Guidance on Certificates of Residence

Life insurers and companies acting as custodians for life insurers may be interested in the new HMRC guidance on certificates of residence. The guidance can be found here

certificate of residence guidance

The guidance will be paragraphs 120090 - 162500 of HMRC's international tax manual. 

I've summarized below what I see as the key points.

• This is clearly quite a fast moving area as this guidance replaces guidance issued on the 4th January 2013.

• HMRC's approach is that although eligibility for treaty benefits is ultimately between the UK claimant and the relevant non - UK authority, HMRC will do some due diligence and will refuse to issue a certificate of residence where the UK company clearly does not meet the treaty conditions. "As the purpose of a CoR is to support claims for benefits under a particular Article of a DTA (being the Article applicable to the relevant income source), HMRC may refuse to issue a CoR where it is clear that the customer would not be entitled to those benefits."

• In my opinion this strikes the right balance and it is a good template for areas like QROPs approval.

• Paragraph 162020 sets out the information that should be sent to HMRC to support a claim for a certificate of residence.

• Where the other state produces a specific form on which a claim for a reduced rate of withholding tax etc should be made, the claimant should also provide a copy of that form to HMRC (after completing the parts applicable to them)

• Where the relevant treaty includes a subject to tax clause then HMRC requires that the claimant confirm that it is subject to tax and there is reference in the guidance to companies providing HMRC with copies of elections to tax dividends (CTA 2009 section 931 R).

• It is an interesting issue as to whether the pension linked dividends of life insurers are able to benefit from special treaty rates where those are dependent on the dividend being subject to tax?  As per FA 2012 section 111 dividends referable to pension business are included in the non  - BLAGAB trading profits computation, but does this mean they are subject to tax?  On balance, I don't think it does.  For unit linked business the taxable dividend is "matched" by an increase in tax deductible policyholder reserves.  Additionally treaty definitions of pension schemes often include a requirement that the income of the scheme is exempt from tax.  Claiming relief at a subject to tax rate might compromise life company claims for pension scheme preferential rates in other jurisdictions (I'm applying the well known legal doctrine of you can't have your cake and eat it.)

• Some double taxation treaties include liable to tax wording.  Its worth noting that HMRC regard this as much less stringent condition than subject to tax: i.e. a charity is liable to tax but not subject to tax.

• The guidance confirms that UK branches and permanent establishments of non residents cannot receive a certificate of residence.  Non - resident branches of UK resident companies will generally be able to obtain certificates of residence and obtain treaty benefits under the UK's treaty network.