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Competent authorities clarify US-UK tax treaty

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Tax Hot Topics newsletter United States and United Kingdom competent authorities recently signed two separate arrangements clarifying certain terms in the Limitation of Benefits (LOB) provision of the Convention between the United States of American and the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital Gains (the U.S.-U.K. Tax Treaty).

The first arrangement clarifies that references to the term North American Free Trade Agreement (NAFTA) in the LOB provision of the U.S.-U.K. Tax Treaty will be understood as references to the agreement between the United States of America, the United Mexican States, and Canada (USMCA). The IRS has previously announced that it will interpret references to the NAFTA as being replaced by the USMCA, and this confirms that the U.K. competent authority will similarly interpret the references. See our prior coverage on the IRS announcement here.

In the second arrangement, the competent authorities agreed that, for the purposes of applying paragraph 7(d) of Article 23 (i.e., the definition of “equivalent beneficiary”), a “resident of a Member State of the European Community” continues to include a resident of the United Kingdom. Although a helpful clarification, the clarification is narrow and limited to the U.S.-U.K. Tax Treaty.

Contact:
David Sites
Partner
Washington National Tax Office
T +1 202 861 4104

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