Integral exchange of notes signed 21 October 1988

## Exchange of notes

Pallanza

21st October 1988

Your Excellency,

I have the honour to refer to the Convention between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Italian Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income which has been signed today and to propose on behalf of the Government of the United Kingdom that for the purpose of that Convention it shall be understood that:

1) .Notwithstanding the provisions of Article 30 (Entry into force), Article 8 (Shipping and air transport) shall have effect as respects profits derived during any taxable period beginning on or after the 1st January 1974.

2) With reference to paragraph (1) of Article 26 (Mutual agreement procedure), the expression ‘irrespective of the remedies provided by the domestic law’ shall not be understood to mean that the time limits prescribed by domestic law shall not be observed; a claim under Article 26 shall not be entertained where the taxpayer has not taken the appropriate action under domestic law to prevent such time limits from expiring.

3) With further reference to paragraph (1) of Article 26 (Mutual agreement procedure), nothing herein contained shall reduce any longer time limit available to such resident for this purpose under the law of the Contracting State of which he is a resident.

4) With reference to paragraph (3) of Article 29 (Refunds), the provisions here in contained shall not be construed as preventing the competent authorities of the Contracting States from mutually agreeing upon a different procedure for the granting of tax benefits provided by the Convention.

5) If, in accordance with Article 9 (Associated enterprises) of the Convention, are determination has been made by one Contracting State with respect to a person, the other Contracting State shall, to the extent it agrees that such redetermination reflects arrangements or conditions which would be made between independent persons, make the appropriate adjustments with respect to persons who are related to such person and are subject to the taxing jurisdiction of that State. Any such adjustment shall be made only in accordance with the mutual agreement procedure in Article 26 (Mutual agreement procedure) of the Convention and with paragraph (6) of this Exchange of Notes.

6) With respect to Article 26 (Mutual agreement procedure) of the Convention, it is understood that an adjustment of taxes pursuant to that Article may be made only prior to the final determination of such taxes. It is further understood that, in the case of Italy, the preceding sentence means that invoking the mutual agreement procedure does not relieve a taxpayer of the obligation to initiate the procedures of domestic law for solving tax disputes.

7) With regard to paragraph (7) of Article 10 (Dividends), paragraph (6) of Article 11 (Interest), paragraph (4) of Article 12 (Royalties) and paragraph (2) of Article 22 (Other income), the last sentence appearing therein cannot be construed as failing to take account of the principles set out in Articles 7 (Business profits) and 14 (Independent personal services) of the Convention.

If the foregoing proposal is acceptable to the Government of the Italian Republic, I have the honour to suggest that the present Note and Your Excellency’s reply to that effect shall be regarded as constituting an Agreement between the two Governments in this matter which shall enter into force on the same date as the Convention. Please accept, Your Excellency, the assurance of my highest consideration.

Geoffrey Howe

His Excellency the Minister of Foreign Affairs of the Italian Republic.

Pallanza

21st October 1988

Your Excellency,

I have the honour to acknowledge receipt of your Excellency’s Note of today which reads as follows:

I have the honour to refer to the Convention between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Italian Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income which has been signed today and to propose on behalf of the Government of the United Kingdom that for the purpose of that Convention it shall be understood that:

(1) Notwithstanding the provisions of Article 30 (Entry into force),Article 8 (Shipping and air transport) shall have effect as respects profits derived during any taxable period beginning on or after the 1st January 1974.

(2) With reference to paragraph (1) of Article 26 (Mutual agreement procedure), the expression ‘irrespective of the remedies provided by the domestic law’ shall not be understood to mean that the time limits prescribed by domestic law shall not be observed; a claim under Article 26 shall not be entertained where the taxpayer has not taken the appropriate action under domestic law to prevent such time limits from expiring.

(3) With further reference to paragraph (1) of Article 26 (Mutual agreement procedure), nothing herein contained shall reduce any longer time limit available to such resident for this purpose under the law of the Contracting State of which he is a resident.

(4) With reference to paragraph (3) of Article 29 (Refunds), the provisions herein contained shall not be construed as preventing the competent authorities of the Contracting States from mutually agreeing upon a different procedure for the granting of tax benefits provided by the Convention.

(5) If, in accordance with Article 9 (Associated enterprises) of the Convention, a redetermination has been made by one Contracting State with respect to a person, the other Contracting State shall, to the extent it agrees that such redetermination reflects arrangements or conditions which would be made between independent persons, make the appropriate adjustments with respect to persons who are related to such person and are subject to the taxing jurisdiction of that State. Any such adjustment shall be made only in accordance with the mutual agreement procedure in Article 26 (Mutual agreement procedure) of the Convention and with paragraph (6) of this Exchange of Notes.

(6) With respect to Article 26 (Mutual agreement procedure) of the Convention, it is understood that an adjustment of taxes pursuant to that Article may be made only prior to the final determination of such taxes. It is further understood that, in the case of Italy, the preceding sentence means that invoking the mutual agreement procedure does not relieve a taxpayer of the obligation to initiate the procedures of domestic law for solving tax disputes.

(7) With regard to paragraph (7) of Article 10 (Dividends), paragraph(6) of Article 11 (Interest), paragraph (4) of Article 12 (Royalties) and paragraph (2) of Article 22 (Other income), the last sentence therein cannot be construed as failing to take account of the principles set out in Articles 7 (Business profits) and 14 (Independent personal services) of the Convention.

‘If the foregoing proposal is acceptable to the Government of the Italian Republic, I have the honour to suggest that the present Note and Your Excellency’s reply to that effect shall be regarded as constituting an Agreement between the two Governments in this matter which shall enter into force on the same date as the Convention.’

In reply, I have the honour to state that the Italian Government accept the proposal made therein and agree that Your Excellency’s Note and the present reply shall constitute an Agreement between the Italian Government and the United Kingdom Government in this matter.

Please accept, Your Excellency, the assurances of my highest consideration.

Giulio Andreotti

His Excellency the Secretary of State for Foreign and Commonwealth Affairs of the United Kingdom of Great Britain and Northern Ireland.