TAXATION OF FOREIGNERS RESIDENT
IN GREAT BRITAIN.

By Robert P. Skinner, U. S. Consul General in London and

Keith Merril, U. S. Consul in London. Income tax in Great Britain is collected pursuant to the provisions of the income tax act, 1918, rule 1 of which provides that the tax shall be charged in respect of annual profits or gains arising or accruing to any person residing in the United Kingdom from any kind of property whatever, whether situate in the United Kingdom or elsewhere. Rule 2 of the miscellaneous rules privides that unless a persons spends in the United Kingdom a period or periods of time amounting in the aggregate to six months, he is not to be charged with United Kingdom income tax in respect to income from possessions or securities out of the United Kingdom.

The income tax act of 1918 goes on further to explain that in the case of any person who satisfies the Commissioner of Inland Revenue that he is not domiciled in the United Kingdom, even though he may have remained physically in the United Kingdom for a period or periods exceeding six months, the tax shall be computed "on the full amount, as far as the sum can be computed, of the sums which have been or will be received in the United Kingdom in the year of assessment."

Incomes Subject to Taxation.
It comes down to this, then, that-

1) British income tax is invariably collectible on an income arising within the United Kingdom;

2) That British income tax is payable upon revenues from all sources within or without the United Kingdom in the case of aliens who are domiciled in the United Kingdom and have resided there upward of six months, using the word" domicile" in its legal sense;

3) That aliens who are not domiciled in the United Kingdom but who have resided in the United Kingdom equal in the whole to six months during the income tax vear, and aliens who are domiciled here, but have resided here less than six months are chargeable with the British tax not only upon their British income but also upon that portion

of their foreign income which is received in the United Kingdom in the year of assessment; and

4) That persons residing in the United Kingdom who have paid income tax to the British dominions are entitled to relief from United Kngdom income tax to the extent of the dominion rate of tax if such rate does not exceed onehalf of the appropriate rate of the United Kingdom tax.

The Matter of Residence and Domicile. For purposes of taxation an individual foreigner may reside in Great Britain in three different ways:

(a) He may be a mere temporary visitor.

(b) He may be a more or less permanently residing in Great Britain and be domiciled in his country of nationality.

(c) He may reside in Great Britain and be domiciled in Great Britain.

The individual under (c) is, for taxation purposes, in the same position as a Briton domiciled in Great Britain. As to (a) and (b), the rules under the income tax acts provide, among other things, that a person shall not be charged (under Schedule D of the British income tax law) who is in the United Kingdom only for some temporary purpose, and not with any intent of establishing his residence, and who has not actually resided in the United

Kingdom at one time or several times for a period equal to six months in any year of assessment.

The act says "a person residing" shall be charged, and an individual who keeps an establishment for very short periods during the year of assessment, is a "person residing" for the purpose of taxation; e. g. an American citizen who rents a shooting box in Scotland and visits it for only two months in each year. (Inland Revenue v. Caldwallader, 5 Tax Cas., 101.)

Tax Collected under Five Schedules. Income tax is collected in the United Kingdom under five schedules, which are:

Schedule A.-Income from lands or hereditaments situate in the United Kingdom.

Schedule B. In respect of the occupation of lands situate in the United Kingdom.

Schedule C.-Profits arising from interest, public annuities, dividends, and shares of annuities payable in the United Kingdom out of any public revenue in the United Kingdom or elsewhere.

Schedule D.-Profits or gain from property whether situate in the United Kingdom or elsewhere, and profits or gains from any trade, profession employment, or vocation whteher the same be carried on in the United Kingdcm or elsewhere.

Schedule E.-Official salaries.

The tax under Schedules A, B, C, and E. is payable by any one, wherever resident, entitled to the income in any year of assessment, and is deductible at the source.

Profits and gains assessed under Schedule D are not chargeable with tax unless the person entitled to the income is a person resident or carrying on a trade or business in the United Kingdom. For the purpose of this review "income tax" means tax chargeable under Schedule D.

Tax Rate for Individuals.

A foreigner residing but not domiciled in the United Kingdom is chargeable with income tax for (1) profits and gains arising from property in the United Kingdom, and (2) profits and gains from property wherever situated if the income is remitted to him in the United Kingdom. He is not chargeable with tax on the profits and gains from property cutside the United Kingdom when the income is not remitted to him.

Residence in the United Kingdom for an aggregate period of six months during the year of assessment makes

the person a "person resident" for the purpose of taxation. It has been held that a person who rented an establishment in the United Kingdom for occasional visits for sport and never stayed in the United Kingdom for more than two months in any year of assessment was a "person residing." A person visiting and staying in the United Kingdom for temporary purpose and whose stay is for a less period than six months in the year of assessment is not to be charged.

Under British income-tax laws an individual is taxed at the rate of 3 s. in the pound sterling on the first £225 of taxable income (taxable income is assessable income less certain abatements) and 6s. in the pound sterling on the remainder of the taxable income. This tax is levied on income from sources in the United Kingdom, but, as said, not on income from sources in foreign countries unless the income be remitted to the United Kingdom.

Deductions Allowed the Individual.

In regard to the specific deductions allowed an individual it can be stated:

(a) Where the assessable income does not exceed £135 for a single person and £225 for a married person no income tax is payable.

(b) One-tenth is deducted from the total earned income to arrive at the amount of earned income to be calculated in the assessable income.

(c) A personal allowance of £135 or, in the case of an individual whose wife is living with him, £225, is deducted from the assessable income to arrive at the “taxable income."

(d) A widower who has living with him a female relative who has the care of any child or children may deduct £45.

(e) An unmarried person maintaining mother living with him may deduct £45.

(f) For every child under the age of 16 years or who, if over that age, is receiving a full-time education-for the first child £36, for each additional child £27.

Deductions under (d), (e) and (f) are in addition to deduction under (c).

Foreign taxes paid on income which is subseqently charged with income tax in the United Kingdom may be deducted from the amount of such income for the purposes of assessment of British income tax. Also a deduction of 3s. in the pound is allowed upon life-insurance premiums. Liability to and Rates of Supertax.

In certain cases the foreigner resident in the United Kingdom is called upon to pay a supertax and the excessprofits duty, but (apart from income tax) no other direct taxes. He pays supertax if his gross income accruing in the United Kingdom or remitted to the United Kingdom exceeds £2000. This supertax is levied in respect of the excess over £2000 of income: For every pound sterling of the first £500 of the excess, Is, 6d; for every pound sterling of the £500 of the excess, 2s; for every pound sterling of the next £1,000 of the excess, 4s, 6d; for every pound sterling of the next £12,000 of the excess, 5s; for every pound sterling of the next £10,000 of the excess 5s, 6d; for every pound sterling of the remainder of the excess, 6s.

Where part of the income is derived from land and charged upon the annual value (i. e., under Schedule A), and there has been an abatement or refund on account of maintenance, repairs insurance, or management, a similar abatement shall be allowed in assessment for supertax. Payments on account of excess-profits duty may be deducted as expenses for the purpose of assessment to supertax. In estimating the total income of any individual for

supertax, the amount of any earned income shall be taken to be the full amount of that income without the deduction of the tenth allowed for income tax.

The Excess-Profits Duty.

The excess-profits duty is a tax levied on the profits of any trade or business carried on in the United Kingdom, or on the profits of a trade or business carried on at any other place if the owner or individual carrying on that business is a person or are persons ordinarily resident in the United Kingdom, in excess of the amount of profit made in a pre-war trade year. If the trade or business was not carried on, or had not been carried on for a full year before the war, a standard percentage of 13 per cent of the capital employed is fixed as the normal profit for an individual carrying on the trade or business. To render one liable to this tax residence or occupation is not necessary if the trade or business is carried on in the United Kingdcm. If a person is ordinarily resident in the United Kingdom and carries on a trade or business elsewhere than in the United Kingdom, he is liable to this tax on the profits of his trade or business wherever situate.

The rate levied by this tax on all profit over the if no preamount of profit for the pre-war trade year, or, war trade year, over the standard percentage, is 60 per cent. However, the first £200 of profit over the amount of prewar trade profits (or if no such pre-war profit, then over the standard percentage) is exempt from this tax. Where the pre-war standard of profits does not exceed £2,000 and and the profits of the accounting period are less than £4,000, the 200 allowance shall have added to it one fifth of the amount by which the profits of the accounting period are less than £4000. Where a person proves that in any accounting period which ended after the 4th day of August, 1914, his profits have not reached the point which involves liability to excess profits duty, or that he has sustained a loss in his trade or business, he shall be entitled to repayment of such amount paid by him as excess profits duty in respect of any previous accounting period, or to set off against any excess profits duty payable by him in respect of any succeeding accounting period such an amount as will make the total amount of excess profits duty paid by him during the whole period accord with his profits or losses during that period.

Taxation of Corporations.

A foreign corporation doing business in the United Kingdom pays income tax at the rate of 6s. in the pound if it gets profits or gains arising whether directly or indirectly, through or from any factorship, agency, receivership, branch, or management in the United Kingdom. The company must be assessed and charged in the name of the factor, agent, receiver, branch or manager. This tax is levied on income from sources in the United Kingdom but not on income from sources in foreign countries unless the company can be said to be resident in the United Kingdom. The test to apply on this point is: Where is the guiding, controlling, and directing power of the company situate? If it is in the United Kingdom, then the company is resident in the United Kingdom and assessable on the whole of its gains and profits. If the controlling power outside of the United Kingdom, then the company is non-resident in the United Kingdom. Payments for excess profits duty and corporation profits tax are allowed as expenses before calculating income subject to income tax.

When a resident agent deals for a nonresident principal and it appears that the nonresident principal controls the dealing so that there is little or no profit to the resident per

son the Commissioners of Inland Revenue may assess the nonresident on a fair percentage of the turnover. The resident is, by statute, empowered to deduct the tax so assessed from any money of the principal coming into his hands.

In arriving at the taxable income for a trading concern many deductions are allowed for depreciation of plant, writing off losses, etc., but these items would be properly charged against income before arriving at the net profit in any event, and can not be looked upon as deductions from assessable income.

The Corporation Profits Tax.

The corporation profits tax is chargeable on the profits of a foreign company carrying on in the United Kingdom any trade or business or any undertaking of a similar character, so far as those profits arise in the United Kingdom. A company for the purpose of this tax means a body corporate so constituted that the liability of its members is limited. The act imposing this tax provides: "The profits of a foreign company carrying on in the United Kingdom any trade or business." Similar provisions regarding income tax have been construed to mean carrying on trade or business by means of an agent, branch, factor, etc., and undoubtedly this construction would be followed for the purpose of this tax. The rate is 5 per cent of the profits.

The first £500 of the profits is not subject to this tax; also a deduction is allowed for any amount paid for excess profits duty for the same accounting period, and likewise in respect of interest on money borrowed for the purposes of the company, or share of profits distributed to employees under a profit-sharing scheme.

An foreign company doing business in the United Kingdom, either directly or through a branch or agent, is liable to excess profits duty on profits arising in the United Kingdom at the rate of 60 per cent on all profits above the prewar standard or standard percentage. The standard percentage for a company is 11 per cent. The first £200 in excess of the standard is not chargeable with this tax. Where the pre-war standard of profits does not exceed £2000 and the profits for the accounting period are less than £4000 the £200 allowance shall have added to if onefifth of the amount by which the profits for the accounting period are less than £4000. No deductions or credits are allowed for taxes paid to foreign countries on profits arising in those countries, as such profits are not chargeable with this tax. A company can reclaim payments made for excess profits duty in the same way as an individual. It pays no registration or other special taxes.

RUSSO-BRITISH TRADE AGREEMENT.

Whereas it is desirable in the interests both of Russia and of the United Kinfdom that peaceful trade and commerce should be resumed forthwith between those countries; and

Whereas for this purpose it is necessary pending the conclusion of a formal general peace treaty between the government of the United Kingdom and the government of the Russian Socialist Federal Soviet Republic, hereinafter referred to as the Russian soviet government.

The aforesaid parties have accordingly entered into the present agreement for the resumption of trade and commerce between the countries.

The present agreement is subject to the fulfillment of the following conditions, namely: (1) That each party refrains from hostile action or undertakings, against the other and from conducting outside of its own borders any official propaganda direct or indirect against the institutions of the British Empire or the Russian soviet republic, respectively, and more particularly that the Russian soviet government refrains from any attempt by military or diplomatic or any other form of action or propaganda to encourage any of the peoples of Asia in any form of hostile action against British interests or British Empire espe

cially in India and in the Independent State of Afghanistan. The British Government gives a similar particular undertaking to the Russian soviet government in respect of the countries which formed part of the former Russian Empire and which have now become independent. (2) That all British subjects in Russia are immediately permitted to return home, and that all Russian citizens in Great Britain or other parts of the British Empire who desire to return to Russia are similarly released.

It is understood that the term "conducting any official propaganda" includes the giving by either party of assistance or encouragement to any propaganda conducted outside its own borders.

The parties undertake to give forthwith all necessary instructions to their agents and to all persons under their authority to conform to the stipulations undertaken above.

Article I. Both parties agree not to impose or maintain any form of blockade against each other and to remove forthwith all obstacles hitherto placed in the way of the resumption of trade between the United Kingdom and Russia in any commodities which may be legally exported from or imported into their respective territories to or from any other foreign country, and not to exercise any discrimination against such trade, as compared with that carried on with any other foreign country or to place any impediments in the way of banking, credit, and financial operations for the purpose of such trade, but subject always to legislation generally applicable in the respective countries. It is understood that nothing in this article shall prevent either party from regulating the trade in arms and ammunition under general provisions of law which are applicable to the import of arms and ammunition from or their export to foreign countries.

Nothing in this article shall be construed as overriding the provisions of any general international convention which is binding on either party by which the trade in any particular article is or may be regulated (as for example, the opium convention). Art. 2. British and Russian ships, their masters, crews and cargoes shall, in ports of Russia and the United Kingdom, respectively, receive in all respects the treatment, privileges, facilities, immunities and protections which are usually accorded by the established practice of commercial nations to foreign merchant ships, their masters, crews and cargoes, visiting their ports, including the facilities usually accorded in respect of coal and water, pilotage, berthing, dry docks, cranes, repairs, warehouses, and generally all services, appliances, and premisses connected with merchant shipping. Moreover, the British Government undertakes not to take part in or support any measures restricting or hindering, or tending to restrict or hinder, Russian ships from exercising the rights of free navigation of the high seas, straits, and navigable waterways which are enjoyed by ships of other nationalities: Provided, that nothing in this article shall impair the right of either party to take such precautions as are authorized by their respective laws with regard to the admission of aliens into their territories.

Art. 3. The British and other Governments having already undertaken the clearances of the seas adjacent to their own coasts and also certain parts of the Baltic from mines, for the benefit of all nations, the Russian soviet government on their part undertake to clear the sea passages to their own ports The British Government will give the Russian soviet government any information in their power as to the position of mines which will assist them in clearing passages to the ports and shores of Russia. The Russian government, like other nations, will give all information to the International Mine Clearance Committee about the areas they have swept and also what areas still remain dangerous. They will also give all information in their possession about the mine fields laid down by the Russian governments since the outbreak of was in 1914 outside Russian territorial waters, in order to assist in their clearance: Provided, that nothing in this section shall be understood to prevent the Russian government from taking or requiring them to disclose any measures they may consider necessary for the protection of their ports.

Art. 4. Each party may nominate such number of its nationals as may be agreed from time to time as being reasonably necessary to enable proper effect to be given to this agreement, having regard to the conditions under which trade is carried on in its territories, and the other party shall permit such persons to enter its territories and to sojourn and carry on trade there; Provided, that either party may restrict the admittance of any such person into any specified areas and may refuse admittance to or sojourn in its territories to any individual who is persona non grata to itself or who does not comply with this agreement or with the conditions precedent thereto.