Kingdom" (Rule 6 of Schedule E, Income Tax Act, 1918) arises from a U:y_iited
Kingdom source and is liable to tax whether the holder of the office
resides, or carries out his duties, in the United Kingdom or abroad;
under this Rule members of the British Forces, British Civil Servants
and directors of British companies are liable to tax on their earning.3
/whether
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Page 30
whether they serve in'the United Kingdom or abroad. Further the Courts
have held that a person employed abroad by a British company but resident
and receiving part of his pay in the United Kingdom received income from a
United Kingdom source and was liable to tax under ScheduleE on his full
earnings; they have also held that an employee of a foreign concern who
worked partly in the United Kingdom and partly abroad under a contract
signed abroad and whose pay was paid wholly abroad received income from a
foreign source.
Subject to these general considerations the answers to the specific
questions are -
(a) a British national resident abroad is not liable to income tax
on income from foreign sources such as a profession exercised
wholly abroad or an employment abroad under a foreign employer;
(b) a British national resident abroad is liable to income tax on
income from domestic sources (e.g., income from a United Kingdom.
Government post abroad or the directorship of a. British company
or a profession exercised in the United Kingdom) but not on
income from an ordinary employment under a United Kingdom employer
if it is carried on wholly abroad;
(c) a British national resident in this country but carrying, on a
profession or employment-(other than a "public off ice" within
Rule 6 of Schedule E) wholly abroad is taxable under Case V of
Schedule D on the basis of the income paid or received in,
remitted to, or brought into this country;
(d) the length of residence abroad and in the United Kingdom are
relevant factors in deciding whether a British national is
resident in the United Kingdom for income tax purposes. If he
was normally resident in the United Kingdom he Would not cease to
be resident if his absence abroad did not include at least a
complete income tax -;rear (ending 5 April) and even if his
absence did include a complete income tax year, he would remain
resident here for income tax years other than years of complete
absence if his visits amounted to as n"uch as three months a year,
on average, or if a house were maintained here for his use and
he visited this country year by year.
2. The nationality of the individual entitled to the income does not
affect the liability to income tax (but see 3. below).
The answers to the specific questions are therefore
(a) As at 1 (b)
(b) As at 1 (c)
(c) As at 1 (d).
/3. Although
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?r , ~rwM~'~
8/46ftdd.12
3. Although national ty does not of `ect the '.liability "t'o income tax
it may in certain circumstances arfecA tie amount of tax Pay Ale. A
com for income tax purposes
it
d in
'the u
t i
s
d
o
s
'o
g;
n
e
n
en
i
re
i
roigner wh
caii claim' the same income tax allowances ' and" reliefs as if he were a
British subject; but in general a'foreigner who is not so resident S
riot entitled"to claim'any income tax allowances or reliefs a ainst nr-ome
from United Kingdom sources,'wh'ereas a I3 i ish national not resident in
the United Kingdom can claim a proportion of his normal allowances arid
~-- - *- r-? 1
reliefs (Section 24, Finance Act, 1920) (see paragraph A(T)(a)).
Apart from this point the answers to questions 1 and '2 `do not `c e_~end
on the nationality or domicile of $ the payee or payer. The t lace of'
payment of the income may, however, be c. relevant Ph ctor in `sole cases of
employrrerts carried.' on outside the Uriite _ Kingdom ( see the second
para,2roph of 1 above) .
.? (a) In general civilian employees of the Unitea Kingdom Governm rat
.(other thar_purely temporary employee`s in minor posts 'abroad)
dire liable. to tax on their earnings `whether they serve in the
Un3.tec~_ Kingdom or abroad. T'urbly temporary employees taorki:
in minor posts abroad are not liable to tax 'on their earriirs if
they are not resident .h the tfaited Kingdom for income tax
purposes.
(b) British nationals employec~_ in'tthe 'United IIingc'om by foreign
governments are liable to tax on~theiir earnings in the ordinary
Vey. (Thisrn'ormally applies whether or not they alsopoasEss
other nationality , but British nationals employed by the
United States or Netherlands dovernments are exempt, under
eubl'e taxation coinventions, if they also possess American or,
they are e loved in connection with a trade, usir_ess or ether
w dertakinc carried- on on the purposes of: profit (Section 20,
Government employees working; in the United Kingdom who are not
British nationals are not liable to tax on their earnings lnless
s the ca`se may bed Petherlan s, nationality.) T'oreign
Finance Act,, 1930).
ForeiPn Government employees outside the United Ici-ngdom
their ear' An so on& a they are
rot liable to income tax on
r
not resident in the United Kingdom.
The answer to this is coveredby sub-paragraphs (a) and (b)
(d) Military personnel of ,he United Kingdom I+'orces are, like civil
'Servants,
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/CN.8/46/Add.12
11
Fad e 32
Members of the Armed Forces of foreign governments on duty
in the United Kingr_om would not be taxed on their Service pay
where a double taxation convention :s in operation.
(Section 20, Finance Act, 1930).
Diplomatic and consular personnel in United Kingdom
Government service are taxed in the same way as other Civil
Servants (see sub-paragraph (a) above).
Kingdom are not liable to tax on their earnings. A consul for
aforeign State in the United Kingdom is not taxed. on his
earnings from his post as consul, whatever his nationality
Foreign diplomats, members of their staffs and foreign consular
staffs (other than British nationals) serving in the United
5. The same principles apply in the taxation of professional earnings as
in the taxation of income from employments.
Doublelraxation Conventions
Two modifications of the above rules are made by double 'taxation
conventions (apart from the modifications already referrer! to).
1. A resident of the other country who performs services in the
United Kingdom on behalf of a resident of the other country and is taxed
there is exempt from United Kingdom tax if he is in the United Kingdom for
Tess than. 183 days in the year of assessment. This exemption does not
apply to public entertainers except in the case of those from the U.S.A.
2. . A professor or teacher from the other country who visits the
United Kingdom to teach for a period not exceeding; two years is exempt
from United Kingdom tax on his remuneration.
2V [e9/ 7
5
10
Free
1/2 the annual
value of the
licensed premises
+ 10s Od to
112
1/3 the annual
value of the
licensed premises
,Pe.aSons for any
variation in
o,nnual duty
a, anent
According to the
annual Val-ve of
the licensed
Premises
do.
0384R,O00400040028-51
./ON.b/46,'Add.l2
Page 51~
Any control other
than Excise on
the issue of the
licence
Justice r4, licence
required
Justice Is licence
required
do.
 Annual licence
Class of Trade, Duty Payment
Methylated'Spirits 10s Od
retailers
:Passenger Vessels on E10
which liquor and
tobacco are sold
(Travelling from one
place in United
Kingdom to another
place in the United
Kingdom or which
return to the same
place in the United
Kingdom on the same
day).
Passenger Aircraft Ll
.on which liquor is
sold (Travelling from
one riace in the
United Kingdom to
another place in the
United Kingdom or
which return to the
same place in the
United Kingdom on
the same day).
Railway Restaurant ill
'Car (for sale of
liquor)
Registered Clubs 3d. per L of
purchases of
intoxicating
liquor
off the premises
LICENCES TO SELL (continued
Reasons for any Any control other
variation in than Excise on
annual duty the issue of the
payment licence
According to Must be registered
purchases of with Clerks of
intoxicating Special Sessions,
liquor Police Courts, etc.
Retailers for consumption
According to the Justice's licence
Annual value of required with
the licensed certain exceptions
premises
Wino retailers
12 10s Od to
L10
Justice is Licence
required
Beer retailers
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 ~ tl
n J r-. D:.I..- 'InA('Inn/4'17 (IA rtai-t C7 n n O O'A Oft n n A n n n A n n`YO G
Class of Trade
LICENCES TO SELL (continued
Anriu icence. Reasons for any
Duty Payment variation in
annual duty
Beer retailers Li lqs Od to According to
L1O annual value
of licensed
premises
Cider retailers #2
Any control other
.than F,xcise of . .
the issue of the
Justice 13
Licence required
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Page 5I.
OCCUPATIONAL, ETC. LICENCE
Class of Trader
Annual licence
Duty Payment
Appraiser
12
Auctioneer
Ll0
'Bookmaker at
1-6 to L! 8
Greyhound
Racetracks
with
totalisators
Hawker
L2
House Agent
L2
Money-lender
L15
Pawnbroker
L7
lOs
Plate Dealer
L2
6s
(dealing in
or
gold or silver 15 15s Cd
above certain
weights in any
one article)
Refreshment House lOs 6d
Keeper
or
Ll is Od
Reasons for any
variation in
annual duty
payment
According to the
number of
enclosures on
the race-track
Any control other
than :Excise on
the issue of the
licence
Certificate of
character s itned
by a responsible
person {Clergyman,
etc.) is required
initially but not
for renewals
Certificate from
petty sessional
court required.
Magistrate's
certificate
required
According to the
weight of gold or
silver in any
separate article
sold
According to annual
value or rent
See next page.
/DOG A'i1D GUN
Cd
Od.
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qr 4 p{
0b384 flU 460040 o2 5h
f CN. 8/1+6/Add.12
' f l
it tl t
4 GtN LRCE C S
class.
iqa to keep
pane - to kill
O.e - to kill for
arr,e Keeper
,,n ,a i etcp Reasons for any Any control other
Duty, Payment var .ation in than?Taccl so Eon ' the
j ~jjrj~dl duty Issue of the
Excise licence
x z fl ".v rents
6d
0a.
L2 Os O4
) These licences do
not authorise any
persona to jaurchas
have, use or carry
aif irearnls (as
defined in the
F-i.rea .s Act, 1937
)
in respect of which
a firearm
0"oX''tifcato is
) required.
ld s' " 0
Guzi to ;. arry or use
=LCkI,hS
ivory bookmaker whn carries` on tboo k rig on a dog race-course at
:'w c a totalisator is operated is iJequg red to be in possession of'a
yf : / p ~ eM.? .v :.~ i ~ ~ ;l -p.. ~ :. 5 &i~ .k.. ~
N
B691 fakers Licence The Public Notices os.6 118 and 14? (attached)
;n,T .i~irP +. ,~ responsib -litres of the oo aker and course occupier in
ycgnioction with these Licences. n k
(a) 1. No effect.
(U)
rh chi the bookmaker operates.,
'he duty is levied only on bookmakers carrying on bookmaking
at dog race meeting at w icfi a totalisator is operated.
110 efec-t., The duty is graduate and `depends on he number of eiEc18surE;s
at tho, dog race track and Cori the particular enclosure in
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Ap ve (FofRelease 2 a
t 06/0 /27 CIA-RDP57-00384R000400040028-5
(i) A stamp duty is chareablq upon the practising certificate which
x? lol citor practising in the United Kingdom is required by law to obtain
uslly.
(Ii) The duty is a small one of, fixed amount, and is slightly
dater in cages where the practice is carried on in London or Edinburgh
`than in other ,uses. It does not dopend upon the nationality or
4c ,icile of the, individual.
1K. Social Security Taxes
Broadly s,eakirL;, there are no Social Security taxes as such in
United dom. There is, however, a universally applicable
bribut.ory, insurance ,scheme. Under that scheme no variations in
amounts of,contributions occur br reference to:
ent`ep ise, where the employee is working.
(i) the nationality of domiciles of the employer or employee
(2) the location of the place of work
(3) the,character.of national or international scope of the
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Pane 57
e~ ndix. Rates of Estate Duty
TIhere the Net Principal Value
of the Estate
Rate
Exceeds
And does not
excee
d
E
I
100
500
-
500
1,000
-
1,000
2,000
-
2,000
3,000
1
3,000
5,000
2
5,000
7,500
3
7,500
10,000
4
10,000
12,500
6
12,500
15,000
8
15,000
18,000
10
18,000
20,000
10
20,000
21,000
12
21,000
25,000
12
25,000
30,000
14
30,000
35,000
16
35,000
40,000
18
40,000
45,000
20
45,000
50,000
22
50,000
55,000
24
55,000
60,000
24
60,000
65,000
27
65,000
70,000
27
70,000
75,000
27
75,000
80,000
30
80,000
85,000
30
85,000
90,000
30
90,000
100,000
30
100,000
110,000
35
110,000
120,000
35
120,000
130,000
35
130,000
140,000
35
140,000
150,000
35
150,000
170,000
40
170,000
175,000
40
175,000
200,000
40
200,000
225,000
45
225,000
250,000
45
250,000
300,000
50
300,000
325,000
55
325,000
350,000
55
350,000
400,000
55
400,000
450,000
55
450,000
500,000
55
500,000
600,000
60
600,000
750,000
60
750,000
800,000
65
800,000
1,000,000
65
1,000,000
1,250,000
70
1,250,000
1,500,000
70
1,500,000
2,000,000
70
2,000,000
-
75
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