This Order formally brings into effect the Convention between the United Kingdom of Great Britain and Northern Ireland and the Principality of Andorra, signed on February 20, 2025, aimed at eliminating double taxation on income and capital, preventing tax evasion and avoidance, and facilitating international tax enforcement; the Schedule includes the full text of this Convention, along with subsequent Notes Verbales from June 2025 that formally correct a clerical error found in Article 18 concerning Government Service payments, making the corrected text legally effective upon the Order's enactment.
Arguments For
Eliminates juridical double taxation of income and capital gains for residents operating between the UK and Andorra, promoting cross-border investment and economic activity.
Prevents tax evasion and avoidance by incorporating specific anti-abuse provisions, ensuring tax reliefs are granted only where intended.
Establishes clear rules for taxing various income streams (business profits, dividends, interest, royalties, employment income, capital gains) and defining residency, reducing uncertainty for taxpayers.
Provides mechanisms for mutual agreement procedure and binding arbitration to resolve disputes over interpretation or application, enhancing compliance and taxpayer certainty.
Includes provisions for the exchange of tax information, supporting international tax enforcement efforts against non-compliance.
Arguments Against
The arbitration mechanism (Article 24(5)) only applies after a two-year deadlock in consultation, which could delay final resolution for complex cases.
Specific exemptions for dividends derived from real estate investment vehicles (Article 10(2)(b)) impose a 15% withholding tax rate, which some parties might consider restrictive compared to full exemption.
The Order introduces complex definitions, such as those concerning fiscally transparent entities (Article 1(2)), which may require expert interpretation to apply consistently across both jurisdictions' legal systems.
The initial text contained a clerical error in Article 18(1)(c) regarding Government Service remuneration, suggesting weaknesses in the drafting or review process prior to laying before Parliament, even though it was subsequently corrected via Notes Verbales.
At the Court at Buckingham Palace, the 10th day of December 2025
Present,
The King’s Most Excellent Majesty in Council
This text establishes the formal setting for the Order's enactment.
It indicates that The King, present at Buckingham Palace, made this decision through an Order in Council on December 10, 2025.
A draft of this Order was laid before the House of Commons in accordance with section 173(7) of the Finance Act 2006 and section 5(2) of the Taxation (International and Other Provisions) Act 2010 and approved by resolution of that House.
This confirms that the necessary preliminary parliamentary procedure was followed.
A draft of the Order was presented to the House of Commons and subsequently approved by a formal resolution of that House, as required by relevant UK finance legislation.
Accordingly, His Majesty, in exercise of the powers conferred on Him by section 173(1) to (3) of the Finance Act 2006 and section 2 of the Taxation (International and Other Provisions) Act 2010, by and with the advice of His Privy Council, orders as follows—
This clause formally enacts the Order.
It states that His Majesty, upon the advice of the Privy Council, is exercising statutory powers granted under the Finance Act 2006 and the Taxation (International and Other Provisions) Act 2010 to make the following decree.
Citation
1.
This Order may be cited as the Double Taxation Relief and International Tax Enforcement (Andorra) Order 2025.
Section 1 provides the official short title for this legal instrument, which is the Double Taxation Relief and International Tax Enforcement (Andorra) Order 2025.
Double taxation and international tax enforcement arrangements to have effect
2.
It is declared that—
(a) the arrangements specified in the Convention and Notes Verbale set out in the Schedule to this Order have been made with the Principality of Andorra,
(b) those arrangements have been made with a view to affording relief from double taxation in relation to income tax, corporation tax, capital gains tax, and taxes of a similar character imposed by the laws of the Principality of Andorra, and relate to international tax enforcement, and
(c) it is expedient that those arrangements should have effect.
Section 2 formally declares that the provisions detailed in the Schedule—which contains the Convention and corrective Notes Verbales between the UK and Andorra—are official arrangements.
These arrangements aim to relieve existing UK taxes (income tax, corporation tax, capital gains tax) and similar Andorran taxes, and they also cover international tax enforcement.
The declaration confirms that these arrangements should legally take effect.
SCHEDULE
Article 2
CONVENTION BETWEEN THE UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND AND THE PRINCIPALITY OF ANDORRA FOR THE ELIMINATION OF DOUBLE TAXATION WITH RESPECT TO TAXES ON INCOME AND ON CAPITAL AND THE PREVENTION OF TAX EVASION AND AVOIDANCE
The Schedule begins by introducing the main legal text: the Convention itself.
This Convention outlines the terms agreed upon by the UK and Andorra to avoid taxing the same income or capital twice, while also implementing measures to stop tax evasion and avoidance.
The United Kingdom of Great Britain and Northern Ireland and the Principality of Andorra;
Desiring to further develop their economic relationship and to enhance their cooperation in tax matters;
Intending to conclude a Convention for the elimination of double taxation with respect to taxes on income and on capital without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining reliefs provided in this Convention for the indirect benefit of residents of third States);
Have agreed as follows:
This preamble sets out the overarching goals of the agreement: strengthening economic ties, improving tax cooperation, and specifically structuring the tax relief to prevent base erosion, profit shifting, or treaty shopping designed to benefit residents of countries not party to this Convention.
Article 1 PERSONS COVERED
Article 1 defines which persons are eligible to claim the benefits provided under the Convention.
This Convention shall apply to persons who are residents of one or both of the Contracting States.
The Convention benefits only apply to individuals or entities considered tax residents of either the UK or Andorra.
For the purposes of this Convention, income or gains derived by or through an entity or arrangement that is treated as wholly or partly fiscally transparent under the tax law of either Contracting State shall be considered to be income or gains of a resident of a Contracting State but only to the extent that the income or gain is treated, for purposes of taxation by that State, as the income or gain of a resident of that State.
This rule addresses fiscally transparent entities, such as certain partnerships or trusts.
Income passing through such an entity is considered the income of the resident owner in a Contracting State only if that State's tax laws attribute the income to the resident for taxation purposes.
This Convention shall not affect the taxation, by a Contracting State, of its residents except with respect to the benefits granted under paragraph 3 of Article 7, paragraph 2 of Article 9 and Articles 18, 19, 22, 23, 24 and 26.
Generally, a country retains the right to tax its own residents (worldwide income).
However, this general right is limited regarding specific articles in the Convention, detailing where relief or exemption is granted.
Article 2 TAXES COVERED
Article 2 specifies which national taxes in both countries fall under the scope of the Convention.
This Convention shall apply to taxes on income and on capital imposed on behalf of a Contracting State or of its political subdivisions or local authorities, irrespective of the manner in which they are levied.
The Convention applies to taxes levied on income and capital by either the central UK or Andorran government, or by their regional or local authorities, regardless of how the tax is formally collected or named.
There shall be regarded as taxes on income and on capital all taxes imposed on total income, on total capital or on elements of income, or of capital including taxes on gains from the alienation of movable or immovable property, taxes on the total amounts of wages or salaries paid by enterprises, as well as taxes on capital appreciation.
This broadly defines the covered taxes to include various forms, such as taxes on total income/capital, taxes on specific components of income or capital, taxes on property sales (gains), wage taxes, and taxes on increases in capital value.
(a) in Andorra:
(i) Corporate income tax (impost sobre societats);
(ii) Personal income tax (impost sobre la renda de les persones físiques);
(iii) Tax on income for fiscal non-residents (impost sobre la renda dels no residents fiscals);
(iv) Tax payable on the increase in value in immovable property (impost sobre les plus vàlues en les transmissions patrimonials immobiliàries);
(hereinafter referred to as “Andorran tax”);
(b) in the United Kingdom:
(i) income tax;
(ii) corporation tax; and
(iii) capital gains tax;
(hereinafter referred to as “United Kingdom tax”).
This lists the specific taxes in Andorra (including corporate tax, personal income tax, non-resident tax, and property value increase tax) and the UK (income tax, corporation tax, capital gains tax) to which the Convention applies.
These are designated as 'Andorran tax' and 'United Kingdom tax' respectively for clarity within the document.
The Convention shall apply also to any identical or substantially similar taxes that are imposed after the date of signature of the Convention in addition to, or in place of, the existing taxes. The competent authorities of the Contracting States shall notify each other of any significant changes that have been made in their taxation laws.
The agreement automatically covers any new or replacement taxes that are substantially similar to the listed current taxes.
Both countries agree to inform each other if significant changes occur in their relevant tax legislation after the Convention is signed.
Article 3 GENERAL DEFINITIONS
Article 3 provides standard definitions critical for interpreting the terms used throughout the treaty.
For the purposes of this Convention, unless the context otherwise requires:
(a) the term “Andorra” means the Principality of Andorra and, when used in a geographical sense, means the territory of the Principality of Andorra;
(b) the term “United Kingdom” means Great Britain and Northern Ireland but, when used in a geographical sense, means the territory and territorial sea of Great Britain and Northern Ireland and the areas beyond that territorial sea over which Great Britain and Northern Ireland exercise sovereign rights or jurisdiction in accordance with both domestic law and international law;
(c) the term “person” includes an individual, a company and any other body of persons;
(d) the term “company” means any body corporate or any entity that is treated as a body corporate for tax purposes;
(e) the term “enterprise” applies to the carrying on of any business;
(f) the terms “enterprise of a Contracting State” and “enterprise of the other Contracting State” mean respectively an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State;
(g) the term “international traffic” means any transport by a ship or aircraft, except when the ship or aircraft is operated solely between places in a Contracting State and the enterprise that operates the ship or aircraft is not an enterprise of that State;
(h) the term “competent authority” means:
(i) in Andorra, the Minister in charge of Finance or his authorised representative;
(ii) in the United Kingdom, the Commissioners for His Majesty’s Revenue and Customs or their authorised representative;
(i) the term “national” means:
(i) in relation to Andorra any individual possessing the nationality of that Contracting State; and any legal person, partnership or association deriving its status as such from the laws in force in that Contracting State;
(ii) in relation to the United Kingdom, any British citizen, or any British subject not possessing the citizenship of any other Commonwealth country or territory, provided he has the right of abode in the United Kingdom; and any legal person, partnership or association deriving its status as such from the laws in force in the United Kingdom;
(j) the term “business” includes the performance of professional services and of other activities of an independent character;
(k) the term “recognised pension fund” of a Contracting State means an entity or arrangement established in that State that is treated as a separate person under the taxation laws of that State and:
(i) that is established and operated exclusively or almost exclusively to administer or provide retirement benefits and ancillary or incidental benefits to individuals and that is regulated as such by that State or one of its political subdivisions or local authorities; or
(ii) that is established and operated exclusively or almost exclusively to invest funds for the benefit of entities or arrangements referred to in subdivision (i).
Where an arrangement established in a State would constitute a pension fund under subdivision (i) or (ii) if it were treated as a separate person under taxation law of that State, it shall be considered, for the purposes of this Convention, as a separate person treated as such under the taxation law of that State and all the assets and income to which the arrangement applies shall be treated as assets held and income derived by that separate person and not by another person.
This clause standardizes terminology.
It defines 'Andorra' and the 'United Kingdom' geographically.
It defines 'person' broadly (including individuals and companies), 'company' (for tax purposes), 'enterprise,' and 'international traffic' (transport by ship/aircraft).
It identifies the 'competent authority' for each state (Andorran Minister of Finance/UK HMRC Commissioners) and the criteria for being a 'national.' It also details the specific criteria for recognizing a 'pension fund' for treaty purposes, asserting that funds meeting the definition will be treated as separate taxable persons.
As regards the application of the Convention at any time by a Contracting State, any term not defined therein shall, unless the context otherwise requires or the competent authorities agree to a different meaning pursuant to the provisions of Article 24, have the meaning that it has at that time under the law of that State for the purposes of the taxes to which the Convention applies, any meaning under the applicable tax laws of that State prevailing over a meaning given to the term under other laws of that State.
If a term is not explicitly defined, its interpretation defaults to the meaning given under that Contracting State's domestic tax laws applicable to the treaty's taxes at the time of application.
Tax law definitions take precedence over other domestic laws for treaty interpretation, unless the competent authorities mutually agree on a different meaning under the dispute resolution procedures.
Article 4 RESIDENT
Article 4 establishes the criteria for determining tax residency for treaty purposes.
For the purposes of this Convention, the term “resident of a Contracting State” means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management, place of incorporation or any other criterion of a similar nature, and also includes that State and any political subdivision or local authority thereof. This term, however, does not include any person who is liable to tax in that State in respect only of income or capital gains from sources in that State or capital situated therein.
A person is a resident if they are subject to tax in the UK or Andorra based on domicile, management location, incorporation, or similar factors.
This definition includes the state and its local bodies, but specifically excludes individuals or entities who are taxed in a state only on income generated within that state (i.e., non-residents subject only to limited tax liability).
The term “resident of a Contracting State” includes
(a) a recognised pension fund established in that State; and
(b) an organisation that is established and is operated exclusively for religious, charitable, scientific, cultural, or educational purposes (or for more than one of those purposes) and that is a resident of that State according to its laws, notwithstanding that all or part of its income or gains may be exempt from tax under the domestic law of that State.
The definition of a resident is expanded to explicitly include recognized pension funds situated in that state.
It also includes charitable, religious, educational, cultural, or scientific organizations operating exclusively for those purposes, even if domestic law grants some income tax exemptions.
Where, by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined as follows:
(a) he shall be deemed to be a resident only of the State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident only of the State with which his personal and economic relations are closer (centre of vital interests);
(b) if the State in which he has his centre of vital interests cannot be determined, or if he does not have a permanent home available to him in either State, he shall be deemed to be a resident only of the State in which he has an habitual abode;
(c) if he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident only of the State of which he is a national;
(d) if he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.
When an individual qualifies as a resident of both the UK and Andorra (dual residency), tie-breaker rules apply sequentially.
First, residency is determined by the location of the individual's permanent home.
If a home exists in both, residency is determined by the 'centre of vital interests' (closer personal and economic ties).
If that cannot be determined, residency defaults to the state of habitual abode.
If neither applies, residency is determined by nationality.
If nationality is also dual or non-existent, the competent authorities resolve the issue mutually.
Where, by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, the competent authorities of the Contracting States shall endeavour to determine by mutual agreement the Contracting State of which such person shall be deemed to be a resident for the purposes of the Convention, having regard to its place of effective management, the place where it is incorporated or otherwise constituted and any other relevant factors. In the absence of such agreement, such person shall not be entitled to any relief or exemption from tax provided by this Convention, except to the extent and in such manner as may be agreed upon by the competent authorities of the Contracting States.
For legal entities other than individuals that are dual residents, the competent authorities must try to determine a single country of residency through mutual agreement.
They consider factors like the place of effective management and incorporation.
If no agreement is reached, the entity forfeits treaty benefits unless the authorities later agree on limited application.
Article 5 PERMANENT ESTABLISHMENT
Article 5 defines what constitutes a 'permanent establishment' (PE), which determines whether business profits of an enterprise can be taxed in the other country.
For the purposes of this Convention, the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on.
A permanent establishment is generally defined as a fixed business location where an enterprise conducts all or part of its operations.
The term “permanent establishment” includes especially:
(a) a place of management;
(b) a branch;
(c) an office;
(d) a factory;
(e) a workshop;
(f) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources; and
(g) an agricultural, pastoral or forestry exploitation.
This paragraph provides a non-exhaustive list of examples that qualify as a permanent establishment, including management offices, branches, factories, workshops, resource extraction sites, and farms or forestry operations.
A building site or construction or installation project constitutes a permanent establishment only if it lasts more than twelve months.
A construction or installation site is only considered a permanent establishment if its duration exceeds 12 months, offering relief for short-term projects.
Notwithstanding the preceding provisions of this Article, the term “permanent establishment” shall be deemed not to include:
(a) the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;
(b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery;
(c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;
(d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or of collecting information, for the enterprise;
(e) the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character;
(f) the maintenance of a fixed place of business solely for any combination of activities mentioned in sub-paragraphs a) to e), provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character.
This section lists specific activities that do not create a permanent establishment, even if conducted through a fixed place of business, provided they are purely preparatory or auxiliary.
Examples include using facilities only for storage/delivery, maintaining stock only for storage/display, stock held only for processing by a third party, purchasing goods, or collecting information.
Paragraph 4 shall not apply to a fixed place of business that is used or maintained by an enterprise if the same enterprise or a closely related enterprise carries on business activities at the same place or at another place in the same Contracting State and
(a) that place or other place constitutes a permanent establishment for the enterprise or the closely related enterprise under the provisions of this Article, or
(b) the overall activity resulting from the combination of the activities carried on by the two enterprises at the same place, or by the same enterprise or closely related enterprises at the two places, is not of a preparatory or auxiliary character,
provided that the business activities carried on by the two enterprises at the same place, or by the same enterprise or closely related enterprises at the two places, constitute complementary functions that are part of a cohesive business operation.
This provision counters attempts to fragment activities to claim PE exemptions under Paragraph 4.
If preparatory/auxiliary activities are combined with other business activities (either by the same enterprise or a closely related one) at the same or another nearby location, and the combined activity is not preparatory/auxiliary or results in a PE anyway, the exemption does not apply.
The combination must form complementary functions within a cohesive operation.
For the purposes of paragraph 5, an enterprise is closely related to an enterprise if, based on all the relevant facts and circumstances, one has control of the other or both are under the control of the same persons or enterprises. In any case, an enterprise shall be considered to be closely related to an enterprise if one possesses directly or indirectly more than 50 per cent of the beneficial interest in the other (or, in the case of a company, more than 50 per cent of the aggregate vote and value of the company’s shares or of the beneficial equity interest in the company) or if a person or another enterprise possesses directly or indirectly more than 50 per cent of the beneficial interest (or, in the case of a company, more than 50 per cent of the aggregate vote and value of the company’s shares or of the beneficial equity interest in the company) in the two enterprises.
Close relationships are defined for the purpose of Paragraph 5 based on control or majority beneficial interest (over 50% ownership or voting rights in a company).
If one entity controls the other, or the same parties control both entities by over 50%, they are closely related.
Notwithstanding the provisions of paragraphs 1 and 2, where a person - other than an agent of an independent status to whom paragraph 8 applies - is acting on behalf of an enterprise and has, and habitually exercises, in a Contracting State an authority to conclude contracts on behalf of the enterprise, that enterprise shall be deemed to have a permanent establishment in that State in respect of any activities which that person undertakes for the enterprise, unless the activities of such person are limited to those mentioned in paragraph 4 which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph.
An enterprise creates a PE if a non-independent representative habitually concludes contracts in its name within a state, unless that person's activities are strictly limited to preparatory/auxiliary functions specified in Paragraph 4.
An enterprise shall not be deemed to have a permanent establishment in a Contracting State merely because it carries on business in that State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business.
Carrying on business through an independent agent (like a broker or commission agent) does not automatically create a PE for the enterprise, provided the agent acts within the normal scope of their own business.
The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.
Ownership or control—even direct or indirect control—between two companies resident in or conducting business in the two contracting states does not, by itself, create a permanent establishment for either company in the other state regarding the other company's existence.
Article 6 INCOME FROM IMMOVABLE PROPERTY
Article 6 deals with the taxation rights concerning income generated from land, buildings, and natural resources.
Income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.
Income derived from immovable property located in one country by a resident of the other country can be taxed by the country where the property is physically situated.
The term “immovable property” shall have the meaning which it has under the law of the Contracting State in which the property in question is situated. The term shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply, usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources; ships, and aircraft shall not be regarded as immovable property.
The definition of immovable property aligns with the domestic law of the state where the property is located.
This definition is broad, encompassing accessories, agricultural assets, property rights, and mineral extraction rights, but explicitly excludes ships and aircraft.
The provisions of paragraph 1 shall apply to income derived from the direct use, letting, or use in any other form of immovable property.
The taxing right defined in Paragraph 1 extends to all forms of utilizing the immovable property, whether by direct occupation, leasing, or other arrangements.
The provisions of paragraphs 1 and 3 shall also apply to the income from immovable property of an enterprise.
The rules regarding the taxation of income from immovable property also apply when that property is owned by a business enterprise.
Article 7 BUSINESS PROFITS
Article 7 allocates taxing rights over profits generated by an enterprise's business activities, particularly focusing on the presence of a permanent establishment.
Profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits that are attributable to the permanent establishment in accordance with the provisions of paragraph 2 may be taxed in that other State.
Profits belonging to a business enterprise are generally taxable only in its state of residence, unless the enterprise operates in the other state via a permanent establishment (PE).
If a PE exists, the profits 'attributable' to that PE may be taxed by the state where the PE is located.
For the purposes of this Article and Article 22, the profits that are attributable in each Contracting State to the permanent establishment referred to in paragraph 1 are the profits it might be expected to make, in particular in its dealings with other parts of the enterprise, if it were a separate and independent enterprise engaged in the same or similar activities under the same or similar conditions, taking into account the functions performed, assets used and risks assumed by the enterprise through the permanent establishment and through the other parts of the enterprise.
The profit attributable to a PE must be calculated as if the PE were a distinct, independent enterprise undertaking the same activities under the same conditions (the 'Arm's Length Principle').
This calculation must account for the functions performed, assets used, and risks taken only by the PE, relative to the rest of the enterprise.
Where, in accordance with paragraph 2, a Contracting State adjusts the profits that are attributable to a permanent establishment of an enterprise of one of the Contracting States and taxes accordingly profits of the enterprise that have been charged to tax in the other State, the other State shall, to the extent necessary to eliminate double taxation on these profits, make an appropriate adjustment to the amount of the tax charged on those profits. In determining such adjustment, the competent authorities of the Contracting States shall if necessary consult each other.
If one state adjusts the PE's profit (upwards or downwards) leading to potential double taxation on income already taxed in the other state, the second state must make a corresponding adjustment to its tax assessment to eliminate the double taxation.
The competent authorities may consult to agree on this adjustment.
Article 8 INTERNATIONAL SHIPPING AND AIR TRANSPORT
Article 8 exclusively assigns taxing rights for profits made from transporting people or goods by ship or aircraft across international borders.
Profits of an enterprise of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in that State.
Profits generated by an enterprise from operating ships or aircraft in international traffic are taxed exclusively in the state where the enterprise is resident.
For the purposes of this Article, profits from the operation of ships or aircraft in international traffic include:
(a) profits from the rental on a bareboat basis of ships or aircraft; and
(b) profits from the use, maintenance or rental of containers (including trailers and related equipment for the transport of containers) used for the transport of goods or merchandise;
where such rental or such use, maintenance or rental, as the case may be, is incidental to the operation of ships or aircraft in international traffic.
This definition extends the scope to include profits from bareboat leasing of vessels/aircraft and income from containers (and related equipment) used in international transport, provided this activity is secondary or incidental to the core international traffic operations.
The provisions of paragraph 1 shall also apply to profits from the participation in a pool, a joint business or an international operating agency.
The exclusive right to tax international transport profits also applies to income earned through participation in joint ventures, pools, or similar international operating arrangements for shipping and air transport.
Article 9 ASSOCIATED ENTERPRISES
Article 9 outlines the rules (transfer pricing) for adjusting profits when transactions between associated enterprises differ from arm's length conditions.
Where
(a) an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or
(b) the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State,
and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly.
If one enterprise controls another, or common parties control both, and their commercial or financial dealings are not at arm's length, a state can re-calculate the profits of one of the enterprises to reflect what they would have been without the non-arm's length conditions, and tax those re-calculated profits.
Where a Contracting State includes in the profits of an enterprise of that State - and taxes accordingly - profits on which an enterprise of the other Contracting State has been charged to tax in that other State and the profits so included are profits which would have accrued to the enterprise of the first-mentioned State if the conditions made between the two enterprises had been those which would have been made between independent enterprises, then that other State shall make an appropriate adjustment to the amount of the tax charged therein on those profits. In determining such adjustment, due regard shall be had to the other provisions of this Convention and the competent authorities of the Contracting States shall if necessary consult each other.
If a state adjusts the profits of its resident enterprise (as per Paragraph 1) and that adjustment includes profit already taxed in the other state (under arm's length assumptions), the other state must make a corresponding tax adjustment to prevent double taxation.
The competent authorities will consult if necessary to ensure this adjustment aligns with the Convention.
Article 10 DIVIDENDS
Article 10 sets the rules for taxing dividend payments made from a company in one state to a resident in the other.
Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.
Dividends paid from a company resident in one state to a resident in the other may be taxed in the residence state of the recipient.
However, dividends paid by a company which is a resident of a Contracting State may also be taxed in that State and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State:
(a) except as provided in sub-paragraph b), such dividends shall be exempt from tax in the Contracting State of which the company paying the dividends is a resident;
(b) where dividends are paid out of income (including gains) derived directly or indirectly from immovable property within the meaning of Article 6 by an investment vehicle which distributes most of this income annually and whose income from such immovable property is exempted from tax, the tax charged by the Contracting State of which the company paying the dividends is a resident shall not exceed 15 per cent of the gross amount of the dividends other than where the beneficial owner of the dividends is a pension fund established in the other Contracting State, where the exemption provided in sub-paragraph a) shall apply.
This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.
The source country (where the company paying the dividend resides) may also levy tax, but generally only up to a maximum of 15% of the gross dividend paid to a resident of the other state, unless the dividend is derived from real estate income held by a distributing investment vehicle, in which case the 15% rate applies unless the recipient is a pension fund, which gets a full exemption.
The source state's right to tax the company's underlying profits before distribution remains unaffected.
The term “dividends” as used in this Article means income from shares, “jouissance” shares or “jouissance” rights, mining shares, founders’ shares or other rights, not being debt-claims, participating in profits, as well as any other item which is treated as income from shares by the laws of the State of which the company making the distribution is a resident.
The term 'dividends' is broadly defined to cover all income derived from equity-like instruments, including shares, profit-sharing rights, and similar items treated as dividends under the source state's law, explicitly excluding debt claims.
The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident through a permanent establishment situated therein and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment. In such case the provisions of Article 7 shall apply.
If the recipient of the dividends resident in one state has a permanent establishment in the source state, and the shares are effectively connected to that PE, the dividend income is treated as business profit and taxed according to Article 7 rules, denying the dividend withholding rate protection.
Where a company which is a resident of a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company, except insofar as such dividends are paid to a resident of that other State or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment situated in that other State, nor subject the company’s undistributed profits to a tax on undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in that other State.
The source state cannot impose a general tax on dividends paid out of profits derived from the other state, nor can it impose a tax on undistributed profits, unless the dividends are paid to a resident of that source state or are connected to a PE in that source state.
Article 11 INTEREST
Article 11 governs the taxation of interest payments between residents of the two states.
Interest arising in a Contracting State and beneficially owned by a resident of the other Contracting State shall be taxable only in that other State.
Interest arising in Andorra or the UK that is beneficially owned by a resident of the other state is taxable exclusively in the recipient's state of residence.
The term “interest” as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor’s profits, and in particular, income from government securities and income from bonds or debentures, including premiums and prizes attached to such securities, bonds or debentures. The term shall not include any item which is treated as a dividend under the provisions of Article 10.
Interest is defined broadly as payment from all types of debt claims, secured or unsecured, including bonds and government securities, but it specifically excludes any item treated as a dividend under Article 10 to avoid double characterization.
The provisions of paragraph 1 shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises through a permanent establishment situated therein and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment. In such case the provisions of Article 7 shall apply.
If the interest recipient has a permanent establishment in the source state, and the debt claim is effectively linked to that PE, the interest income is taxed under the business profits rules (Article 7), overriding the exclusive residence-state taxation rule.
Interest shall be deemed to arise in a Contracting State when the payer is a resident of that State. Where, however, the person paying the interest, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment, then such interest shall be deemed to arise in the State in which the permanent establishment is situated.
Interest is generally deemed to arise where the payer resides.
However, if the payer has a PE in one state and the interest payment is borne by that PE (even if the payer resides elsewhere), the interest is deemed to arise in the state of that PE.
Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest having regard to the debt-claim for which it is paid exceeds, the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention.
If an interest payment exceeds the an arm's length amount due to a special relationship, the Convention's relief applies only to the arm's length portion.
The excess amount is taxable according to the standard domestic laws of each state, subject to other treaty provisions.
Article 12 ROYALTIES
Article 12 establishes how royalties paid between residents of the two countries are taxed.
Royalties arising in a Contracting State and beneficially owned by a resident of the other Contracting State shall be taxable only in that other State.
Royalties arising in one state and beneficially owned by a resident of the other state shall be taxable solely in the recipient's state of residence.
The term “royalties” as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process, or for information (know-how) concerning industrial, commercial or scientific experience.
Royalties are defined as payments for the use of intellectual property, including copyrights, patents, trademarks, designs, secret processes, or know-how concerning industrial, commercial, or scientific experience.
The provisions of paragraph 1 shall not apply if the beneficial owner of the royalties, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties arise through a permanent establishment situated therein and the right or property in respect of which the royalties are paid is effectively connected with such permanent establishment. In such case the provisions of Article 7 shall apply.
If a royalty recipient resident in one state has a PE in the source state, and the right or property generating the royalty is connected to that PE, the royalties are taxed under the business profits rules of Article 7, overriding the exclusive residence-state taxation.
Royalties shall be deemed to arise in a Contracting State when the payer is a resident of that State. Where, however, the person paying the royalties, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment in connection with which the obligation to pay the royalties was incurred, and such royalties are borne by such permanent establishment, then royalties shall be deemed to arise in the State where the permanent establishment is situated.
Royalties are generally sourced where the payer resides.
However, if the payer has a PE in a state and the royalty obligation relates to that PE, the royalties are sourced in the state where the PE is located, even if the payer is resident elsewhere.
Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties having regard to the use, right or information for which they are paid exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention.
If royalty payments exceed the non-related party amount due to a special relationship, tax benefits under the Convention only apply to the arm's length portion.
Any excess is taxed according to the domestic laws of each state, considering other treaty articles.
Article 13 CAPITAL GAINS
Article 13 sets out which state has the right to tax gains arising from the disposal of various types of assets.
Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.
The state where immovable property is located retains the right to tax capital gains realized by a resident of the other state from selling that property.
Gains derived by a resident of a Contracting State from the alienation of shares or comparable interests, such as interests in a partnership or trust, may be taxed in the other Contracting State if, at any time during the 365 days preceding the alienation, these shares or comparable interests derived more than 50 per cent of their value directly or indirectly from immovable property, as defined in Article 6, situated in that other State.
Gains from selling shares or similar interests can be taxed in the other state if, within the preceding year, over 50% of the asset's value was derived directly or indirectly from immovable property located in that other state.
Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise), may be taxed in that other State.
Capital gains realized from the sale of movable property that belongs to a permanent establishment in the other state, including the sale of the PE itself, can be taxed by the state where the PE is situated.
Gains that an enterprise of a Contracting State that operates ships or aircraft in international traffic derives from the alienation of such ships or aircraft, or of movable property pertaining to the operation of such ships or aircraft, shall be taxable only in that State.
Capital gains made by an enterprise from selling the ships, aircraft, or associated movable property used in international traffic are taxable exclusively in the enterprise's state of residence.
Gains from the alienation of any property other than that referred to in paragraphs 1, 2, 3 and 4 shall be taxable only in the Contracting State of which the alienator is a resident.
All other capital gains—those not covered by the preceding rules (e.g., shares not deriving value from real estate, movable property not related to a PE)—are taxable solely in the state where the seller resides.
Article 14 INCOME FROM EMPLOYMENT
Article 14 sets rules for taxing employment income, generally giving the right to tax to the state where employment is exercised.
Subject to the provisions of Articles 15, 17, and 18, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.
Wages and salaries paid to a state resident are generally taxed only in the residence state, unless the employment duties are actually performed (exercised) in the other state.
If performed there, the remuneration derived from those duties may be taxed in the state where the work occurs.
Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:
(a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve month period commencing or ending in the fiscal year concerned; and
(b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State; and
(c) the remuneration is not borne by a permanent establishment which the employer has in the other State.
An exception exists where employment is exercised in the other state: remuneration remains taxable only in the employee’s home state if the employee stays there for a cumulative total of 183 days or less within a twelve-month period, and if both the employer is not a resident of the work state AND the salary is not borne by a PE the employer has in the work state.
Notwithstanding the preceding provisions of this Article, remuneration derived by a resident of a Contracting State in respect of an employment, as a member of the regular complement of a ship or aircraft, that is exercised aboard a ship or aircraft operated in international traffic, other than aboard a ship or aircraft operated solely within the other Contracting State, shall be taxable only in the first-mentioned State.
Wages for crew members on ships or aircraft engaged in international traffic are taxed exclusively in the employee's state of residence, unless the vessel or aircraft is operating exclusively within the borders of the state where the employee is not resident.
Article 15 DIRECTORS’ FEES
Directors’ fees and other similar payments derived by a resident of a Contracting State in his capacity as a member of the board of directors of a company which is a resident of the other Contracting State may be taxed in that other State.
Directors' fees or similar remuneration received by a resident of one state for serving on the board of directors of a company resident in the other state may be taxed in the company's state of residence.
Article 16 ENTERTAINERS AND SPORTSPERSONS
Article 16 addresses the taxation of individuals performing in public as entertainers or sportspersons.
Notwithstanding the provisions of Article 14, income derived by a resident of a Contracting State as an entertainer, such as a theatre, motion picture, radio or television artiste, or a musician, or as a sportsperson, from that resident’s personal activities as such exercised in the other Contracting State, may be taxed in that other State.
Income earned by an entertainer or sportsperson as a result of personal activities performed in the other state may be taxed there, overriding the general employment income rules in Article 14.
Where income in respect of personal activities exercised by an entertainer or a sportsperson acting as such accrues not to the entertainer or sportsperson but to another person, that income may, notwithstanding the provisions of Articles 7 and 14, be taxed in the Contracting State in which the activities of the entertainer or sportsperson are exercised.
If income related to an entertainer's or sportsperson's performance accrues to a third party (like a management company) rather than the individual, that income can still be taxed in the state where the performance took place, overriding business profit (Article 7) and employment income (Article 14) rules.
The provisions of paragraphs 1 and 2 shall not apply to income derived from activities exercised in a Contracting State by entertainers or sportspersons if the visit to that State is wholly or mainly supported by public funds of the other Contracting State or political subdivisions or local authorities thereof. In such a case, the income is taxable only in the Contracting State in which the entertainer or the sportsperson is a resident.
If the entertainer's or sportsperson's visit to a state is primarily funded by public money from the other state (including local authorities), the income is taxed exclusively in the performer's state of residence, exempting it from tax in the state where the performance occurred.
Article 17 PENSIONS
Subject to the provisions of paragraph 2 of Article 18, pensions and other similar remuneration paid to a resident of a Contracting State shall be taxable only in that State.
Pensions and similar payments paid to a resident of one state are taxable only in that residence state, subject to the specific rules governing government service pensions in Article 18(2).
Article 18 GOVERNMENT SERVICE
Article 18 covers salaries and pensions paid by the government or its local bodies.
(1) (a) Salaries, wages and other similar remuneration paid by a Contracting State or a political subdivision or a local authority thereof to an individual in respect of services rendered to that State or subdivision or authority shall be taxable only in that State.
(b) However, such salaries, wages and other similar remuneration shall be taxable only in the other Contracting State if the services are rendered in that State and the individual is a resident of that State who:
(i) is a national of that State; or
(ii) did not become a resident of that State solely for the purpose of rendering the services;
and is subject to tax in that State on such salaries, wages, and other similar remuneration.4
Remuneration paid by a government (central, local, or subdivision) for official services is normally taxable only by that paying government.
However, the other state may tax it if the services are rendered there AND the individual is a resident who is also a national of that second state, OR if they became a resident there for reasons other than just rendering those services, and they are taxed there on that income.
(2) (a) Notwithstanding the provisions of paragraph 1, pensions and other similar remuneration paid by, or out of funds created by, a Contracting State or a political subdivision or a local authority thereof to an individual in respect of services rendered to that State or subdivision or authority shall be taxable only in that State.
(b) However, such pensions and other similar remuneration shall be taxable only in the other Contracting State if the individual is a resident of, and a national of, that State.
Pensions paid by a government for official service are normally taxable only by the paying government.
The exception is that the individual's state of residence may tax the pension exclusively if the individual is both a resident and a national of that state.
(3)
The provisions of Articles 14, 15, 16 and 17 shall apply to salaries, wages, pensions, and other similar remuneration in respect of services rendered in connection with a business carried on by a Contracting State or a political subdivision or a local authority thereof.
If a government entity performs activities that constitute a 'business' (as opposed to purely sovereign functions), the specific rules on employment income (Article 14), directors' fees (15), entertainers (16), and ordinary pensions (17) apply instead of the government service rules in Paragraph 1 and 2.
Article 19 STUDENTS
Payments which a student or business apprentice who is or was immediately before visiting a Contracting State a resident of the other Contracting State and who is present in the first-mentioned State solely for the purpose of his education or training receives for the purpose of his maintenance, education or training shall not be taxed in that State, provided that such payments arise from sources outside that State.
Payments received by a student or business apprentice (who was a resident of the other state immediately prior to arrival) for maintenance, education, or training are exempt from tax in the state they are visiting, provided those funds originate entirely from sources outside that visiting state.
Article 20 OTHER INCOME
Article 20 handles any income not specifically addressed in the preceding articles.
Items of income beneficially owned by a resident of a Contracting State, wherever arising, not dealt with in the foregoing Articles of this Convention shall be taxable only in that State.
Income accruing to a resident of one state that is not covered by any previous article of the Convention is taxable exclusively in that state of residence, regardless of where the income arises.
Notwithstanding the provisions of paragraph 1, where an amount of income is paid to a resident of a Contracting State out of income received by trustees or personal representatives administering the estates of deceased persons and those trustees or personal representatives are residents of the other Contracting State, that amount shall be treated as arising from the same sources, and in the same proportions, as the income received by the trustees or personal representatives out of which that amount is paid. Any tax paid by the trustees or personal representatives in respect of the income paid to the beneficiary shall be treated as if it had been paid by the beneficiary.
If trustees or personal representatives resident in the other state distribute income to a resident beneficiary, the income paid is treated as if it has the same source as the income received by the trustees.
Any tax paid by the trustees on that income is credited as if the beneficiary had paid it directly.
The provisions of paragraph 1 shall not apply to income, other than income from immovable property as defined in paragraph 2 of Article 6, if the beneficial owner of such income, being a resident of a Contracting State, carries on business in the other Contracting State through a permanent establishment situated therein and the right or property in respect of which the income is paid is effectively connected with such permanent establishment. In such case the provisions of Article 7 shall apply.
Income otherwise taxable only in the residence state (under Paragraph 1) will be taxed in the other state if the income relates to a permanent establishment maintained there, unless Article 6 (immovable property income) applies exclusively.
If this condition is met, Article 7 (Business Profits) governs the taxation.
Where, by reason of a special relationship between the resident referred to in paragraph 1 and some other person, or between both of them and some third person, the amount of the income referred to in that paragraph exceeds the amount (if any) which would have been agreed upon between them in the absence of such a relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such a case, the excess part of the income shall remain taxable according to the laws of each Contracting State, due regard being had to the other applicable provisions of this Convention.
If the amount of 'other income' is artificially inflated due to a special relationship, the Convention's exclusive residence-state taxation applies only to the true arm's length amount.
The excess remains taxable under the domestic laws of each state, subject to other treaty provisions.
Article 21 CAPITAL
Article 21 determines which state has the right to tax the stock of wealth (Capital) held by residents.
Capital represented by immovable property referred to in Article 6, owned by a resident of a Contracting State and situated in the other Contracting State, may be taxed in that other State.
Capital comprised of immovable property located in one state, owned by a resident of the other, may be taxed by the state where the property is situated.
Capital represented by movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State may be taxed in that other State.
Movable assets that are part of the property of a permanent establishment in the other state can be taxed by that state.
Capital of an enterprise of a Contracting State that operates ships or aircraft in international traffic represented by such ships or aircraft, and by movable property pertaining to the operation of such ships or aircraft, shall be taxable only in that State.
Capital invested in ships, aircraft, and related movable property used by an enterprise in international traffic is taxable exclusively in the state where the enterprise is resident.
All other elements of capital of a resident of a Contracting State shall be taxable only in that State.
Any other form of capital owned by a resident, not covered by the preceding rules (e.g., shares not related to a PE), is taxable solely in the owner's state of residence.
Article 22 ELIMINATION OF DOUBLE TAXATION
Article 22 details the methods by which the UK and Andorra provide relief against paying tax twice on the same income or capital.
Subject to the provisions of the law of Andorra regarding the elimination of double taxation which shall not affect the general principle hereof, double taxation shall be eliminated as follows:
(a) Where a resident of Andorra derives income or owns capital which, in accordance with the provisions of this Convention, may be taxed in the United Kingdom, Andorra shall allow as a deduction from the tax of that resident an amount equal to the tax paid in the United Kingdom.
Such deduction shall not, however, exceed that part of the Andorran tax, as computed before the deduction is given, which is attributable to the income derived from, or the capital owned in the United Kingdom.
(b) Where a resident of Andorra derives income or owns capital which, in accordance with the provisions of this Convention, is exempt from tax in Andorra, Andorra may in order to calculate the amount of tax on the remaining income or capital of the resident, take into account the income or capital that has been exempted.
Andorra eliminates double taxation primarily using the credit method for income/capital taxable in the UK; the deduction is limited to the amount of Andorran tax attributable to that foreign-sourced income/capital.
Andorra may also use the exemption method for certain income, but in that case, it may still consider the exempted amount when calculating the tax rate applicable to the resident's remaining income.
Subject to the provisions of the law of the United Kingdom regarding the allowance as a credit against United Kingdom tax of tax payable in a territory outside the United Kingdom or, as the case may be, regarding the exemption from United Kingdom tax of a dividend arising in a territory outside the United Kingdom or of the profits of a permanent establishment situated in a territory outside the United Kingdom (which shall not affect the general principle hereof):
(a) Andorran tax payable under the laws of Andorra and in accordance with this Convention, whether directly or by deduction, on profits, income or chargeable gains from sources within Andorra (excluding in the case of a dividend tax payable in respect of the profits out of which the dividend is paid) shall be allowed as a credit against any United Kingdom tax computed by reference to the same profits, income or chargeable gains by reference to which the Andorran tax is computed;
(b) a dividend which is paid by a company which is a resident of Andorra to a company which is a resident of the United Kingdom shall be exempted from United Kingdom tax when the exemption is applicable and the conditions for exemption under the law of the United Kingdom are met;
(c) the profits of a permanent establishment in Andorra of a company which is a resident of the United Kingdom shall be exempted from United Kingdom tax when the exemption is applicable and the conditions for exemption under the law of the United Kingdom are met;
(d) in the case of a dividend not exempted from tax under sub-paragraph b) above which is paid by a company which is a resident of Andorra to a company which is a resident of the United Kingdom and which controls directly or indirectly at least 10 per cent of the voting power in the company paying the dividend, the credit mentioned in sub-paragraph a) above shall also take into account the Andorran tax payable by the company in respect of its profits out of which such dividend is paid.
For the purposes of this paragraph, profits, income and gains owned by a resident of the United Kingdom which may be taxed in Andorra in accordance with this Convention shall be deemed to arise from sources in Andorra.
The UK eliminates double taxation mainly through a credit method for business profits, income, and capital gains arising in Andorra.
Additionally, the UK grants an exemption for certain dividends received from Andorran companies by UK resident companies (if specific UK law conditions are met), and exempts profits attributable to an Andorran PE of a UK company (if UK law conditions are met).
For non-exempt dividends paid to a UK corporate shareholder owning at least 10% of the Andorran paying company, the UK credit must also factor in the Andorran tax paid on the underlying profits.
The provisions of paragraph 1 shall not apply where the United Kingdom tax payable is in accordance with the provisions of this Convention solely because the income referred to in that paragraph is also income, profits or chargeable gains derived by a resident of the United Kingdom.
Andorra's credit mechanism (Paragraph 1) does not apply if the UK tax in question is imposed solely because the income/gain is also regarded as arising to a UK resident under the Convention rules.
The provisions of paragraph 2 shall not apply where the Andorran tax payable is in accordance with the provisions of this Convention solely because the income, profits or chargeable gains referred to in that paragraph is also income derived by a resident of Andorra.
The UK's credit/exemption mechanisms (Paragraph 2) do not apply if the Andorran tax being considered is imposed solely because the income/gain is also regarded as arising to an Andorran resident under the Convention rules.
Article 23 NON-DISCRIMINATION
Article 23 ensures that residents of one country are not treated less favourably by the tax system of the other country.
Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances, in particular with respect to residence, are or may be subjected.
Nationals of one state cannot face more burdensome taxation or related requirements in the other state than that state imposes on its own nationals in comparable circumstances, especially regarding residence.
The taxation on a permanent establishment which an enterprise of a Contracting State has in the other Contracting State shall not be less favourably levied in that other State than the taxation levied on enterprises of that other State carrying on the same activities.
A permanent establishment maintained by an enterprise of one state within the other must be subject to taxation no less favourable than that applied to similar enterprises operating within the second state.
Except where the provisions of paragraph 1 of Article 9, paragraph 5 of Article 11, paragraph 5 of Article 12 or paragraph 4 of Article 20 apply, interest, royalties and other disbursements paid by an enterprise of a Contracting State to a resident of the other Contracting State shall, for the purpose of determining the taxable profits of such enterprise, be deductible under the same conditions as if they had been paid to a resident of the first-mentioned State. Similarly, any debts of an enterprise of a Contracting State to a resident of the other Contracting State shall, for the purpose of determining the taxable capital of such enterprise, be deductible under the same conditions as if they had been contracted to a resident of the first-mentioned State.
Interest, royalties, and other payments made by an enterprise to a resident of the other state must be deductible for calculating the payer's taxable profit under the same conditions as if paid to a resident of the payer's state, unless special pricing provisions (Articles 9(1), 11(5), 12(5), 20(4)) state otherwise. Debt for capital tax purposes must also be deductible under similar arm's length conditions.
Enterprises of a Contracting State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State, shall not be subjected in the first-mentioned State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which other similar enterprises of the first-mentioned State are or may be subjected.
If an enterprise in one state is owned or controlled by residents of the other state, it must not face more burdensome taxation or related requirements than similar local enterprises in the first state.
Nothing contained in this Article shall be construed as obliging either Contracting State to grant to individuals not resident in that State any of the personal allowances, reliefs and reductions for tax purposes which are granted to individuals so resident or to its nationals.
This article does not compel either state to extend its domestic personal tax allowances, reliefs, or reductions to non-resident individuals that it only offers to its own residents or nationals.
The provisions of this Article shall apply to the taxes referred to in Article 2 of this Convention.
The non-discrimination provisions apply to all taxes covered by Article 2 of the Convention.
Article 24 MUTUAL AGREEMENT PROCEDURE
Article 24 provides a mechanism for resolving tax disputes between the two states.
Where a person considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with the provisions of this Convention, he may, irrespective of the remedies provided by the domestic law of those States, present his case to the competent authority of either Contracting State. The case must be presented within three years from the first notification of the action resulting in taxation not in accordance with the provisions of the Convention.
Any person who believes they are being taxed contrary to the Convention can submit a case to the competent authority of either treaty state, regardless of domestic legal remedies.
This submission must occur within three years of the initial tax action notification.
The competent authority shall endeavour, if the objection appears to it to be justified and if it is not itself able to arrive at a satisfactory solution, to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation which is not in accordance with the Convention. Any agreement reached shall be implemented notwithstanding any time limits in the domestic law of the Contracting States.
If a competent authority finds a valid objection but cannot solve it unilaterally, it will seek mutual agreement with the other state's authority to prevent improper taxation.
Any resolution reached through this process must be implemented by both states, overriding domestic time limits.
The competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Convention. They may also consult together for the elimination of double taxation in cases not provided for in the Convention.
The competent authorities are tasked with resolving ambiguities regarding the Convention's interpretation or application, and they may also collaborate to settle double taxation issues even in situations not explicitly detailed within the treaty.
The competent authorities of the Contracting States may communicate with each other directly for the purpose of reaching an agreement in the sense of the preceding paragraphs.
The competent authorities have the authority to communicate directly with each other to facilitate reaching a mutual agreement or resolving doubts.
Where,
(a) under paragraph 1, a person has presented a case to the competent authority of a Contracting State on the basis that the actions of one or both of the Contracting States have resulted for that person in taxation not in accordance with the provisions of this Convention, and
(b) the competent authorities are unable to reach an agreement to resolve that case pursuant to paragraph 2 within two years from the date when all the information required by the competent authorities in order to address the case has been provided to both competent authorities,
any unresolved issues arising from the case shall be submitted to arbitration if the person so requests in writing. These unresolved issues shall not, however, be submitted to arbitration if a decision on these issues has already been rendered by a court or administrative tribunal of either State. Unless a person directly affected by the case does not accept the mutual agreement that implements the arbitration decision, that decision shall be binding on both Contracting States and shall be implemented notwithstanding any time limits in the domestic laws of these States. The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this paragraph.
If a MAP case remains unresolved by mutual agreement within two years after all necessary information is provided, the remaining issues must go to arbitration if the taxpayer requests it in writing, provided no court in either state has already issued a ruling on the issue.
The arbitration decision is binding unless the taxpayer rejects it, and it must be implemented overriding domestic time limits.
Article 25 EXCHANGE OF INFORMATION
Article 25 mandates cooperation through the exchange of relevant tax information.
The competent authorities of the Contracting States shall exchange such information as is foreseeably relevant for carrying out the provisions of this Convention or to the administration or enforcement of the domestic laws concerning taxes of every kind and description imposed on behalf of the Contracting States, or of their political subdivisions or local authorities, insofar as the taxation thereunder is not contrary to the Convention. The exchange of information is not restricted by Articles 1 and 2.
The competent authorities must exchange information foreseeably relevant to executing the Convention or enforcing domestic taxes (as long as that enforcement is not contrary to the Convention).
This exchange power is not limited by the scope defined in Articles 1 (Persons Covered) or 2 (Taxes Covered).
Any information received under paragraph 1 by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessment or collection of, the enforcement or prosecution in respect of, the determination of appeals in relation to, the taxes referred to in paragraph 1, or the oversight of the above. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions. Notwithstanding the foregoing, information received by a Contracting State may be used for other purposes when such information may be used for such other purposes under the laws of both States and the competent authority of the supplying State authorises such use.
Information received must be treated confidentially, mirroring the secrecy applied under domestic law.
Disclosure is restricted to persons involved in taxing, collecting, enforcing, or appealing taxes covered by the treaty.
Disclosure in public court proceedings is permitted, and information can be used for other purposes only if both states' laws allow it and the providing state authorizes it.
In no case shall the provisions of paragraphs 1 and 2 be construed so as to impose on a Contracting State the obligation:
(a) to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State;
(b) to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State;
(c) to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information the disclosure of which would be contrary to public policy (ordre public).
This safeguards against imposing undue burdens: a state is not required to use administrative procedures that conflict with its own or the other state's laws and practices, nor must it obtain information not available under its normal procedures.
Furthermore, information that would violate strict commercial secrecy or public policy ('ordre public') does not need to be disclosed.
If information is requested by a Contracting State in accordance with this Article, the other Contracting State shall use its information gathering measures to obtain the requested information, even though that other State may not need such information for its own tax purposes. The obligation contained in the preceding sentence is subject to the limitations of paragraph 3 but in no case shall such limitations be construed to permit a Contracting State to decline to supply information solely because it has no domestic interest in such information.
A state receiving an information request must use its domestic information-gathering powers to obtain the information, even if it is not needed for its own domestic tax assessment.
This obligation holds despite the limitations in Paragraph 3, meaning the state cannot refuse solely based on a lack of domestic tax interest in the data.
In no case shall the provisions of paragraph 3 be construed to permit a Contracting State to decline to supply information solely because the information is held by a bank, other financial institution, nominee or person acting in an agency or a fiduciary capacity or because it relates to ownership interests in a person.
The bank secrecy or fiduciary exemptions (limitations in Paragraph 3) cannot be used as a standalone reason for a state to refuse to supply information if requested under treaty procedures, particularly concerning bank records or beneficial ownership details.
Article 26 MEMBERS OF DIPLOMATIC MISSIONS AND CONSULAR POSTS
Nothing in this Convention shall affect the fiscal privileges of members of diplomatic missions or consular posts under the general rules of international law or under the provisions of special agreements.
The Convention does not override existing international law or specific agreements that grant tax privileges to diplomatic personnel or consular staff.
Article 27 ENTITLEMENT TO BENEFITS
Article 27 aims to prevent accessing treaty benefits solely for tax avoidance purposes.
Notwithstanding the other provisions of this Convention, a benefit under this Convention shall not be granted in respect of an item of income, capital or a capital gain if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of this Convention. In the event that a Contracting State denies benefits under paragraph 1 the competent authority of that State will consult with the competent authority of the other State.
Treaty benefits will be denied if it is determined that obtaining that benefit was one of the main goals of a transaction, unless granting the benefit aligns with the underlying purpose of the treaty provision.
If a state denies a benefit, its competent authority will consult with the other state's authority.
Where a benefit under this Convention is denied to a person under paragraph 1, the competent authority of the Contracting State that would otherwise have granted this benefit shall nevertheless treat that person as being entitled to this benefit, or to different benefits with respect to a specific item of income, capital or a capital gain, if such competent authority, upon request from that person and after consideration of the relevant facts and circumstances, determines that such benefits would have been granted to that person in the absence of the transaction or arrangement referred to in paragraph 1. The competent authority of the Contracting State to which the request has been made will consult with the competent authority of the other State before rejecting a request made under this paragraph by a resident of that other State.
If benefits are denied under Paragraph 1, the competent authority that would have granted them can still allow the benefits (or modified benefits) upon receiving a request, if it determines the person would qualify had the offending transaction not occurred.
The authority must consult the other state before rejecting such a request from its resident.
Where, pursuant to any provisions of this Convention, a Contracting State reduces the rate of tax on, or exempts from tax, income of a resident of the other Contracting State and under the laws in force in that other Contracting State the resident is subjected to tax by that other Contracting State only on that part of such income which is remitted to or received in that other Contracting State, then the reduction or exemption shall apply only to so much of such income as is remitted to or received in that other Contracting State.
If one state provides a tax reduction or exemption for income derived by a resident of the other state, but the residence state only taxes that resident on the portion of income actually received or remitted there, the reduction or exemption provided by the first state must be limited only to that remitted or received portion.
Article 28 ENTRY INTO FORCE
Article 28 specifies the process and timing for the Convention to become legally binding.
Each of the Contracting States shall notify the other in writing, through diplomatic channels, of the completion of the procedures required by its law for the bringing into force of this Convention. This Convention shall enter into force on the date of the later of these notifications and shall thereupon have effect:
(a) in Andorra:
(i) in respect of taxes withheld at source, to income derived on or after 1 January of the year next following the year in which the Convention enters into force;
(ii) in respect of other taxes on income, and taxes on capital, to taxes chargeable for any taxable year beginning on or after 1 January of the year next following the year in which the Convention enters into force.
(b) in the United Kingdom:
(i) in respect of taxes withheld at source, for amounts paid or credited on or after the first day of the second month next following the date on which this Convention enters into force;
(ii) in respect of income tax and capital gains tax, for any year of assessment beginning on or after 6th April next following the date on which this Convention enters into force;
(iii) in respect of corporation tax, for any financial year beginning on or after 1st April next following the date on which this Convention enters into force.
The Convention enters into force upon the later of the two states formally notifying the other that their domestic entry procedures are complete.
For Andorra, it applies from January 1st of the year after entry into force (or January 1st for withholding taxes).
For the UK, it applies to amounts paid/credited two months after entry into force, for income tax/CGT for years starting after April 6 following entry, and for corporation tax for financial years starting after April 1 following entry.
Notwithstanding the provisions of paragraph 1, the provisions of Article 24(5) (arbitration) shall not have effect until the States notify each other through diplomatic channels that this specific provision may commence. The provision shall enter into force on the date of the later of these notifications.
The binding arbitration procedure described in Article 24(5) will only become effective after both states separately notify each other, via diplomatic channels, that they are ready to implement it.
It enters into force on the date of the later of these two specific commencement notifications.
Notwithstanding the entry into force of the Convention, requests for information under Article 25 (Exchange of information) may be made:
(a) In the case of Andorra:
(i) in respect to tax matters involving intentional conduct which is liable to prosecution under the criminal laws of the requesting Party, to taxable periods beginning on or after the first day of January of 2013, or where there is no taxable period, to all taxes arising on or after the first day of January of 2013; and
(ii) in respect to other cases, to taxable periods beginning on or after the first day of January of 2017 or, where there is no taxable period, for all taxes arising on or after the first day of January of 2017.
(b) In the case of the United Kingdom without regard to the taxable period to which the matter relates.
Even before the main Convention enters into force, the information exchange powers (Article 25) can be used retroactively in Andorra for criminal matters dating back to January 1, 2013, and for all other tax issues dating back to January 1, 2017.
The UK can request information concerning any taxable period without restriction.
Article 29 TERMINATION
Article 29 details the conditions under which either state can unilaterally end the International Tax Convention.
This Convention shall remain in force until terminated by a Contracting State. Either Contracting State may terminate the Convention, through diplomatic channels, by giving notice of termination at least six months before the end of any calendar year beginning after the expiry of five years from the date of entry into force of the Convention. In such event, the Convention shall cease to have effect:
(a) in Andorra:
(i) in respect of taxes withheld at source, to income derived on or after the first day of January of the year following the year in which notice is given
(ii) in respect of other taxes on income, to taxes chargeable for any taxable year, beginning on or after the first day of January immediately following the year in which the notice is given.
(b) in the United Kingdom:
(i) in respect of taxes withheld at source, for amounts paid or credited after the date that is six months after the date on which notice of termination was given;
(ii) in respect of income tax and capital gains tax, for any year of assessment beginning on or after 6th April next following the date on which the notice is given;
(iii) in respect of corporation tax, for any financial year beginning on or after 1st April next following the date on which the notice is given.
The Convention remains active indefinitely but can be terminated by either state with at least six months' notice before the end of a calendar year, occurring only after the first five years of entry into force.
Termination results, generally, in the Convention ceasing to apply in the following calendar year for most taxes, with specific dates defined for withholding taxes and UK tax years.
IN WITNESS WHEREOF the undersigned, duly authorised thereto by their respective Governments, have signed this Convention.
Done in duplicate in two originals at London this 20th day of February 2025 in the English and Catalan languages, both texts being equally authoritative. In case of divergence on the interpretation, the English text shall prevail.
This clause certifies the agreement, stating that authorized representatives of both governments signed the Convention in London on February 20, 2025.
The document exists in both English and Catalan, but the English text is authoritative in case of interpretation conflicts.
For the United Kingdom of Great Britain and Northern Ireland:
James Murray
For the Principality of Andorra:
Noëlia Souque Caldato
This lists the signatories who executed the Convention: James Murray for the UK and Noëlia Souque Caldato for Andorra.
Notes Verbale
Note No: 03/2025
His Britannic Majesty’s Embassy presents its compliments to the Ministry of Foreign Affairs of the Principality of Andorra and has the honour to refer to the Convention between the United Kingdom of Great Britain and Northern Ireland and the Principality of Andorra for the Elimination of Double Taxation with respect to Taxes on Income and on Capital and the Prevention of Tax Evasion and Avoidance done at London on 20 February 2025 (“the Convention”).
The Embassy has further the honour to refer to the recent discussions between our two Governments regarding a clerical error discovered in Article 18 (1) of the English language text of the signed Convention and proposes that Article 18(1), which currently reads:
Article 18 GOVERNMENT SERVICE
(1) (b) Salaries, wages and other similar remuneration paid by a Contracting State or a political subdivision or a local authority thereof to an individual in respect of services rendered to that State or subdivision or authority shall be taxable only in that State.
(c) However, such salaries, wages and other similar remuneration shall be taxable only in the other Contracting State if the services are rendered in that State and the individual is a resident of that State who:
(i) is a national of that State; or
(ii) did not become a resident of that State solely for the purpose of rendering the services;
be corrected to:
Article 18 GOVERNMENT SERVICE
(1) (a) Salaries, wages and other similar remuneration paid by a Contracting State or a political subdivision or a local authority thereof to an individual in respect of services rendered to that State or subdivision or authority shall be taxable only in that State.
(b) However, such salaries, wages and other similar remuneration shall be taxable only in the other Contracting State if the services are rendered in that State and the individual is a resident of that State who:
(i) is a national of that State; or
(ii) did not become a resident of that State solely for the purpose of rendering the services;
If the aforementioned proposal is acceptable to the Ministry of Foreign Affairs of the Principality of Andorra, then the Foreign, Commonwealth and Development Office will make the correction to the English language text of the signed Convention.
His Britannic Majesty’s Embassy avails itself of this opportunity to renew to the Ministry of Foreign Affairs of the Principality of Andorra the assurances of its highest consideration.
British Embassy Madrid 11 June 2025
The first Note Verbale from the UK Embassy in Madrid (dated June 11, 2025) addresses a clerical error discovered in Article 18(1) of the English text concerning government service income.
The note proposes correcting the numbering of sub-paragraphs (b) and (c) to (a) and then subsequently (b), while retaining the essential text content under the new numbering structure, contingent on Andorra's acceptance.
Govern d’Andorra Ministeri d’Afers Exteriors
NV GB. 09/25
NOTE VERBALE
The Ministry of Foreign Affairs of the Principality of Andorra presents its compliments to His Britannic Majesty’s Embassy and has the honour to refer to the Note No: 03/2025, dated 11 June 2025 in which His Britannic Majesty’s Embassy proposes the correction of the Convention between the Principality of Andorra and the United Kingdom of Great Britain and Northern Ireland for the Elimination of Double Taxation with respect to Taxes on Income and on Capital and the Prevention of Tax Evasion and Avoidance done at London on 20 February 2025 (“the Convention”), which reads as follows:
[Quotation of the UK Note proposing change]
be corrected to:
[Quotation of the proposed corrected text of Article 18(1)]
If the aforementioned proposal is acceptable to the Ministry of Foreign Affairs of the Principality of Andorra, then the Foreign, Commonwealth and Development Office will make the correction to the English language text of the signed Convention.
His Britannic Majesty’s Embassy avails itself of this opportunity to renew to the Ministry of Foreign Affairs of the Principality of Andorra the assurances of its highest consideration.
The Ministry of Foreign Affairs of the Principality of Andorra has the further honour to accept the proposals and confirms that His Britannic Majesty’s Embassy proposing Note and this replying Note Verbale shall constitute an agreement correcting the Convention between our two Governments.
The Ministry of Foreign Affairs of the Principality of Andorra avails itself of this opportunity to renew to His Britannic Majesty’s Embassy the assurances of its highest consideration.
Andorra la Vella, 12 June 2025
Andorra's reply (dated June 12, 2025) formally accepts the UK's proposal to correct the textual error in Article 18(1) by renumbering the sub-paragraphs.
By accepting, both notes together legally constitute an agreement to correct the signed Convention text, which is reflected in the version appended to this Order.
EXPLANATORY NOTE (This note is not part of the Order)
The Schedule to this Order contains a Convention (“the Arrangements”) between the United Kingdom of Great Britain and Northern Ireland and the Principality of Andorra for the elimination of double taxation with respect to taxes on income and on capital gains, the prevention of tax evasion and avoidance, and assisting international tax enforcement.
The Schedule also contains Note No: 03/2025 to the Ministry of Foreign Affairs of the Principality of Andorra, dated 11 June 2025 in which His Britannic Majesty’s Embassy proposes the correction of the Convention and the replying Note Verbale from the Ministry of Foreign Affairs of the Principality of Andorra, dated 12 June 2025, which together constitute an agreement correcting the Convention. The text of the Convention appended has therefore been corrected.
This Order brings the Arrangements into effect.
Article 1 provides for citation and Article 2 makes a declaration as to the effect and contents of the Arrangements.
The Arrangements aim to eliminate the double taxation of income and gains arising in one country and paid to the residents of the other country. This is done by allocating the taxing rights that each country has under its domestic law over the same income and gains, and by providing relief from double taxation. There are also specific measures which combat discriminatory tax treatment and provide for assistance in international tax enforcement.
The Arrangements will enter into force on the date of the later of the notification by each country of the completion of its domestic procedures and will take effect in each territory in accordance with Article 28 of the Convention.
The date of entry into force will, in due course, be published in the London, Edinburgh and Belfast Gazettes.
A Tax Information and Impact Note has not been produced for the Order as it gives effect to a double taxation agreement. Double taxation agreements impose no obligations on taxpayers, rather they seek to eliminate double taxation and fiscal evasion.
The Explanatory Note confirms that the Schedule contains the UK-Andorra Double Taxation Convention, which covers income/capital tax relief, anti-avoidance rules, and international enforcement.
It notes that the appended Convention text has been corrected via mutual agreement (Notes Verbales) exchanged in June 2025.
The note summarizes that the Order brings these arrangements into force, allocating taxing rights, providing relief, and ensuring compliance.
It specifies that the entry into force timing follows Article 28 and clarifies that no full Tax Information Note is required as the treaty imposes no new obligations on taxpayers.