Explanatory note

Under the Convention with Spain scheduled to this Order, shipping and air transport profits, certain trading profits not arising through a permanent establishment, pensions (other than Government pensions) and the earnings of temporary business visitors are (subject to certain conditions) to be taxed only in the country of the taxpayer's residence. Government salaries and pensions are normally to be taxed by the paying Government only. The remuneration of visiting teachers and certain payments made to visiting students are (subject to certain conditions) to be exempt in the country visited.

Where income continues to be taxable in both countries, relief from double taxation is to be given by the country of the taxpayer's residence. The credit to be given in the United Kingdom for tax payable in Spain is to include credit for tax spared under certain provisions of the Spanish law.

The rate of tax on dividends flowing from one country to the other is normally not to exceed 10 per cent where the dividend is paid to a company which controls directly or indirectly at least 10 per cent of the voting power in the paying company and 15 per cent in all other cases. The Convention also makes specific provision for dividends paid by a United Kingdom company to a resident of Spain as long as under United Kingdom law an individual resident in the United Kingdom is entitled to a tax credit in respect of dividends paid by a company resident in the United Kingdom. It prescribes that where a United Kingdom company pays a dividend to a resident of Spain other than a company which controls directly or indirectly at least 10 per cent of the voting power in the paying company, the recipient is (subject to certain conditions) to receive the tax credit to which an individual resident in the United Kingdom and in receipt of such a dividend would be entitled, less income tax at a rate not exceeding 15 per cent on the aggregate of the dividend and the tax credit.

The rate of tax in the source country on interest and royalties flowing from one country to the other is, in general, not to exceed 12 per cent and 10 per cent respectively.

There is provision for the taxation of capital gains on immovable property by the country in which the property is situated. Capital gains arising from the disposal of movable property are normally to be taxed only in the country of the taxpayer's residence unless they arise from the disposal of assets of a permanent establishment or fixed base which the taxpayer has in the other country.

There are also provisions safeguarding nationals and enterprises of one country against discriminatory taxation in the other country—though an additional tax not exceeding 15 per cent may be charged on the net distributed profits attributable to a permanent establishment in one country of a company which is a resident of the other country—and for the exchange of information and consultation between the taxation authorities of the two countries.

The Convention is to take effect in the United Kingdom as respects income tax and capital gains tax for any year of assessment beginning on or after 6th April in the calendar year in which the Convention enters into force and as respects corporation tax for any financial year beginning on or after 1st April in that calendar year. The Convention is to enter into force on the thirtieth day following the date on which the instruments of ratification are exchanged.