CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA
AND THE GOVERNMENT OF THE UNITED KINGDOM OF GREAT BRITAIN AND
NORTHERN IRELAND FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE
PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON ESTATES OF
DECEASED PERSONS AND ON GIFTS
[Signed 10/19/78]
The Government of the United States of America and the Government
of the United Kingdom of Great Britain and Northern Ireland;
Desiring to conclude a new Convention for the avoidance of double
taxation and the prevention of fiscal evasion with respect to taxes on
estates of deceased persons and on gifts;
Have agreed as follows:
ARTICLE 1
SCOPE
This Convention shall apply to any person who is within the scope
of a tax which is the subject of this Convention.
ARTICLE 2
TAXES COVERED
(1) The existing taxes to which this Convention shall apply are:
(a) in the United States: the Federal gift tax and the Federal
estate tax, including the tax on generation-skipping transfers; and
(b) in the United Kingdom: the capital transfer tax.
(2) This Convention shall also apply to any identical or
substantially similar taxes which are imposed by a Contracting State
after the date of signature of the Convention in addition to, or in
place of, the existing taxes. The competent authorities of the
Contracting States shall notify each other of any changes which have
been made in their respective taxation laws.
ARTICLE 3
GENERAL DEFINITIONS
(1) In this Convention:
(a) the term "United States" means the United States of America,
but does not include Puerto Rico, the Virgin Islands, Guam or any other
United States possession or territory;
(b) the term "United Kingdom" means Great Britain and Northern
Ireland;
(c) the term "enterprise" means an industrial or commercial
undertaking;
(d) the term "competent authority" means:
(i) in the United States: the Secretary of the Treasury or his
delegate, and
(ii) in the United Kingdom: the Commissioners of Inland Revenue or
their authorised representative;
(e) the term "nationals" means:
(i) in relation to the United States, United States citizens, and
(ii) in relation to the United Kingdom, any citizen of the United
Kingdom and Colonies, or any British subject not possessing that
citizenship or the citizenship of any other Commonwealth country or
territory, provided in either case he had the right of abode in the
United Kingdom at the time of the death or a transfer;
(f) the term "tax" means:
(i) the Federal gift tax or the Federal estate tax, including the
tax on generation-skipping transfers, imposed in the United States, or
(ii) the capital transfer tax imposed in the United Kingdom, or
(iii) any other tax imposed by a Contracting State to which this
Convention applies by virtue of the provisions of paragraph (2) of
Article 2, as the context requires; and
(g) the term "Contracting State" means the United States or
the
United Kingdom as the context requires.
(2) As regards the application of the Convention by a Contracting
State, any term not otherwise defined shall, unless the context
otherwise requires and subject to the provisions of Article 11 (Mutual
Agreement Procedure), have the meaning which it has under the laws of
that Contracting State relating to the taxes which are the subject of
the Convention.
ARTICLE 4
FISCAL DOMICILE
(1) For the purposes of this Convention an individual was
domiciled:
(a) in the United States: if he was a resident (domiciliary)
thereof or if he was a national thereof and had been a resident
(domiciliary) thereof at any time during the preceding three years; and
(b) in the United Kingdom: if he was domiciled in the United
Kingdom in accordance with the law of the United Kingdom or is treated
as so domiciled for the purpose of a tax which is the subject of this
Convention.
(2) Where by reason of the provisions of paragraph (1) an
individual was at any time domiciled in both Contracting States, and
(a) was a national of the United Kingdom but not of the United
States, and
(b) had not been resident in the United States for Federal income
tax purposes in seven or more of the ten taxable years ending with the
year in which that time falls,
he shall be deemed to be domiciled in the United Kingdom at that time.
(3) Where by reason of the provisions of paragraph (1) an
individual was at any time domiciled in both Contracting States, and
(a) was a national of the United States but not of the United
Kingdom, and
(b) had not been resident in the United Kingdom in seven or more of
the ten income tax years of assessment ending with the year in which
that time falls,
he shall be deemed to be domiciled in the United States at that time.
For the purposes of this paragraph, the question of whether a person was
so resident shall be determined as for income tax purposes but without
regard to any dwelling-house available to him in the United Kingdom for
his use.
(4) Where by reason of the provisions of paragraph (1) an
individual was domiciled in both Contracting States, then, subject to
the provisions of paragraphs (2) and (3), his status shall be determined
as follows:
(a) the individual shall be deemed to be domiciled in the
Contracting State in which he had a permanent home available to him. If
he had a permanent home available to him in both Contracting States, or
in neither Contracting State, he shall be deemed to be domiciled in the
Contracting State with which his personal and economic relations were
closest (centre of vital interests);
(b) if the Contracting State in which the individual's centre of
vital interests was located cannot be determined, he shall be deemed to
be domiciled in the Contracting State in which he had an habitual abode;
(c) if the individual had an habitual abode in both Contracting
States or in neither of them, he shall be deemed to be domiciled in the
Contracting State of which he was a national; and
(d) if the individual was a national of both Contracting States or
of neither of them, the competent authorities of the Contracting States
shall settle the question by mutual agreement.
(5) An individual who was a resident (domiciliary) of a possession
of the United States and who became a citizen of the United States
solely by reason of his
(a) being a citizen of such possession, or
(b) birth or residence within such possession,
shall be considered as neither domiciled in nor a national of the United
States for the purposes of this Convention.
ARTICLE 5
TAXING RIGHTS
(1)(a) Subject to the provisions of Articles 6 (Immovable Property
(Real Property)) and 7 (Business Property of a Permanent Establishment
and Assets Pertaining to a Fixed Base Used for the Performance of
Independent Personal Services) and the following paragraphs of this
Article, if the decedent or transferor was domiciled in one of the
Contracting States at the time of the death or transfer, property shall
not be taxable in the other State.
(b) Sub-paragraph (a) shall not apply if at the time of the death
or transfer the decedent or transferor was a national of that other
State.
(2) Subject to the provisions of the said Articles 6 and 7, if at
the time of the death or transfer the decedent or transferor was
domiciled in neither Contracting State and was a national of one
Contracting State (but not of both), property which is taxable in the
Contracting State of which he was a national shall not be taxable in the
other Contracting State.
(3) Paragraphs (1) and (2) shall not apply in the United States to
property held in a generation-skipping trust or trust equivalent on the
occasion of a generation-skipping transfer; but, subject to the
provisions of the said Articles 6 and 7, tax shall not be imposed in the
United States on such property if at the time when the transfer was made
the deemed transferor was domiciled in the United Kingdom and was not
a
national of the United States.
(4) Paragraphs (1) and (2) shall not apply in the United Kingdom to
property comprised in a settlement; but, subject to the provisions of
the said Articles 6 and 7, tax shall not be imposed in the United
Kingdom on such property if at the time when the settlement was made the
settlor was domiciled in the United States and was not a national of the
United Kingdom.
(5) If by reason of the preceding paragraphs of this Article any
property would be taxable only in one Contracting State and tax, though
chargeable, is not paid (otherwise than as a result of a specific
exemption, deduction, exclusion, credit or allowance) in that State, tax
may be imposed by reference to that property in the other Contracting
State notwithstanding those paragraphs.
(6) If at the time of the death or transfer the decedent or
transferor was domiciled in neither Contracting State and each State
would regard any property as situated in its territory and in
consequence tax would be imposed in both States, the competent
authorities of the Contracting States shall determine the situs of the
property by mutual agreement.
ARTICLE 6
IMMOVABLE PROPERTY
(REAL PROPERTY)
(1) Immovable property (real property) may be taxed in the
Contracting State in which such property is situated.
(2) The term "immovable property" shall be defined in accordance
with the law of the Contracting State in which the property in question
is situated, provided always that debts secured by mortgage or otherwise
shall not be regarded as immovable property. The term shall in any case
include property accessory to immovable property, livestock and
equipment used in agriculture and forestry, rights to which the
provisions of general law respecting landed property apply, usufruct of
immovable property and rights to variable or fixed payments as
consideration for the working of, or the right to work, mineral
deposits, sources and other natural resources; ships, boats, and
aircraft shall not be regarded as immovable property.
(3) The provisions of paragraphs (1) and (2) shall also apply to
immovable property of an enterprise and to immovable property used for
the performance of independent personal services.
ARTICLE 7
BUSINESS PROPERTY OF A PERMANENT ESTABLISHMENT AND ASSETS
PERTAINING TO A FIXED BASE USED FOR THE PERFORMANCE OF INDEPENDENT
PERSONAL SERVICES
(1) Except for assets referred to in Article 6 (Immovable Property
(Real Property)) assets forming part of the business property of a
permanent establishment of an enterprise may be taxed in the Contracting
State in which the permanent establishment is situated.
(2)(a) For the purposes of this Convention, the term "permanent
establishment" means a fixed place of business through which the
business of an enterprise is wholly or partly carried on.
(b) The term "permanent establishment" includes especially:
(i) a branch;
(ii) an office;
(iii) a factory;
(iv) a workshop; and
(v) a mine, an oil or gas well, a quarry, or any other place of
extraction of natural resources.
(c) A building site or construction or installation project
constitutes a permanent establishment only if it lasts for more than
twelve months.
(d) Notwithstanding the preceding provisions of this paragraph, the
term "permanent establishment" shall be deemed not to include:
(i) the use of facilities solely for the purpose of storage,
display or delivery of goods or merchandise belonging to the enterprise;
(ii) the maintenance of a stock of goods or merchandise belonging
to the enterprise solely for the purpose of storage, display or
delivery;
(iii) the maintenance of a stock of goods or merchandise belonging
to the enterprise solely for the purpose of processing by another
enterprise;
(iv) the maintenance of a fixed place of business solely for the
purpose of purchasing goods or merchandise, or of collecting
information, for the enterprise;
(v) the maintenance of a fixed place of business solely for the
purpose of carrying on, for the enterprise, any other activity of a
preparatory or auxiliary character; or
(vi) the maintenance of a fixed place of business solely for any
combination of activities mentioned in paragraphs (i)--(v) of this sub-
paragraph.
(e) Notwithstanding the provisions of sub-paragraphs (a) and (b)
where a person--other than an agent of an independent status to whom sub-
paragraph (f) applies--is acting on behalf of an enterprise and has, and
habitually exercises, in a Contracting State an authority to conclude
contracts in the name of the enterprise, that enterprise shall be deemed
to have a permanent establishment in that State in respect of any
activities which that person undertakes for the enterprise, unless the
activities of such person are limited to those mentioned in subparagraph
(d) which, if exercised through a fixed place of business, would not
make this fixed place of business a permanent establishment under the
provisions of that sub-paragraph.
(f) An enterprise shall not be deemed to have a permanent
establishment in a Contracting State merely because it carries on
business in that State through a broker, general commission agent or any
other agent of an independent status, provided that such persons are
acting in the ordinary course of their business.
(g) The fact that a company which is a resident of a Contracting
State controls or is controlled by a company which is a resident of the
other Contracting State or which carries on business in that other State
(whether through a permanent establishment or otherwise) shall not of
itself constitute either company a permanent establishment of the other.
(3) Except for assets described in Article 6 (Immovable Property
(Real Property)), assets pertaining to a fixed base used for the
performance of independent personal services may be taxed in the
Contracting State in which the fixed base is situated.
ARTICLE 8
DEDUCTIONS, EXEMPTIONS, ETC.
(1) In determining the amount on which tax is to be computed,
permitted deductions shall be allowed in accordance with the law in
force in the Contracting State in which tax is imposed.
(2) Property which passes to the spouse from a decedent or
transferor who was domiciled in or a national of the United Kingdom and
which may be taxed in the United States shall qualify for a marital
deduction there to the extent that a marital deduction would have been
allowable if the decedent or transferor had been domiciled in the United
States and if the gross estate of the decedent had been limited to
property which may be taxed in the United States or the transfers of the
transferor had been limited to transfers of property which may be so
taxed.
(3) Property which passes to the spouse from a decedent or
transferor who was domiciled in or a national of the United States and
which may be taxed in the United Kingdom shall, where
(a) the transferor's spouse was not domiciled in the United Kingdom
but the transfer would have been wholly exempt had the spouse been so
domiciled, and
(b) a greater exemption for transfers between spouses would not
have been given under the law of the United Kingdom apart from this
Convention,
be exempt from tax in the United Kingdom to the extent of 50 per cent
of
the value transferred, calculated as a value on which no tax is payable
and after taking account of all exemptions except those for transfers
between spouses.
(4)(a) Property which on the death of a decedent domiciled in the
United Kingdom became comprised in a settlement shall, if the personal
representatives and the trustees of every settlement in which the
decedent had an interest in possession immediately before death so elect
and subject to sub-paragraph (b), be exempt from tax in the United
Kingdom to the extent of 50 per cent of the value transferred
(calculated as in paragraph (3)) on the death of the decedent if:
(i) under the settlement, the spouse of the decedent was entitled
to an immediate interest in possession,
(ii) the spouse was domiciled in or a national of the United
States,
(iii) the transfer would have been wholly exempt had the spouse
been domiciled in the United Kingdom, and
(iv) a greater exemption for transfers between spouses would not
have been given under the law of the United Kingdom apart from this
Convention.
(b) Where the spouse of the decedent becomes absolutely and
indefeasibly entitled to any of the settled property at any time after
the decedent's death, the election shall, as regards that property, be
deemed never to have been made and tax shall be payable as if on the
death such property had been given to the spouse absolutely and
indefeasibly.
(5) Where property may be taxed in the United States on the death
of a United Kingdom national who was neither domiciled in nor a national
of the United States and a claim is made under this paragraph, the tax
imposed in the United States shall be limited to the amount of tax which
would have been imposed had the decedent become domiciled in the United
States immediately before his death, on the property which would in that
event have been taxable.
ARTICLE 9
CREDITS
(1) Where under this Convention the United States may impose tax
with respect to any property other than property which the United States
is entitled to tax in accordance with Article 6 (Immovable Property
(Real Property)) or 7 (Business Property of a Permanent Establishment
and Assets Pertaining to a Fixed Base Used for the Performance of
Independent Personal Services) (that is, where the decedent or
transferor was domiciled in or a national of the United States), then,
except in cases to which paragraph (3) applies, double taxation shall
be
avoided in the following manner:
(a) Where the United Kingdom imposes tax with respect to property
in accordance with the said Article 6 or 7, the United States shall
credit against the tax calculated according to its law with respect to
that property an amount equal to the tax paid in the United Kingdom with
respect to that property.
(b) Where the United Kingdom imposes tax with respect to property
not referred to in sub-paragraph (a) and the decedent or transferor was
a national of the United States and was domiciled in the United Kingdom
at the time of the death or transfer, the United States shall credit
against the tax calculated according to its law with respect to that
property an amount equal to the tax paid in the United Kingdom with
respect to that property.
(2) Where under this Convention the United Kingdom may impose tax
with respect to any property other than property which the United
Kingdom is entitled to tax in accordance with the said Article 6 or 7
(that is, where the decedent or transferor was domiciled in or a
national of the United Kingdom), then, except in the cases to which
paragraph (3) applies, double taxation shall be avoided in the following
manner:
(a) Where the United States imposes tax with respect to property in
accordance with the said Article 6 or 7, the United Kingdom shall credit
against the tax calculated according to its law with respect to that
property an amount equal to the tax paid in the United States with
respect to that property.
(b) Where the United States imposes tax with respect to property
not referred to in sub-paragraph (a) and the decedent or transferor was
a national of the United Kingdom and was domiciled in the United States
at the time of the death or transfer, the United Kingdom shall credit
against the tax calculated according to its law with respect to that
property an amount equal to the tax paid in the United States with
respect to that property.
(3) Where both Contracting States impose tax on the same event with
respect to property which under the law of the United States would be
regarded as property held in a trust or trust equivalent and under the
law of the United Kingdom would be regarded as property comprised in a
settlement, double taxation shall be avoided in the following manner:
(a) Where a Contracting State imposes tax with respect to property
in accordance with the said Article 6 or 7, the other Contracting State
shall credit against the tax calculated according to its law with
respect to that property an amount equal to the tax paid in the first-
mentioned Contracting State with respect to that property.
(b) Where the United States imposes tax with respect to property
which is not taxable in accordance with the said Article 6 or 7 then
(i) where the event giving rise to a liability to tax was a
generation-skipping transfer and the deemed transferor was domiciled in
the United States at the time of that event,
(ii) where the event giving rise to a liability to tax was the
exercise or lapse of a power of appointment and the holder of the power
was domiciled in the United States at the time of that event, or
(iii) where (i) or (ii) does not apply and the settlor or grantor
was domiciled in the United States at the time when the tax is imposed,
the United Kingdom shall credit against the tax calculated according
to
its law with respect to that property an amount equal to the tax paid
in
the United States with respect to that property.
(c) Where the United States imposes tax with respect to property
which is not taxable in accordance with the said Article 6 or 7 and
subparagraph (b) does not apply, the United States shall credit against
the tax calculated according to its law with respect to that property
an
amount equal to the tax paid in the United Kingdom with respect to that
property.
(4) The credits allowed by a Contracting State according to the
provisions of paragraphs (1), (2) and (3) shall not take into account
amounts of such taxes not levied by reason of a credit otherwise allowed
by the other Contracting State. No credit shall be finally allowed under
those paragraphs until the tax (reduced by any credit allowable with
respect thereto) for which the credit is allowable has been paid. Any
credit allowed under those paragraphs shall not, however, exceed the
part of the tax paid in a Contracting State (as computed before the
credit is given but reduced by any credit for other tax) which is
attributable to the property with respect to which the credit is given.
(5) Any claim for a credit or for a refund of tax founded on the
provisions of the present Convention shall be made within six years from
the date of the event giving rise to a liability to tax or, where later,
within one year from the last date on which tax for which credit is
given is due. The competent authority may, in appropriate circumstances,
extend this time where the final determination of the taxes which are
the subject of the claim for credit is delayed.
ARTICLE 10
NON-DISCRIMINATION
(1)(a) Subject to the provisions of sub-paragraph (b), nationals of
a Contracting State shall not be subjected in the other State to any
taxation or any requirement connected therewith which is other or more
burdensome than the taxation and connected requirements to which
nationals of that other State in the same circumstances are or may be
subjected.
(b) Sub-paragraph (a) shall not prevent the United States from
taxing a national of the United Kingdom, who is not domiciled in the
United States, as a non-resident alien under its law, subject to the
provisions of paragraph (5) of Article 8 (Deductions, Exemptions, Etc).
(2) The taxation on a permanent establishment which an enterprise
of a Contracting State has in the other Contracting State shall not be
less favourably levied in that other State than the taxation levied on
enterprises of that other State carrying on the same activities.
(3) Nothing contained in this Article shall be construed as
obliging either Contracting State to grant to individuals not domiciled
in that Contracting State any personal allowances, reliefs and
reductions for taxation purposes which are granted to individuals so
domiciled.
(4) Enterprises of a Contracting State, the capital of which is
wholly or partly owned or controlled, directly or indirectly, by one or
more residents of the other Contracting State, shall not be subjected
in
the first-mentioned Contracting State to any taxation or any requirement
connected therewith which is other or more burdensome than the taxation
and connected requirements to which other similar enterprises of the
first-mentioned State are or may be subjected.
(5) The provisions of this Article shall apply to taxes which are
the subject of this Convention.
ARTICLE 11
MUTUAL AGREEMENT PROCEDURE
(1) Where a person considers that the actions of one or both of the
Contracting States result or will result in taxation not in accordance
with the provisions of this Convention, he may, irrespective of the
remedies provided by the domestic laws of those States, present his case
to the competent authority of either Contracting State.
(2) The competent authority shall endeavour, if the objection
appears to it to be justified and if it is not itself able to arrive at
an appropriate solution, to resolve the case by mutual agreement with
the competent authority of the other Contracting State, with a view to
the avoidance of taxation not in accordance with the Convention. Where
an agreement has been reached, a refund as appropriate shall be made to
give effect to the agreement.
(3) The competent authorities of the Contracting States shall
endeavour to resolve by mutual agreement any difficulties or doubts
arising as to the interpretation or application of the Convention. In
particular the competent authorities of the Contracting States may reach
agreement on the meaning of the terms not otherwise defined in this
Convention.
(4) The competent authorities of the Contracting States may
communicate with each other directly for the purpose of reaching an
agreement as contemplated by this Convention.
ARTICLE 12
EXCHANGE OF INFORMATION
The competent authorities of the Contracting States shall exchange
such information (being information available under the respective
taxation laws of the Contracting States) as is necessary for the
carrying out of the provisions of this Convention or for the prevention
of fraud or the administration of statutory provisions against legal
avoidance in relation to the taxes which are the subject of this
Convention. Any information so exchanged shall be treated as secret and
shall not be disclosed to any persons other than persons (including a
court or administrative body) concerned with the assessment,
enforcement, collection, or prosecution in respect of the taxes which
are the subject of the Convention. No information shall be exchanged
which would disclose any trade, business, industrial or professional
secret or any trade process.
ARTICLE 13
EFFECT ON DIPLOMATIC AND CONSULAR OFFICIALS AND DOMESTIC LAW
(1) Nothing in this Convention shall affect the fiscal privileges
of diplomatic or consular officials under the general rules of
international law or under the provisions of special agreements.
(2) This Convention shall not restrict in any manner any exclusion,
exemption, deduction, credit, or other allowance now or hereafter
accorded by the laws of either Contracting State.
ARTICLE 14
ENTRY INTO FORCE
(1) This Convention shall be subject to ratification in accordance
with the applicable procedures of each Contracting State and instruments
of ratification shall be exchanged at Washington as soon as possible.
(2) This Convention shall enter into force immediately after the
expiration of thirty days following the date on which the instruments
of
ratification are exchanged, and shall thereupon have effect:
(a) in the United States in respect of estates of individuals dying
and transfers taking effect after that date; and
(b) in the United Kingdom in respect of property by reference to
which there is a charge to tax which arises after that date.
(3) Subject to the provisions of paragraph (4) of this Article, the
Convention between the Government of the United States of America and
the Government of the United Kingdom of Great Britain and Northern
Ireland for the Avoidance of Double Taxation and the Prevention of
Fiscal Evasion with respect to Taxes on the Estates of Deceased Persons
signed at Washington on 16 April 1945 (hereinafter referred to as "the
1945 Convention") [T.D. 5565, 1947-1 C.B. 125] shall cease to have
effect in respect of property to which this Convention in accordance
with the provisions of paragraph (2) of this Article applies.
(4) Where on a death before 27 March 1981 any provision of the 1945
Convention would have afforded any greater relief from tax than this
Convention in respect of
(a) any gift inter vivos made by the decedent before 27 March 1974,
or
(b) any settled property in which the decedent had a beneficial
interest in possession before 27 March 1974 but not at any time
thereafter, that provision shall continue to have effect in the United
Kingdom in relation to that gift or settled property.
(5) The 1945 Convention shall terminate on the last date on which
it has effect in accordance with the foregoing provisions of this
Article.
ARTICLE 15
TERMINATION
(1) This Convention shall remain in force until terminated by one
of the Contracting States. Either Contracting State may terminate this
Convention, at any time after five years from the date on which the
Convention enters into force provided that at least six months' prior
notice has been given through the diplomatic channel. In such event the
Convention shall cease to have effect at the end of the period specified
in the notice, but shall continue to apply in respect of the estate of
any individual dying before the end of that period and in respect of any
event (other than death) occurring before the end of that period and
giving rise to liability to tax under the laws of either Contracting
State.
(2) The termination of the present Convention shall not have the
effect of reviving any treaty or arrangement abrogated by the present
Convention or by treaties previously concluded between the Contracting
States.
In witness whereof the undersigned, duly authorised thereto by
their respective Governments, have signed this Convention.
Done in duplicate at London this 19th day of October 1978. For the
Government of the United States of America:
EDWARD J. STREATOR.
FOR THE GOVERNMENT OF THE
UNITED KINGDOM OF GREAT BRITAIN
AND NORTHERN IRELAND:
FRANK A. JUDD.