Budget 2016 – Income Tax: royalty withholding tax

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The measure will affect persons who make intellectual property royalty payments to non-resident connected persons under tax avoidance arrangements and/or who make intellectual property royalty payments to non-resident persons in respect of which there is currently no obligation to deduct income tax at source.

It will provide additional obligations to deduct income tax at source from royalties where either:

– arrangements have been entered into which exploit the UK’s double taxation agreements (DTAs) in order to ensure that little or no tax is paid on royalties either in the UK or anywhere in the world

– the category of royalty is not currently one of those in respect of which there is an obligation to deduct tax under UK law

– royalties which do not otherwise have a source in the UK are connected with the business that a non-UK resident person carries on in the UK through a permanent establishment in the UK

The measure will align the UK deduction of tax at source regime in respect of royalties with the UK taxing rights over such income and counteract contrived arrangements that are used by groups (typically by large multi-national enterprises) that result in the erosion of the UK tax base.

This legislation is effective from 17 March 2016.

Full details are in the HMRC budget paper here: https://bit.ly/21vzxr1

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