Section 41: deduction of income tax at source: intellectual property - tax avoidance

A new purpose-based targeted anti-avoidance rule (TAAR) is aimed at treaty abuse and it operates to deny the benefits of a tax treaty where royalties or similar payments are made between connected parties. It applies where the payments are made under arrangements with a main purpose of securing a be...

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Bibliographic Details
Published in:British Tax Review 2016-09 (5), p.557
Main Author: Greenfield, Philip
Format: Article
Language:English
Subjects:
Cross border transactions
Income taxes
Intellectual property
Royalties
State court decisions
Tax avoidance
Treaties
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Summary:A new purpose-based targeted anti-avoidance rule (TAAR) is aimed at treaty abuse and it operates to deny the benefits of a tax treaty where royalties or similar payments are made between connected parties. It applies where the payments are made under arrangements with a main purpose of securing a benefit that is not in accordance with the object and purpose of the treaty, regardless of when that arrangement was entered into. Many of those treaties provide that royalties are taxable only in the country where the royalty payment is received, removing a tax obstacle from cross-border investment and provision of services. However, countries typically give up their taxing rights in this way in the expectation that the royalties will be paid for the benefit of a resident of the treaty partner country. The TAAR is set out in new section 917A to Chapter 8 of Part 15 of the Income Tax Act 2007 (ITA 2007) inserted by section 41 of the Finance Act 2016 (FA 2016).
ISSN:0007-1870