United Kingdom: First-Time Treaty Signed with Liechtenstein
Her Majesty’s Revenue & Customs (HMRC) in the United Kingdom has confirmed that a new first-time comprehensive income tax treaty between the U.K. and Liechtenstein was signed in London on 11 June 2012. Previously, there has only been a Tax Information Exchange Agreement between the two countries. The aims of this treaty include reducing the incidence of double taxation, which can help to ease tax-related costs and burdens for business and employees, and helping prevent tax evasion by providing for the exchange of information.
Overview
The new treaty generally follows the OECD Model Tax Convention on Income and on Capital. Some of the more important items included in the new treaty that may concern international executives and their multinational employers are noted below.
• A standard OECD Model employment income article with a period of 183 days in any 12-month period;
• Director’s fees may be taxed where the company is resident;
• A zero tax rate on interest and royalties;
• The latest OECD Model provision on exchange of information;
• Lending assistance to one another in collecting taxes for the other country under certain circumstances;
• No relief granted for pension contributions to schemes recognized in the other country;
• Unlike many U.K. treaties, a “remittance clause” (whereby exemption cannot be claimed if income is not taxed in the state of residence) has not been included.
The full text of the treaty can be found on the HMRC Web site by following the link:
http://www.hmrc.gov.uk/taxtreaties/signed/uk-liechtenstein.pdf .
Effective Dates
The new treaty will enter into force once both countries have completed their legislative procedures. The provisions of the treaty will then take effect from the following year, as noted below.
In the U.K.:
• In respect of taxes withheld at source, for amounts paid or credited on or after the first day of the second month next following the date on which the treaty enters into force;
• From following 6 April for income tax (not described in the first bullet point) and capital gains tax purposes;
• From following 1 April, for corporation tax purposes.
In Liechtenstein:
• In respect of taxes withheld at source, for amounts paid or credited on or after the first day of the second month next following the date on which the treaty enters into force;
• From following 1 January in respect of other taxes on income and taxes on capital.
Source: KPMG