Dual Taxation Relief

Dottie

My client did some consultancy work in Pakistan through her limited company and was there for 22 days. Since returning she has been sent a tax demand from the Punjabi Government for 15% tax on her invoice, to be deposited in the relevant account of the Government of Pakistan under Income Tax Ordinance 2001 (but no further details).

There is a double taxation agreement with Pakistan (DT15006) and I understand from the AAT helpline that she can obtain a certificate of residence to send to Pakistan (DT14961). However there is also DT14959 which appears to say that "technical fees" are payable (although this says at 12.5%).

My client wants to return to Pakistan in the future for more work and she also has family there, so doesn't want to be in breach of payment.

Should she pay the tax to Pakistan? if she does, then can it be offset against the corporation tax due and is this just included on the CT600? I assume she would require a receipt?

Any assistance with this would be gratefully received.

Dottie

BIG WAL

I have absolutely no idea, but unless it's a large amount, my inclination would be to charge it as an expense on the accounts thus reducing the CT liability.

Whilst a receipt might be desirable, there will be a record of the transaction on the bank statement plus there is the demand notice, so there seems to be enough proof in the unlikely event of an HMRC query.

I guess it depends how material the amount is. Getting expert advice and trying to investigate the complexities of double taxation agreements may not be worth while.

deanshepherd

BIG WAL wrote: »

my inclination would be to charge it as an expense on the accounts thus reducing the CT liability.

Tax as an expense? That's a novel solution!

Yes, you can claim relief for the foreign tax paid and as it is, presumably, less than the UK tax arising on that income your client will not be adversely affected.

I would suggest paying it and then submitting a Certificate of UK Residence for Tax Purposes to cover your client for future invoices.

The "technical fees" means the work your client does (not a fee levied by the tax authorities). If the work he does is caught by those rules then they will withold tax at 12.5% but, again, that is not a problem given that the tax payable in the UK will be greater.