Langer, Marshall and Rhoades, Rufus: Text of the Proposed United Kingdom-3 Income Tax Treaty (not yet in force) – with annotations by Langer and Rhoades

This annotated text of the proposed new United Kingdom-United States income tax treaty was prepared by Marshall J. Langer and Rufus v. Rhoades. It is taken from their 6-volume set called Rhoades & Langer, U.S. International Taxation and Tax Treaties. Copyright 2001 by Matthew Bender, a member of the LexisNexis Group, and reprinted here with permission. The Rhoades & Langer set includes similarly annotated texts of all U.S. income tax treaties and tax information exchange agreements (TIEAs).
This chapter contains the text of the proposed third income tax treaty between the United Kingdom and the United States, United Kingdom- 3, and contemporaneous 2001 notes, that are not yet in force. They were signed in July 2001 and must be ratified before they can enter into force. At that time they will supersede the 1975 United Kingdom-2 income tax treaty and its protocols that are still in force; see UNIK § 1.00 above for details and the annotated text of the current United Kingdom-2 treaty and its protocols. For the first 12 months, a taxpayer can choose to apply either the United Kingdom-2 treaty or the United Kingdom-3 treaty in its entirety.

UNIK § 2.00 Proposed United Kingdom-3 Income Tax Treaty: Introduction

A proposed new 2001 income tax treaty between the United Kingdom and the United States and contemporaneous 2001 notes were signed in July 2001. The treaty and its notes require ratification by both governments and they are being sent to the United States Senate for its advice and consent to ratification. Upon entry into force, the treaty and its 2001 notes will become the third income tax treaty between the United Kingdom and the United States (United Kingdom-3).

Article 29 of the proposed United Kingdom-3 income tax treaty provides that the new treaty will enter into force upon exchange of instruments of ratification. It will generally take effect for tax years beginning in the year after the calendar year in which it enters into force. If, for example, instruments of ratification are exchanged during 2002 and the treaty enters into force at that time, it will generally take effect for tax years beginning in 2003 and thereafter. However, a taxpayer who would have been entitled to any greater relief under the United Kingdom-2 income tax treaty than under the United Kingdom-3 income tax treaty may elect to use the United Kingdom-2 treaty in its entirety for 12 months from the date on which the United Kingdom-3 treaty would otherwise have taken effect.

[1] Highlights

Treaty Signed: July 24, 2001.

Entry Into Force: Upon exchange of instruments of ratification.

Generally First Effective: Years beginning in 2003 if instruments of ratification are exchanged in 2002.

Withholding Effective: Second month following entry into force.

Official Citation: TIAS not yet available.

Unofficial Citation: None yet.

Treaty Articles: 1 to 30.

Protocols: None.

2001 Notes: Detailed notes interpreting many treaty provisions were signed in 2001 contemporaneously with the treaty. The 2001 notes contain 24 unnumbered paragraphs dealing with a variety of different subjects.

Subjects Not Covered: Arbitration; capital; independent contractors: researchers; teachers; territorial extension.

Regulations: None.

[2] U.S. Tax and Withholding

Portfolio Dividends: 15%.

Intercorporate Dividends: Generally exempt if the recipient owns at least 80% of the payer?s voting shares for 12 months and meets other tests; otherwise 5% if the recipient owns at least 10% of the payer?s voting shares.

Branch Profits Tax: Generally 5%.

Interest: Generally exempt.

Royalties: Generally exempt.

[3] United Kingdom Tax and Withholding

Generally reciprocal.

[4] Legislative History

(1) State Department report (none yet).

(2) President?s letter transmitting treaty to Senate (none yet).

(3) Treasury Department technical explanation (none yet).

(4) Senate Foreign Relations Committee report (none yet).

[5] Introduction to Treaty Text

The entire texts of the proposed United Kingdom-3 income tax treaty and its 2001 notes are set forth below, beginning at UNIK § 2.01. Each treaty article appears in a separately numbered section, the last digits of which correspond to the number of the treaty article. Thus, Article 3 of the proposed United Kingdom-3 income tax treaty is found at UNIK § 2.03. Appropriate annotations appear in boxes at the end of each article. Each paragraph of the 2001 notes appears in a separately numbered subsection, beginning with UNIK § 2.31[1].

The texts of the treaty and notes appear in a distinctive typeface to distinguish them from the editorial commentary.