The Double Taxation Relief (Taxes on Income) (Iceland) Order 1991

ARTICLE 10 Dividends

(1) (a) (i) Dividends derived from a company which is a resident of a the United Kingdom by a resident of Iceland may be taxed in Iceland.

(ii) Where a resident of Iceland is entitled to a tax credit in respect of such a dividend under sub-paragraph (b) of this paragraph, tax may also be charged in the United Kingdom and according to the laws of the United Kingdom on the aggregate of the amount or value of that dividend and the amount of that tax credit at a rate not exceeding 15 per cent.

(iii) Except as provided in sub-paragraph (a)(ii) of this paragraph dividends derived from a company which is a resident of the United Kingdom by a resident of Iceland who is the beneficial owner of the dividends shall be exempt from any tax in the United Kingdomwhich is chargeable on dividends.

(b) A resident of Iceland who receives dividends from a company which is a resident of the United Kingdom shall, subject to the provisions of sub-paragraph (c) of this paragraph and provided he is the beneficial owner of the dividends, be entitled to the tax credit in respect thereof to which an individual resident in the United Kingdom would have been entitled had he received those dividends and to the payment of any excess of that tax credit over his liability to the United KIngdom tax.

(c) The provisions of sub-paragraph (b) of this paragraph shall not apply where the beneficial owner of the dividends is, or is associated with, a company which, either alone or together with one or more associated companies, controls, directly or indirectly, more than 50 per cent of the voting power in the other company, or a third company controls more than 50 per cent of the voting power in both of them.

(d) (i) Notwithstanding the provisions of sub-paragraphs (b) and (c) of this paragraph, no tax credit shall be payable where the beneficial owner of the dividends is a company other than a company whose shares are officially quoted on a stock exchange in Iceland unless the company shows that it is not controlled by a person or two or more associated or connected persons together, who or any of whom would not have been entitled to a tax credit if he had been the beneficial owner of the dividends.

(ii) For the purposes of this sub-paragraph a person or two or more associated or connected persons together shall be treated as having control of a company if under the laws of the United Kingdom relating to the taxes covered by this Convention he or they could be treated as having control of it for any purposes, and persons shall be trested as associated or connected if under these laws they could be so treated for any purpose. However, where an individual is treated as having control of a company by reason only of the fact that he holds ordinary shares in the company carrying full voting and dividend rights and that individual holds not more than 10 per cent of the total number of such shares in the company, the shares held by him shall be left out of account in determining whether the company is controlled by a person or two or more associated or connected persons together, who or any of whom would not have been entitled to a tax credit if he had been the beneficial owner of the dividends payable to the company, provided that not more than 25 per cent of the total of such shares in the company may be left out of account.

(2) Dividends derived from a company which is a resident of Iceland by a resident of Iceland by a resident of the United Kingdom may be taxed in the United Kingdom. Such dividends may also be taxed in Iceland and according to the laws of Iceland, but if the recipient is the beneficial owner of the dividends the tax so charged shall not exceed:

(a) 5 per cent of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) which holds directly at least 10 per cent of the capital of the company paying the dividends;

(b) in all other cases 15 per cent of the gross amount of the dividends.

(3) Notwithstanding the provisions of paragraph (2), sub-paragraph (a) of this Article, dividends derived from a company which is a resident of Iceland by a company which is resident of the United Kingdom may be taxed in Iceland at a rate not exceeding 15 per cent on that part of the dividends which have, according to the laws of Iceland, been allowed as a deduction from the profits of, or as a carry forward as an operating loss of, the Icelandic company paying the dividends.

(4) The term “dividends” for United Kingdom tax purposes includes any item which under the law of the United Kingdom is treated as a distribution and for Icelandic tax purposes includes any item which under the law of Iceland is treated as a distribution.

(5) The provisions of paragraphs (1) or as the case may be, (2) and (3) of this Article 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, or performs in that other State independent personal services from a fixed base situated therein, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 or Article 14 of this Convention, as the case may be, shall apply.

(6) 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 or a fixed base 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.

(7) If the beneficial owner of a dividend, being a resident of a Contracting State, owns 10 per cent or more of the class of shares in respect of which the dividend is paid then the provisions of paragraph (1) or, as the case may be, (2) and (3) of this Article shall not apply to the dividend to the extent that it can have been paid only out of profits which the company paying the dividends earned or other income which it it received in a period ending 12 months or more before the relevant date. For the purposes of this paragraph the term “relevant date” means the date on which the beneficial owner of the dividend became the owner of 10 per cent or more of the class of shares in question.

• Provided that this paragraph shall not apply if the beneficial owner of the dividend shows that the shares were acquired for bona fide commercial reasons and not primarily for the purposes of securing the benefit of this Article.