U.S., U.K. Sign New Income Tax Convention
Washington, DC, August 10, 2001 - The United States and United Kingdom signed a new income tax convention that, upon ratification by each country, will replace the existing convention which has been in effect since 1980. As described in a Treasury press statement, the newly signed convention will modernize the tax treatment of cross-border trade and investment between the United States and the United Kingdom.
Among provisions of interest to U.S. regulated investment companies (RICs) and their shareholders, the new convention provides for:
- the reciprocal recognition of pension contributions, and
- a zero rate of withholding tax for dividends received by qualifying pension funds.
As under the existing convention, U.K.-source dividends paid to a RIC generally will be subject to withholding at a rate of 15 percent. The new convention also eliminates several provisions of the existing convention that refer to the recently repealed U.K. advance corporation tax.
The new convention generally will enter into effect in the year following the exchange of instruments of ratification. The withholding tax provisions will enter into effect on the first day of the second month following the exchange of instruments of ratification.