Budget 2008 – Budget Note 66 (BN66) –
Double Taxation Treaty Abuse

In the recent Budget announced by Alistair Darling on 12th March 2008, there were clearly many points addressed, some within the text of the main speech and many more that appeared in the accompanying Budget Notes.

In Budget Note 66, the Government laid the foundations to attack an ‘abuse’ of the Double Taxation Treaty that exists between the UK and other countries.

A double taxation treaty exists to ensure that where a transaction creates a tax liability in one country, an individual does not incur a similar tax charge arising in their country of residency. In simple terms, where such a dual charge occurs, there is a credit for the tax paid in the country where the tax liability arose.

However, the Government believes there to be an abuse of this where arrangements utilise a partnership of foreign trusts to provide an environment where individuals may work in the UK and, through the use of the double taxation treaty, enjoy the benefit of a significantly reduced tax liability on their UK income. Therefore, within Budget Note 66 (BN66), the Government has sought to ‘clarify’ this area of legislation.

The legislative changes became effective immediately, i.e. the date of the Budget of 12th March 2008. However, the Government has gone further in stating that the ‘clarification’ will be retrospective, going as far back as 1987 when the legislation was first introduced. The proposed legislation appears as Clause 55 in the Finance Bill 2008.

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