Double taxation agreement - article 15

[Brightonian]

My client lived and worked in Italy for two years. Last year, he spent more time in the UK and will be judged UK resident under UK law for 2017/8. He will also be Italian resident under Italian domestic law for 2017 and possibly 2018 also,although that is not so clear cut. I am completing his 2017/18 UK tax return. Do I need to include his Italian employment income? He is resident under domestic law in both countries, but in any tie break, he would be UK resident, as this is his centre of vital interests. I have looked at Article 15 and this says that the remuneration of a resident of a contracting state shall be taxable ONLY in that state unless the employment is exercised in the other contracting state. What does resident mean in this context? Does it mean resident under domestic law, in which case, as a resident of Italy employed only in Italy, his income should be taxed only in Italy. Or does it mean resident in the UK because he is resident in both countries but is a national of the UK and his centre of vital interests is in the UK. This is driving me bonkers! He was more than 183 days resident in Italy in 2017, his employer was Italian and had no presence in the UK. I would appreciate any help in getting my head round this.

[Brightonian]

I have a little more research and tried to get my head round this. Under the treaty, he will be UK resident, as he is a UK national, so it just depends on how we interpret Article 15. He would only be taxable in the UK except where the employment is carried out in Italy. it was carried out in Italy and therefore Italy may tax it. Does that mean the UK taxes it and Italy taxes it also, so I have to claim tax credit relief? Or does that mean only Italy taxes it? It is ambiguous. If it said that Italy may tax it also, at least it would be clear that it is taxable in both countries but, as it is, I can't see whether it's a case of the income being exempt from UK tax or being taxable subject to tax credit relief. I should be really grateful if someone could just interpret that article for me. I can't find anything online.

[maths]

You state that the individual is resident in the UK under UK law and for the same period is Italian resident under Italian domestic law.

You say that under the tie-breaker test he would be UK resident.

Under Article 15 the reference to "resident" is a reference to resident under the treaty; in your case UK resident (as tie breaker test provides this).

Article 15(2) provides that only UK tax is payable IF inter alia the employer company is not Italian; but the employer you say is Italian resident.Hence 15(2) is not in point ie not satisfied.

Article 15(1) is satisfied. However, this means that the UK can tax the salary AND so can the Italians.

Bottom line is Italians levy their tax and then UK levy UK tax with a foreign tax credit against the UK tax for the Italian tax.

Also due to I believe different tax years April/April versus January/December some pro-rating will be needed.

[Brightonian]

Thank you, Maths. I thought that might be the case but wasn't sure. Also there were UK liabilities on the rental of his UK home in 2014/15 and 2015/16 and I do not believe that the Italian accountant claimed a credit for the UK tax against the Italian tax. So all a bit messy really. Once again, thank you.