Australian / UK tax

[ASB]

You need to go easy with generalizations about double taxation treaties because their interpretation is specific (to countries and cases). It's an extremely complex area, and can be very much circumstantial and dependent on the source of income (earned versus unearned etc.). Also, relief isn't necessarily "complete", or what you'd expect, insofar as the state in which you reside retains a right to taxation when the other state withholds at a lower marginal rate (i.e. you get "partial relief"). Further, "tax friendly" vehicles can be interpreted differently by the contracting states.

Very true. Some years ago Portugal issued a withholding tax. This was against personal services provided in Portugal by a non resident company. It was levied at 20% (I think) and simply deducted from invoice payments by the invoicee.

This eventually counted as personal Portuguese income tax paid - provided a certificate was obtained from the Ministry -by the individual who provided the services. The residency status of the individual was irrelevant.

The problem was what to claim it against. I was unable - initially - to claim it against corporate CT. There was no provision for deduction of personal Portuguese income tax against UK CT. There was also some reason (I can't quite remember) where I was unable to claim it against my UK personal tax, I think this was because I had no UK income tax paid on personal earned income.

My accountants did eventually manage to claim it against something (can't remember what) but it was a bit of a struggle.

The point is that generally the worst that will happen is you pay at the higher rate of the two countries involved, but their can be cases where the specific types of income and how they are produced can conspire to make things more difficult.

[BlasterBates]

Having quickly read the Australian UK treaty it does look like it is based on credits, i.e. you can credit tax paid but you're not exempt.

Mainly in Europe you are exempt, or that's my experience.

[jamesbrown]

From what I remember, the ATO's stance was that if you're considered to be ordinarily living in Australia then you should be paying normal Australian income tax. By "ordinarily", they mean things like having an Austrlian bank account, having kids at school ... So unless you were a traveller just earning a few bob to support your travels along the way, you were subject to their tax rules and had to pay their tax. However, the arrangement I was on was one where a British pseudo-company sent me abroad to work for them and hence a large element of my earnings was subsistence. I paid a small amount of tax in both countries, and some kind of dual tax credit system did apply.

Yes, each country has tests for residency for tax purposes. If you've really left the UK, double taxation (or treaty benefits) may not affect you, as you'll pay tax like any other resident of your new country. However, it's easier than you think to become a resident in the UK for tax purposes (while living and working overseas), and it will only become easier in the future. IIRC, the 2012 budget had an update on this issue, with UK residency tests scheduled to become much tighter in future.

[Wary]

You need to go easy with generalizations about double taxation treaties because their interpretation is specific (to countries and cases). It's an extremely complex area, and can be very much circumstantial and dependent on the source of income (earned versus unearned etc.). Also, relief isn't necessarily "complete", or what you'd expect, insofar as the state in which you reside retains a right to taxation when the other state withholds at a lower marginal rate (i.e. you get "partial relief"). Further, "tax friendly" vehicles can be interpreted differently by the contracting states.

From what I remember, the ATO's stance was that if you're considered to be ordinarily living in Australia then you should be paying normal Australian income tax. By "ordinarily", they mean things like having an Austrlian bank account, having kids at school ... So unless you were a traveller just earning a few bob to support your travels along the way, you were subject to their tax rules and had to pay their tax. However, the arrangement I was on was one where a British pseudo-company sent me abroad to work for them and hence a large element of my earnings was subsistence. I paid a small amount of tax in both countries, and some kind of dual tax credit system did apply.

[jamesbrown]

That's my experience and I'm familiar with the double taxation treaties of four different countries including the UK. I agree there are complexities but the general principle of a DTA as my accountant explained to me, is you only pay once, with exceptions. Most people who are not familiar assume that there are tax credits as you have with your divis when you pay tax on them on your portfolio.

There is a misnomer that the DTA is there to allow you to credit tax. For that you don't need a bilateral agreement. The whole idea is to allow businesses and individials to operate cross border without being disadvantaged. If you gain employment in Luxembourg but pay top-up taxes in Germany you'd be disadvantaged.

As I said, treaty benefits may be partial and depend on the specific treaty in question and the type of income, among other things. In terms of your point about credits, it's certainly the consequence of applying treaty benefits (along with deductions, exemptions etc.), if not the motivation. Tax treaties do not circumvent the application of the tax laws by each of the contracting states; indeed, that is how one knows if the relief from double taxation applies. In practice, it isn't as straightforward as only paying once, even as a guiding principle, because treaty benefits simply mitigate, they do not eliminate from consideration.

There are also many gotchas in international taxation. For example, a U.S. person may declare the Foreign Earned Income Exclusion, but if it's assumed, without a proper return being filed, the earned income would become fully taxable in the U.S. ex post, despite having been taxed in the other contracting state. Likewise, some U.S. states do not honor international tax treaties. Thus, one needs to make declarations and understand how they apply and what they mean.

Incidentally, looking at your profile, we probably know a few people in common

[BlasterBates]

You need to go easy with generalizations about double taxation treaties because their interpretation is specific (to countries and cases). It's an extremely complex area, and can be very much circumstantial and dependent on the source of income (earned versus unearned etc.). Also, relief isn't necessarily "complete", or what you'd expect, insofar as the state in which you reside retains a right to taxation when the other state withholds at a lower marginal rate (i.e. you get "partial relief"). Further, "tax friendly" vehicles can be interpreted differently by the contracting states.

That's my experience and I'm familiar with the double taxation treaties of four different countries including the UK. I agree there are complexities but the general principle of a DTA as my accountant explained to me, is you only pay once, with exceptions. Most people who are not familiar assume that there are tax credits as you have with your divis when you pay tax on them on your portfolio.

There is a misnomer that the DTA is there to allow you to credit tax. For that you don't need a bilateral agreement. The whole idea is to allow businesses and individials to operate cross border without being disadvantaged. If you gain employment in Luxembourg but pay top-up taxes in Germany you'd be disadvantaged.

[jamesbrown]

You need to go easy with generalizations about double taxation treaties because their interpretation is specific (to countries and cases). It's an extremely complex area, and can be very much circumstantial and dependent on the source of income (earned versus unearned etc.). Also, relief isn't necessarily "complete", or what you'd expect, insofar as the state in which you reside retains a right to taxation when the other state withholds at a lower marginal rate (i.e. you get "partial relief"). Further, "tax friendly" vehicles can be interpreted differently by the contracting states.

[BlasterBates]

It depends on circumstances - if you prepare a UK tax return and you're UK resident, it's a reduction given on UK tax (therefore you pay the higher tax in either country). The DTA means you're not taxed twice, but the income is declared twice:

How double taxation agreements work

Double taxation agreements usually operate in one of three ways:

You pay tax in your country of residence and get an exemption or relief from tax in the country where you have made your income or gain

You pay tax in the country where you have made your income or gain and get an exemption or relief from tax in the country where you are resident

Tax is deducted in the country where you make your income or gain and you declare this tax as already paid on your tax return for the country where you are resident - the tax already paid is known as 'withholding tax'

The agreements work in the same way for residents of both countries involved, but which system is in place depends on the individual agreement between those two countries (and can depend on the type of income involved). For example, where the relevant agreement allows UK residents to claim exemption or relief from Income Tax in Spain, Spanish residents can claim the same for their income in the UK.

HM Revenue & Customs: Double taxation agreements - an introduction

If there's no DTA, you can end up paying tax twice, with no credit at all unless you're able to get unilateral relief (assuming you're UK resident).

I've been working cross-border for several years and the norm is you pay tax once, no credits nada. Only under exceptional circumstances do you get clobbered twice.

Now what is true is often tax authorities do clobber you twice but then you have to appeal it. I've never paid tax twice other than when the tax authority has messed up. I recently received some money back from the Swiss authorites for income that was taxed twice.

and one time I did get some income in the UK that was not taxed again in Germany.

You see tax relief and exemptions are actually the norm under the DTA.

An example of where they use tax credits is if you have an employment contract in Switzerland that is less than 6 months in that case they credit you the tax paid and it gets topped up to the UK level. However if your contract is beyond 6 months it is exempt.

[Clare@InTouch]

The double taxation treaty usually means you pay tax only once, you don't normally credit it. That's normal when there isn't a double taxation treaty, or for anything that isn't covered in the double taxation treaty. That is exactly why it is called a double taxation treaty to define areas where there is no double taxation, i.e. taxed only once.

It depends on circumstances - if you prepare a UK tax return and you're UK resident, it's a reduction given on UK tax (therefore you pay the higher tax in either country). The DTA means you're not taxed twice, but the income is declared twice:

How double taxation agreements work

Double taxation agreements usually operate in one of three ways:

You pay tax in your country of residence and get an exemption or relief from tax in the country where you have made your income or gain

You pay tax in the country where you have made your income or gain and get an exemption or relief from tax in the country where you are resident

Tax is deducted in the country where you make your income or gain and you declare this tax as already paid on your tax return for the country where you are resident - the tax already paid is known as 'withholding tax'

The agreements work in the same way for residents of both countries involved, but which system is in place depends on the individual agreement between those two countries (and can depend on the type of income involved). For example, where the relevant agreement allows UK residents to claim exemption or relief from Income Tax in Spain, Spanish residents can claim the same for their income in the UK.

HM Revenue & Customs: Double taxation agreements - an introduction

If there's no DTA, you can end up paying tax twice, with no credit at all unless you're able to get unilateral relief (assuming you're UK resident).

[BlasterBates]

There is a double tax treaty so you'll get credit for foreign tax against what the UK tax authorities are asking for, but you must still declare the earnings here. As above, talk to an accountant about residency and how to file the necessary tax return.

The double taxation treaty usually means you pay tax only once, you don't normally credit it. That's normal when there isn't a double taxation treaty, or for anything that isn't covered in the double taxation treaty. That is exactly why it is called a double taxation treaty to define areas where there is no double taxation, i.e. taxed only once.

[Wary]

I was once in a similar position in that I used to work in Australia and faced a massive tax bill at the end of it. However, it was actually the ATO that were after me, for something in the order of AUD$125,000!!! It was eventually settled MANY years later, and the bill was less than AUD$2000, which I was "happy" to pay.

If you're after accountants that specialise in this kind of thing, you could perhaps try Geoffrey Nathan.

[Clare@InTouch]

There is a double tax treaty so you'll get credit for foreign tax against what the UK tax authorities are asking for, but you must still declare the earnings here. As above, talk to an accountant about residency and how to file the necessary tax return.

[BlasterBates]

There is indeed a reciprocal agreement, normally tax on employment income is only taxed once not twice and not with tax credit, however there maybe an exception. For example for Swiss income they will tax it twice if you work there for less than 6 months. If you have dividend income it's more complicated.

You really need an accountant.

[Scotghost]

I've worked a few times in Australia, the first time I only paid UK tax and all was ok. Thereafter I was required to get an Oz tax number and pay the tax there. Again no problem.
Now I am under investigation by the UK Taxman about Oz earnings and he wants his cut too. (1000,s)
Can anyone help as I don't want to be taxed twice and I thought that there was a reciprical agreement between UK and Oz.
Cheers Guys.