The company wishes to buy back 35% of its shares from a Turkish national who is full time resident in Turkey.
The price has been agreed, but I am not sure if we have to withhold tax with regard to the consideration payment or whether that
it is the reposibility of the seller to declare to the UK tax authorities. I am not even sure tax is due ???
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The company wishes to buy back 35% of its shares from a Turkish national who is full time resident in Turkey.
The price has been agreed, but I am not sure if we have to withhold tax with regard to the consideration payment or whether that
it is the reposibility of the seller to declare to the UK tax authorities. I am not even sure tax is due ???
If this is not something that you feel absolutely comfortable dealing with, you should probably suggest that this particular matter is referred to someone who has the required knowledge. We can't all be experts in every aspect of tax.
Because the vendor is non-resident, the buy-back will be a distribution carrying a non-repayable tax credit at 7.5%. It will be liable to tax in Turkey who should allow relief for that tax credit.
What? All of it?
And what if Turkey treat it as a capital gain. Is the 7.5% notional income tax deductible then?
Well … almost all of it! The excess of the sales proceeds over the nominal value is the distribution.
Article 10(3) of the DTA defines 'dividends' as including 'any other item … which, under the law of the Contracting State of which the company paying the dividend is resident, is treated as a dividend or distribution of a company' and Article 10(1) grants Turkey unlimited taxing rights.
I understand that Turkey does not have a separate capital gains tax, gains are taxed as income so, yes, the tax credit would still be available against the Turkish tax.
OP: you have not given much background. It’s a fair bet that someone with that many shares in a company was once employed by it (or by an associated company). Additional considerations may arise for shares held by employees or former employees. Irrespective of whether there is any liability, you’d best check your various reporting obligations. Consider stamp duty, too.
CF: the DTA deals only with tax that is imposed. A non-repayable tax credit is in no sense imposed and I do not believe such a thing could be set-off against Turkish tax – certainly not under the DTA. Not that I can see that such a thing exists anyway. Lucky that’s all irrelevant to the OP.
I think the following may help you;
1. Article 23(3) of the DTA with Turkey provides that "United Kingdom tax payable under the law of the United Kingdom" will be allowed as a deduction from the Turkish tax.
2. S.399(2) of ITTOIA applies where a non-UK resident receives a company distribution and says "The person is treated as having paid income tax at the dividend ordinary rate on the amount or value of the distribution".
3. If tax is deemed to have been paid, it must perforce have been 'payable'. Indeed s. 383 of ITTOIA specifically charges income tax on dividends and other distributions of a UK resident company.
But was it imposed (as per Article 2)?
Surely not. A UK liability was treated as satisfied. It's precisely that which stopped it from being imposed.
Far from reducing the Turkish tax, s399(2) increases it - because it alleviates the UK tax that would have been claimable under the DTA.
S.399 does NOT 'alleviate' the UK tax, it says it has been paid.
I think I have spent enough time on this issue. If you choose to disagree, so be it.
For clarity, I agree with your UK analysis (reserving judgment in relation to the employment provisions). I just see no provision for fake tax in the DTA.
As at that point it becomes an entirely Turkish issue, I agree we should suspend discussion.