Taxation (International and Other Provisions) Act 2010
2010 c. 8
An Act to restate, with minor changes, certain enactments relating to tax; to make provision for purposes connected with the restatement of enactments by other tax law rewrite Acts; and for connected purposes.
[18th March 2010]
Be it enacted by the Queen's most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows:—
(1) The following Parts contain provisions relating to international aspects of taxation—
(a) Parts 2 and 3 (double taxation relief),
(b) Parts 4 and 5 (transfer pricing and advance pricing agreements),
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(ca) Part 6A (hybrid and other mismatches),
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(e) Part 8 (offshore funds etc),
(f) Part 9A (controlled foreign companies), and
(g) Part 10 (corporate interest restriction).
(2) Part 9 contains amendments of tax legislation to relocate enactments to appropriate places.
(3) In particular, Part 9 contains amendments of TCGA 1992, ITTOIA 2005 and ITA 2007 that insert provisions relating to—
(a) oil activities (see section 364 and Schedule 1),
(b) alternative finance arrangements (see section 365 and Schedule 2),
(c) leasing arrangements involving finance leases or loans (see section 367 and Schedule 3),
(d) sale and lease-back etc (see section 368 and Schedule 4),
(e) factoring of income etc (see section 369 and Schedule 5), and
(f) UK representatives of non-UK residents (see section 370 and Schedule 6).
(4) Part 11 contains provisions of general application (including definitions for the purposes of the Act).
(5) For abbreviations used in this Act see section 500, and for defined expressions used in Parts 2 to 8 see Schedule 11.
2 Giving effect to arrangements made in relation to other territories
(1) If Her Majesty by Order in Council declares—
(a) that arrangements specified in the Order have been made in relation to any territory outside the United Kingdom with a view to affording relief from double taxation in relation to taxes within subsection (3), and
(b) that it is expedient that those arrangements should have effect,
those arrangements have effect.
(1A) For the purposes of this section, arrangements made with a view to affording relief from double taxation include any arrangements which modify the effect of arrangements so made.
(2) If arrangements have effect under subsection (1), they have effect in accordance with section 6.
(3) The taxes are—
(a) income tax,
(b) corporation tax,
(c) capital gains tax,
(d) petroleum revenue tax, and
(e) any taxes imposed by the law of the territory that are of a similar character to taxes within paragraphs (a) to (d).
(4) In this Part “double taxation arrangements” means arrangements that have effect under subsection (1).
3 Arrangements may include retrospective or supplementary provision
(1) Section 2(1) gives effect to arrangements even if the arrangements include—
(a) provision for relief from tax for periods before the passing of this Act, or
(b) provision for relief from tax for periods before the making of the arrangements.
(2) Section 2(1) gives effect to arrangements even if the arrangements include—
(a) provision as to income that is not subject to double taxation,
(b) provision as to chargeable gains that are not subject to double taxation, ...
(c) provision as to foreign-field consideration that is not subject to double taxation or
(d) provision conferring (with or without other functions) functions relating to the determination of matters arising under the arrangements on a public authority in the United Kingdom or in a territory outside the United Kingdom.
(3) In subsection (2)(c) “foreign-field consideration” means consideration brought into charge to tax under section 12 of the Oil Taxation Act 1983 (charge to petroleum revenue tax on consideration in respect of United Kingdom use of a foreign field asset).
4 Meaning of “double taxation” in sections 2 and 3
(1) For the purposes of sections 2 and 3, any amount within subsection (2) is to be treated as having been payable.
(2) An amount is within this subsection if it is an amount of tax that would have been payable under the law of a territory outside the United Kingdom but for a relief—
(a) given under the law of the territory with a view to promoting industrial, commercial, scientific, educational or other development in a territory outside the United Kingdom, and
(b) about which provision is made in double taxation arrangements.
(3) References in sections 2 and 3 to double taxation are to be read in accordance with subsection (1).
(1) If an Order under section 2 (“the later Order”) revokes an earlier Order under that section, the later Order may contain transitional provisions that appear to Her Majesty to be necessary or expedient.
(2) An Order under section 2 is not to be submitted to Her Majesty in Council unless a draft of the Order has been laid before and approved by a resolution of the House of Commons.
6 The effect given by section 2 to double taxation arrangements
(1) Subject to this Part and Part 18 of ICTA, double taxation arrangements have effect in accordance with subsections (2) to (4) despite anything in any enactment.
(2) Double taxation arrangements have effect in relation to income tax and corporation tax so far as the arrangements provide—
(a) for relief from income tax or corporation tax,
(b) for taxing income of non-UK resident persons that arises from sources in the United Kingdom,
(c) for taxing chargeable gains accruing to non-UK resident persons on the disposal of assets in the United Kingdom,
(d) for determining the income or chargeable gains to be attributed to non-UK resident persons,
(e) for determining the income or chargeable gains to be attributed to agencies, branches or establishments in the United Kingdom of non-UK resident persons, or
(f) for determining the income or chargeable gains to be attributed to UK resident persons who have special relationships with non-UK resident persons, ...
(g) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Double taxation arrangements have effect in relation to capital gains tax so far as the arrangements provide—
(a) for relief from capital gains tax,
(b) for taxing capital gains accruing to non-UK resident persons on the disposal of assets in the United Kingdom,
(c) for determining the capital gains to be attributed to non-UK resident persons,
(d) for determining the capital gains to be attributed to agencies, branches or establishments in the United Kingdom of non-UK resident persons, or
(e) for determining the capital gains to be attributed to UK resident persons who have special relationships with non-UK resident persons.
(4) Double taxation arrangements have effect in relation to petroleum revenue tax so far as the arrangements provide for relief from petroleum revenue tax charged under section 12 of the Oil Taxation Act 1983 (charge to petroleum revenue tax on consideration in respect of United Kingdom use of a foreign field asset).
(5) In the case of relief under this Chapter that is not also relief under Chapter 2, the relief is not available in respect of special withholding tax (a corresponding rule applies in relation to relief under Chapter 2 as a result of the definition of foreign tax given by section 21).
(6) Relief under subsection (2)(a), (3)(a) or (4) requires a claim.
(7) In subsection (3) “UK resident person” and “non-UK resident person” have the meaning given by section 989 of ITA 2007.
(8) In subsection (5) “special withholding tax” has the same meaning as in Part 3 (see section 136).
(1) The Commissioners for Her Majesty's Revenue and Customs may make regulations generally for carrying out the provisions of the treaty sections or any double taxation arrangements.
(2) Regulations under subsection (1) may in particular provide for securing that relief from taxation imposed by the law of the territory to which any double taxation arrangements relate does not enure for the benefit of persons not entitled to that relief.
(3) Subsection (4) applies to tax if—
(a) the tax is deductible from a payment but, in order to comply with double taxation arrangements, has not been deducted, and
(b) it is discovered that the arrangements did not apply to that payment.
(4) Regulations under subsection (1) may in particular provide for authorising recovery of tax to which this subsection applies—
(a) by assessment on the person entitled to the payment from which the tax is not deducted, or
(b) by deduction from subsequent payments.
(5) In subsection (1) “the treaty sections” means—
sections 2 to 6,
section 134(1), and
section 134(3) to (6) so far as relating to section 134(1).
(6) This section does not apply in relation to—
(a) petroleum revenue tax, or
(b) taxes imposed by the law of a territory outside the United Kingdom that—
(i) are of a similar character to petroleum revenue tax, and
(ii) are not of a similar character to income tax, corporation tax or capital gains tax.
8 Interpretation: “unilateral relief arrangements” means rules 1 to 9, etc
(1) In this Part “unilateral relief arrangements”, in relation to a territory outside the United Kingdom, means the rules set out in sections 9 to 17.
(2) In sections 11 to 17, and in Chapter 2 (except section 29) in its application to relief under unilateral relief arrangements, references to tax payable or paid under the law of a territory outside the United Kingdom include only—
(a) taxes which are charged on income and which correspond to income tax,
(b) taxes which are charged on income or chargeable gains and which correspond to corporation tax, and
(c) taxes which are charged on capital gains and which correspond to capital gains tax.
(3) For the purposes of subsection (2), tax may correspond to income tax, corporation tax or capital gains tax even though it—
(a) is payable under the law of a province, state or other part of a country, or
(b) is levied by or on behalf of a municipality or other local body.
9 Rule 1: the unilateral entitlement to credit for non-UK tax
(1) Credit for tax—
(a) paid under the law of the territory,
(b) calculated by reference to income arising, or any chargeable gain accruing, in the territory, and
(c) corresponding to UK tax,
is to be allowed against any income tax or corporation tax calculated by reference to that income or gain.
(2) Credit for tax—
(a) paid under the law of the territory,
(b) calculated by reference to any capital gain accruing in the territory, and
(c) corresponding to UK tax,
is to be allowed against any capital gains tax calculated by reference to that gain.
(3) For the purposes of subsection (1), profits from, or remuneration for, personal or professional services performed in the territory are to be treated as income arising in the territory.
(4) For the purposes of subsection (1)(c), tax corresponds to UK tax if—
(a) it is charged on income and corresponds to income tax, or
(b) it is charged on income or chargeable gains and corresponds to corporation tax.
(5) For the purposes of subsection (2)(c), tax corresponds to UK tax if it is charged on capital gains and corresponds to capital gains tax.
(6) For the purposes of subsections (4) and (5), tax may correspond to income tax, corporation tax or capital gains tax even though it—
(a) is payable under the law of a province, state or other part of a country, or
(b) is levied by or on behalf of a municipality or other local body.
(7) If the territory is the Isle of Man or any of the Channel Islands, subsections (1)(b) and (2)(b) have effect with the omission of “in the territory”.
(8) Subsections (1) and (2) are subject to sections 11 and 12.
(1) Subsection (2) applies if—
(a) a person is treated under section 628(5) of ITA 2007 as making accrued income profits in an interest period,
(b) the person would, were the person to become entitled in the relevant tax year to any interest on the securities concerned, be liable in respect of the interest to tax chargeable under ITTOIA 2005 on relevant foreign income, and
(c) the person is liable under the law of the territory to tax in respect of interest payable on the securities at the end of the interest period or the person would be so liable if the person were entitled to that interest.
(2) Credit is to be allowed against income tax calculated by reference to the accrued income profits.
(3) The amount of the credit allowed under subsection (2) is given by—
A
I
P
×
F
T
R
where—
AIP is the amount of the accrued income profits, and
FTR is the rate of tax to which the person is or would be liable as mentioned in subsection (1)(c).
(4) Subsection (2) is subject to section 11.
(5) In subsection (1)(b) “the relevant tax year” means the tax year in which, under section 617(2) of ITA 2007, the accrued income profits are treated as made.
(6) Expressions used in this section and in Chapter 2 of Part 12 of ITA 2007 (accrued income profits) have the same meaning as in that Chapter.
11 Rule 3: interaction between double taxation arrangements and rules 1 and 2
(1) Credit for tax paid under the law of the territory is not allowed under section 9 or 10 in the case of any income or gains if any credit for that tax is allowable in respect of that income or those gains under double taxation arrangements made in relation to the territory.
(2) If credit in respect of an amount of tax may be allowed under double taxation arrangements made in relation to the territory, credit is not allowed under section 9 or 10 in respect of that tax.
(3) If double taxation arrangements made in relation to the territory contain express provision to the effect that relief by way of credit is not to be given under the arrangements in cases or circumstances specified or described in the arrangements, credit is not allowed under section 9 or 10 in those cases or circumstances.
12 Rule 4: cases in which, and calculation of, credit allowed for tax on dividends
(1) Credit under section 9 for overseas tax on a dividend paid by a company (“P”) resident in the territory is allowed only if section 13, 14, 15 or 16 so provides.
(2) If credit is allowed in principle as a result of at least one of sections 14, 15 and 16, any tax in respect of P's profits that is paid by P under the law of the territory is to be taken into account in considering whether any, and (if so) what, credit is in fact to be allowed under section 9 in respect of the dividend.
(3) If credit is allowed in principle as a result of at least one of sections 15 and 16, there is to be taken into account, as if it were tax payable under the law of the territory, any tax that would be so taken into account under section 63(5) if the recipient of the dividend—
(a) directly or indirectly controlled, or
(b) were a subsidiary of a company that directly or indirectly controlled,
at least 10% of the voting power in P.
(4) For the purposes of subsection (3), the recipient is a subsidiary of another company if the other company controls, directly or indirectly, at least 50% of the voting power in the recipient.
13 Rule 5: credit for tax charged directly on dividend
(1) This section applies for the purposes of section 12(1).
(2) Credit under section 9 for overseas tax on a dividend paid by a company (“P”) resident in the territory is allowed if—
(a) the overseas tax is charged directly on the dividend (whether by charge to tax, deduction of tax at source or otherwise), and
(b) neither P nor the recipient of the dividend would have borne any of that tax if the dividend had not been paid.
14 Rule 6: credit for underlying tax on dividend paid to 10% associate of payer
(1) This section applies for the purposes of section 12(1).
(2) Credit under section 9 for overseas tax on a dividend paid by a company (“P”) resident in the territory is allowed if conditions A and B are met.
(3) Condition A is that—
(a) the recipient of the dividend is a company resident in the United Kingdom, or
(b) the recipient is a company resident outside the United Kingdom but the dividend forms part of the profits of a permanent establishment of the recipient in the United Kingdom.
(4) Condition B is that the recipient—
(a) directly or indirectly controls, or
(b) is a subsidiary of a company which directly or indirectly controls,
at least 10% of the voting power in P.
(5) For the purposes of subsection (4), the recipient is a subsidiary of another company if the other company controls, directly or indirectly, at least 50% of the voting power in the recipient.
15 Rule 7: credit for underlying tax on dividend paid to sub-10% associate
(1) This section applies for the purposes of section 12(1).
(2) Credit under section 9 for overseas tax on a dividend paid by a company (“P”) resident in the territory is allowed if each of conditions A to C is met.
(3) Condition A is that—
(a) the recipient of the dividend is a company resident in the United Kingdom, or
(b) the recipient is a company resident outside the United Kingdom but the dividend forms part of the profits of a permanent establishment of the recipient in the United Kingdom.
(4) Condition B is that the recipient—
(a) directly or indirectly controls, or
(b) is a subsidiary of a company which directly or indirectly controls,
less than 10% of the voting power in P.
(5) If condition B is met, in subsection (6) “the held percentage” means the voting power in P which is directly or indirectly controlled by—
(a) the recipient, or
(b) a company of which the recipient is a subsidiary.
(6) Condition C is that—
(a) the held percentage has been reduced below 10%,
(b) the recipient shows that the reduction below the 10% limit (and any further reduction)—
(i) could not have been prevented by any reasonable endeavours on the part of the recipient, a parent or an associate, and
(ii) was due to a cause or causes not reasonably foreseeable by the recipient, a parent or an associate when control of the relevant voting power was acquired, and
(c) the recipient shows that no reasonable endeavours on the part of the recipient, a parent or an associate could have restored, or (as the case may be) increased, the held percentage to at least 10%.
(7) For the purposes of subsection (6) a company is an “associate” if—
(a) the company is neither the recipient nor a parent,
(b) before the reduction, the voting power in P that is in question was controlled otherwise than directly by the recipient, and
(c) the company is relevant for determining whether, before the reduction, the recipient—
(i) indirectly controlled, or
(ii) was a subsidiary of a company which directly or indirectly controlled,
at least 10% of the voting power in P.
(8) In subsections (6) and (7) “parent” means a company of which the recipient is a subsidiary.
(9) In subsection (6) “the relevant voting power” means—
(a) the voting power in P as a result of which relief was due under section 14 before the reduction, or
(b) if control of the whole of that voting power was not acquired at the same time, that part of the voting power of which control was last acquired.
(10) For the purposes of this section, the recipient is a subsidiary of another company if the other company controls, directly or indirectly, at least 50% of the voting power in the recipient.
16 Rule 8: credit for underlying tax on dividend paid by exchanged associate
(1) This section applies for the purposes of section 12(1).
(2) Credit under section 9 for overseas tax on a dividend paid by a company (“P”) resident in the territory is allowed if each of conditions A to C is met.
(3) Condition A is that—
(a) the recipient of the dividend is a company resident in the United Kingdom, or
(b) the recipient is a company resident outside the United Kingdom but the dividend forms part of the profits of a permanent establishment of the recipient in the United Kingdom.
(4) Condition B is that the recipient—
(a) directly or indirectly controls, or
(b) is a subsidiary of a company which directly or indirectly controls,
less than 10% of the voting power in P.
(5) If condition B is met, in subsection (6) “the held percentage” means the voting power in P which is directly or indirectly controlled by—
(a) the recipient, or
(b) a company of which the recipient is a subsidiary.
(6) Condition C is that—
(a) the held percentage has been acquired in exchange for voting power in another company (“X”),
(b) before the exchange, the recipient—
(i) directly or indirectly controlled, or
(ii) was a subsidiary of a company which directly or indirectly controlled,
at least 10% of the voting power in X,
(c) the recipient shows that the exchange (and any reduction after the exchange)—
(i) could not have been prevented by any reasonable endeavours on the part of the recipient, a parent or an associate, and
(ii) was due to a cause or causes not reasonably foreseeable by the recipient, a parent or an associate when control of the relevant voting power was acquired, and
(d) the recipient shows that no reasonable endeavours on the part of the recipient, a parent or an associate could have restored, or (as the case may be) increased, the held percentage to at least 10%.
(7) For the purposes of subsection (6) a company is an “associate” if—
(a) the company is neither the recipient nor a parent,
(b) before the exchange, the voting power in X that is in question was controlled otherwise than directly by the recipient, and
(c) the company is relevant for determining whether, before the exchange, the recipient—
(i) indirectly controlled, or
(ii) was a subsidiary of a company which directly or indirectly controlled,
at least 10% of the voting power in X.
(8) In subsections (6) and (7) “parent” means a company of which the recipient is a subsidiary.
(9) In subsection (6) “the relevant voting power” means—
(a) the voting power in X as a result of which relief was due under section 14 before the exchange, or
(b) if control of the whole of that voting power was not acquired at the same time, that part of the voting power of which control was last acquired.
(10) For the purposes of this section, the recipient is a subsidiary of another company if the other company controls, directly or indirectly, at least 50% of the voting power in the recipient.
17 Rule 9: credit in relation to dividends for spared tax
(1) Subsection (2) applies if—
(a) under the law of the territory, an amount of tax (“the spared tax”) would, but for a relief, have been payable by a company resident in the territory (“company A”) in respect of any of its profits,
(b) company A pays a dividend out of those profits to another company resident in the territory (“company B”),
(c) company B, out of profits which consist of or include the whole or part of that dividend, pays a dividend to a company resident in the United Kingdom (“company C”), and
(d) the circumstances are such that, had company B been resident in the United Kingdom, it would have been entitled, as a result of the operation of section 20(2) in relation to double taxation arrangements made in relation to the territory, to treat the spared tax for the purposes of Chapter 2 as having been payable.
(2) The spared tax is to be taken into account—
(a) for the purposes of sections 9 to 16, and
(b) subject to section 31(4), for the purposes of Chapter 2 in its application to relief under these rules in relation to the dividend paid to company C,
as if it had been payable and paid.
(3) References in these rules and that Chapter—
(a) to tax payable or chargeable, or
(b) to tax not chargeable directly or by deduction,
are to be read in accordance with subsection (2).
(4) Except as provided by subsection (2), in relation to any dividend paid—
(a) by a company resident in the territory,
(b) to a company resident in the United Kingdom,
credit as a result of these rules is not to be given under section 63(5) in respect of tax which would have been payable under the law of the territory, or under the law of any other territory outside the United Kingdom, but for a relief.
(5) Subsection (4) has effect despite any double taxation arrangements—
(a) made in relation to the territory, or
(b) made in relation to any other territory outside the United Kingdom,
which make provision about a relief given, under the law of the territory in relation to which the arrangements are made, with a view to promoting industrial, commercial, scientific, educational or other development in a territory outside the United Kingdom.
(6) In this section “these rules” means sections 9 to 16 and this section.
18 Entitlement to credit for foreign tax reduces UK tax by amount of the credit
(1) Subsection (2) applies if—
(a) under double taxation arrangements, or
(b) under unilateral relief arrangements for a territory outside the United Kingdom,
credit is to be allowed against any income tax, corporation tax or capital gains tax chargeable in respect of any income or chargeable gain.
(2) The amount of those taxes chargeable in respect of the income or gain is to be reduced by the amount of the credit.
(3) In subsection (1) “credit”—
(a) in relation to double taxation arrangements, means credit for tax payable under the law of the territory in relation to which the arrangements are made, and
(b) in relation to unilateral relief arrangements for a territory outside the United Kingdom, means credit for tax payable under the law of that territory,
but see sections 12(3) and 63(5) (dividends: certain tax payable otherwise than under the law of a territory treated as payable under that law).
(3A) References in subsection (3) to tax payable under the law of a territory outside the United Kingdom do not include tax paid by a company in relation to which an election under section 18A of CTA 2009 (exemption for profits or losses of overseas permanent establishments) has effect in respect of a relevant profits amount or relevant losses amount within the meaning of that section.
(4) Subsection (2) applies subject to—
(a) the following provisions of this Chapter,
(b) section 106 (Chapter 1 and this Chapter operate for capital gains tax purposes separately from their operation for the purposes of other United Kingdom taxes), and
(c) Chapter 2 of Part 18 of ICTA (double taxation relief: pooling of foreign dividends paid before 1 July 2009).
(5) Credit is allowed under subsection (2) against any tax only if, under the arrangements concerned, credit is allowable against that tax.
(6) Credit against income tax is given effect at Step 6 of the calculation in section 23 of ITA 2007.
19 Time limits for claims for relief under section 18(2)
(1) Subsections (2) and (3) apply to a claim for relief under section 18(2).
(2) If the claim is for credit for foreign tax in respect of any income or chargeable gain charged to income tax or capital gains tax for a tax year, the claim must be made on or before—
(a) the fourth anniversary of the end of that tax year, or
(b) if later, the 31 January following the tax year in which the foreign tax is paid.
(3) If the claim is for credit for foreign tax in respect of any income or chargeable gain charged to corporation tax for an accounting period, the claim must be made not more than—
(a) four years after the end of that accounting period, or
(b) if later, one year after the end of the accounting period in which the foreign tax is paid.
20 Foreign tax includes tax spared because of international development relief
(1) Subsections (2) and (4) apply if the arrangements are double taxation arrangements.
(2) For the purposes of this Chapter, any amount within subsection (3) is to be treated as having been payable.
(3) An amount is within this subsection if it is an amount of tax that would have been payable under the law of a territory outside the United Kingdom but for a relief—
(a) given under the law of that territory with a view to promoting industrial, commercial, scientific, educational or other development in a territory outside the United Kingdom, and
(b) about which provision is made in double taxation arrangements.
(4) References in this Chapter—
(a) to tax payable or chargeable, or
(b) to tax not chargeable directly or by deduction,
are to be read in accordance with subsection (2).
(5) Subsections (2) and (4) have effect subject to—
(a) subsection (6), and
(b) sections 31(4) and 32(5) (income and gains not to be increased in calculations under section 31 or 32 by amounts treated by this section as having been payable).
(6) If section 63(5) applies because conditions A and B in section 63 are met, relief is not given in accordance with section 63(5) (relief for certain tax underlying dividends paid between related companies) because of this section unless double taxation arrangements make express provision for the relief.
(7) Subsection (6) does not affect the operation of section 17(2) (treatment, for purposes of unilateral relief, of dividend paid by foreign company that has received dividends from a company benefiting from tax-sparing relief).
21 Meaning of “the arrangements”, “the non-UK territory”, “foreign tax” etc
(1) In this Chapter (except section 18)—
“the arrangements” means the arrangements mentioned in section 18(1),
“the non-UK territory” means the territory mentioned in section 18(3),
“foreign tax” means tax chargeable under the law of the non-UK territory—
for which credit may be allowed under the arrangements, and
which is not special withholding tax, and
“underlying tax” means, in relation to any dividend, tax which is not chargeable in respect of that dividend directly or by deduction.
(2) In subsection (1) “special withholding tax” has the same meaning as in Part 3 (see section 136).
(3) The definitions in subsection (1) are to be read with sections 17(3) and 20(4) (meaning of references to tax payable or chargeable, and of references to tax not chargeable directly or by deduction).
(4) See also section 8(2) (meaning of references to tax payable or paid under the law of a territory outside the United Kingdom).
25 Credit not allowed if relief allowed against overseas tax
(1) Subsection (2) applies if relief may be allowed—
(a) under the arrangements, or
(b) under the law of the non-UK territory in consequence of the arrangements,
in respect of an amount of tax that would, but for the relief, be payable under the law of that territory.
(2) Credit under section 18(2) is not allowed in respect of that tax, whether or not the relief has been used.
26 Credit not allowed under arrangements unless taxpayer is UK resident
(1) Credit under section 18(2) against income tax, corporation tax or capital gains tax for a chargeable period is not allowed unless the person in respect of whose income or chargeable gains the tax is chargeable is UK resident for that period.
(2) Sections 28 to 30 (credit under unilateral relief arrangements allowed to some non-UK resident persons) contain exceptions to subsection (1).
(3) In subsection (1) so far as it relates to capital gains tax “chargeable period” means tax year (see section 288(1ZA) of TCGA 1992).
(4) In subsection (1) so far as it relates to capital gains tax “UK resident” has the meaning given by section 989 of ITA 2007.
27 Credit not allowed if person elects against credit
Credit under section 18(2) against income tax, corporation tax or capital gains tax charged on any income or chargeable gains of a person is not allowed if the person elects for credit not to be allowed in respect of that income or those gains.
28 Unilateral relief for Isle of Man or Channel Islands tax
(1) Subsection (2) applies if the arrangements—
(a) are unilateral relief arrangements for a territory outside the United Kingdom, and
(b) provide for credit to be allowed for tax paid under the law of the Isle of Man (“the Isle of Man tax”).
(2) Credit under section 18(2) against any of the UK taxes for a chargeable period may be allowed for the Isle of Man tax if the person in respect of whose income or chargeable gains the UK tax is payable is—
(a) resident for that period in the United Kingdom, or
(b) resident for that period in the Isle of Man.
(3) Subsection (4) applies if the arrangements—
(a) are unilateral relief arrangements for a territory outside the United Kingdom, and
(b) provide for credit to be allowed for tax paid under the law of any of the Channel Islands (“the Channel Islands tax”).
(4) Credit under section 18(2) against any of the UK taxes for a chargeable period may be allowed for the Channel Islands tax if the person in respect of whose income or chargeable gains the UK tax is payable is—
(a) resident for that period in the United Kingdom, or
(b) resident for that period in any of the Channel Islands.
(5) Each of the following is a UK tax for the purposes of this section—
(a) income tax,
(b) corporation tax, and
(c) capital gains tax.
(6) In subsections (2) and (4) so far as they relate to capital gains tax “chargeable period” means tax year (see section 288(1ZA) of TCGA 1992).
29 Unilateral relief for tax on income from employment or office
(1) Subsection (3) applies if the arrangements are unilateral relief arrangements for a territory outside the United Kingdom.
(2) In subsection (3) “overseas tax” means tax—
(a) paid under the law of the territory,
(b) charged on income and corresponding to income tax or to corporation tax, and
(c) calculated by reference to income from an office or employment the duties of which are performed wholly or mainly in the territory.
(3) Credit for overseas tax may be allowed under section 18(2) against income tax for a tax year—
(a) calculated by reference to that income, and
(b) charged on employment income,
if the person performing the duties is resident in the United Kingdom, or resident in the territory, for that year.
(4) For the purposes of subsection (2)(b) tax may correspond to income tax or corporation tax even though it—
(a) is payable under the law of a province, state or other part of a country, or
(b) is levied by or on behalf of a municipality or other local body.
30 Unilateral relief for non-UK tax on non-resident's UK branch or agency etc
(1) Subsection (2) applies if the arrangements are unilateral relief arrangements for a territory outside the United Kingdom.
(2) Credit for tax within subsection (3) or (4) may be allowed under section 18(2) against any of the UK taxes if the territory is not one in which the person or company concerned is liable to tax by reason of domicile, residence or place of management.
(3) Tax is within this subsection if the arrangements provide for credit for it to be allowed against income tax or corporation tax, and it is paid under the law of the territory in respect of the income or chargeable gains—
(a) of a branch or agency in the United Kingdom of a non-UK resident person who is not a company, or
(b) of a permanent establishment in the United Kingdom of a non-UK resident company.
(4) Tax is within this subsection if the arrangements provide for credit for it to be allowed against capital gains tax, and it is paid under the law of the territory in respect of the capital gains—
(a) of a branch or agency in the United Kingdom of a non-UK resident person who is not a company, or
(b) of a permanent establishment in the United Kingdom of a non-UK resident company.
(5) Relief under subsection (2) may not exceed the relief which would have been available if—
(a) the branch or agency, or permanent establishment, had been a UK resident person, and
(b) the income or gains had been income or gains of that person.
(6) Each of the following is a UK tax for the purposes of subsection (2)—
(a) income tax,
(b) corporation tax, and
(c) capital gains tax.
(7) In this section so far as it relates to capital gains tax—
“branch or agency” has the meaning given by section 10(6) of TCGA 1992,
“company” has the same meaning as in TCGA 1992 (see section 288 of that Act),
“permanent establishment”, in relation to a company, has the meaning given by Chapter 2 of Part 24 of CTA 2010, and
“UK resident” or “non-UK resident”, in relation to a company or other person, has the meaning given by section 989 of ITA 2007.
31 Calculation of income or gain where remittance basis does not apply
(1) Subsection (2) applies if—
(a) under the arrangements, credit is to be allowed for foreign tax in respect of any income or gain, and
(b) section 32(2) (cases where UK tax payable by reference to amount received in UK) does not apply.
(2) In calculating the amount of the income or gain for the purposes of income tax, corporation tax or capital gains tax—
(a) no deduction is to be made for foreign tax or special withholding tax, whether in respect of the same or any other income or gain, and
(b) if the credit is for foreign tax in respect of a dividend, the amount of the dividend is to be treated as increased by any underlying tax within subsection (3).
(3) In relation to a dividend, underlying tax is within this subsection if—
(a) under the arrangements it is to be taken into account in considering whether any, and (if so) what, credit is to be allowed in respect of the dividend,
(b) because the amount given by Step 2 of the calculation under section 58 is more than the amount given by Step 3 of that calculation, it is not to be taken into account in considering the questions mentioned in paragraph (a), or
(c) under section 60(3) it is not to be taken into account in considering those questions.
(4) The amount of any income or gain is not to be increased under subsection (2)(b) by reference to any foreign tax which, although not payable, is treated by section 20(2) as having been payable.
(5) Subsections (1) to (4) have effect for the purposes of corporation tax despite—
(a) section 464(1) of CTA 2009 (matters to be brought into account in the case of loan relationships only under Part 5 of that Act), and
(b) section 906(1) of CTA 2009 (matters to be brought into account in respect of intangible fixed assets only under Part 8 of that Act).
(6) In this section “special withholding tax” means special withholding tax—
(a) within the meaning of Part 3 (see section 136), and
(b) in respect of which a claim has been made under that Part.
32 Calculation of amount received where UK tax charged on remittance basis
(1) Subsection (2) applies if—
(a) under the arrangements, credit is to be allowed for foreign tax in respect of any income or capital gain, and
(b) income tax or capital gains tax is payable by reference to the amount received in the United Kingdom.
(2) For the purposes of whichever of income tax and capital gains tax is payable as mentioned in subsection (1)(b), the amount received is to be treated as increased—
(a) by the amount of the foreign tax in respect of the income or gain,
(b) by the amount of any special withholding tax levied in respect of the income or gain, but see subsection (4), and
(c) if the credit is for foreign tax in respect of a dividend, by any underlying tax that under the arrangements is to be taken into account in considering whether any, and (if so) what, credit is to be allowed in respect of the dividend.
(3) For the purposes of subsection (4), a gain is a “special gain” if—
(a) it is a chargeable gain that accrues to a person on a disposal by the person of assets,
(b) the consideration for the disposal consists of or includes an amount of savings income, and
(c) special withholding tax is levied in respect of the whole or any part of the consideration for the disposal.
(4) If the credit is for foreign tax in respect of a gain that is a special gain, the amount of the increase under subsection (2)(b) is given by—
A
W
T
×
G
U
K
S
G
—
A
W
T
where—
AWT is the amount of special withholding tax levied in respect of the whole or the part of the consideration for the disposal concerned,
GUK is the amount of the gain received in the United Kingdom, and
SG is the amount of the gain.
(5) The amount of any income or gain is not to be increased under this section by reference to any foreign tax which, although not payable, is treated by section 20(2) as having been payable.
(6) In this section—
“savings income” has the same meaning as in Part 3 (see section 136), and
“special withholding tax” means special withholding tax—
within the meaning of Part 3 (see section 136), and
in respect of which a claim has been made under that Part.
33 Limit on credit: minimisation of the foreign tax
(1) The credit under section 18(2) must not exceed the credit which would be allowed had all reasonable steps been taken—
(a) under the law of the non-UK territory, and
(b) under double taxation arrangements made in relation to that territory,
to minimise the amount of tax payable in that territory.
(2) The steps mentioned in subsection (1) include—
(a) claiming, or otherwise securing the benefit of, reliefs, deductions, reductions or allowances, and
(b) making elections for tax purposes.
(3) For the purposes of subsection (1), any question as to the steps which it would have been reasonable for a person to take is to be determined on the basis of what the person might reasonably be expected to have done in the absence of relief under this Part.
34 Reduction in credit: payment by reference to foreign tax
(1) Subsection (2) applies if—
(a) credit for foreign tax is to be allowed to a person (“P”) under the arrangements, and
(b) a tax authority makes a payment by reference to that tax, and that payment—
(i) is made to P or a person connected with P, or
(ii) is made to some other person directly or indirectly in consequence of a scheme that has been entered into.
(2) The amount of that credit is to be reduced by an amount equal to that payment.
(3) Whether a person is connected with P is determined in accordance with section 1122 of CTA 2010.
(4) In subsection (1)(b)(ii) “scheme” includes any scheme, arrangement or understanding of any kind, whether or not legally enforceable, involving a single transaction or two or more transactions.
(1) Subsection (2) applies if the application of section 36(2) or 42(2) prevents an amount of credit for foreign tax from being allowable against income tax or corporation tax.
(2) The taxpayer's income is to be treated as reduced by the amount of the disallowed credit.
(3) Subsection (4) applies if the application of section 40(2) prevents an amount of credit for foreign tax from being allowable against capital gains tax.
(4) The taxpayer's chargeable gains are to be treated as reduced by the amount of the disallowed credit.
(5) Subsection (2) or (4) applies only so far as the amount of disallowed credit does not exceed the amount of any loss attributable to the income or gain in respect of which the foreign tax was paid.
(6) For the purposes of subsection (5), payment of the foreign tax is to be taken into account despite section 31(2).
(1) This section is about the amount of credit allowed under section 18(2) against a person's income tax for any tax year.
(2) The amount of credit in respect of income from any particular source must not exceed the difference between—
(a) the amount of income tax to which the person would be liable for the tax year if the person were charged to income tax on—
T
I
—
X,
and
(b) the amount of income tax to which the person would be liable for the tax year if the person were charged to income tax on—
T
I
—
(X + C).
(3) If credit is allowed (whether or not under the same tax-relief arrangements) in respect of income from more than one source, apply subsection (2) successively to the income from each source, taking the sources in the order which will result in the greatest reduction in the person's income tax liability for the tax year.
(4) In subsection (2)—
TI is the person's total income for the tax year,
X is the income (if any) to which subsection (2) has already been applied, and
C is the income in respect of which the credit is to be allowed.
(5) The rules for calculating an amount of income tax under subsection (2) are—
(a) the calculation is to be made in accordance with sections 31 and 32, and
(b) no credit is to be allowed for foreign tax, and
(c) no reduction is to be made under section 26 of FA 2005 (trusts for the benefit of a vulnerable beneficiary), but
(d) any other income tax reduction under the Income Tax Acts is to be made.
(6) See section 29(2) and (3) of ITA 2007 (tax reductions limited by reference to tax liability) for further limits on the total amount of credit for foreign tax to be allowed to a person against income tax.
(7) For the purposes of subsection (3) the following are “tax-relief arrangements”—
(a) double taxation arrangements, and
(b) unilateral relief arrangements for a territory outside the United Kingdom.
37 Credit against tax on trade income: further rules
(1) Apply section 36(2) in accordance with subsections (2) to (5) if the tax against which the credit is to be allowed is income tax on trade income.
(2) Treat the reference to income from any particular source as a reference to trade income arising out of a transaction, arrangement or asset.
(3) C is the income arising out of the transaction, arrangement or asset in connection with which the credit arises.
(4) In calculating an amount of income tax under section 36(2) deduct, from the income arising out of the transaction, arrangement or asset in connection with which the credit arises, deductions which would be allowed in a calculation of the taxpayer's liability in respect of that income.
(5) Treat section 36(3) as referring—
(a) to trade income instead of income, and
(b) to a transaction, arrangement or asset instead of a source.
(6) In subsection (4) “deductions” includes a just and reasonable apportionment of deductions that relate—
(a) partly to the income arising out of the transaction, arrangement or asset in connection with which the credit arises, and
(b) partly to other matters.
(7) In this section “trade income” means income chargeable to tax under—
(a) Chapter 2 or 18 of Part 2 of ITTOIA 2005 (trade profits and post-cessation receipts), or
(b) Chapter 3 or 10 of Part 3 of ITTOIA 2005 (profits of property businesses and post-cessation receipts).
(1) Subsection (2) applies if—
(a) the arrangements are double taxation arrangements, and
(b) royalties, as defined in the arrangements, are paid in respect of an asset in more than one foreign jurisdiction.
(2) For the purposes of section 36(2)—
(a) royalty income arising in more than one foreign jurisdiction in a tax year in respect of the asset is to be treated as a single item of income, and
(b) credits available for foreign tax in respect of the royalty income are to be aggregated accordingly.
(3) In this section “foreign jurisdiction” means a jurisdiction outside the United Kingdom.
39 Credit reduced by reference to accrued income losses
(1) Subsection (5) applies if each of conditions A to C is met.
(2) Condition A is that a person is entitled under section 18(2) to credit against income tax.
(3) Condition B is that the income tax is calculated by reference to income consisting of interest in respect of which the person is entitled under section 679 of ITA 2007 (no income tax on interest so far as matched by accrued income losses) to an exemption from liability to income tax.
(4) Condition C is that—
(a) the arrangements are unilateral relief arrangements for a territory outside the United Kingdom and the credit is allowed as a result of section 9, or
(b) the arrangements are double taxation arrangements and the credit is allowed as a result of the inclusion in the arrangements of any provision corresponding to that section.
(5) The amount of the credit is to be reduced to the amount given by—
I
—
E
I
×
C
where—
I is the amount of the interest,
E is the amount of the exemption, and
C is the amount the credit would be apart from this subsection.
(6) Expressions used in this section and in Chapter 2 of Part 12 of ITA 2007 (accrued income profits) have the same meaning in this section as in that Chapter.
(1) This section is about the amount of credit allowed under section 18(2) against a person's capital gains tax for any tax year.
(2) The amount of credit in respect of any particular capital gain must not exceed the difference between—
(a) the amount of capital gains tax to which the person would be liable for the tax year if the person were charged to capital gains tax on—
T
G
—
X,
and
(b) the amount of capital gains tax to which the person would be liable for the tax year if the person were charged to capital gains tax on—
T
G
—
(X + C).
(3) If credit is allowed (whether or not under the same tax-relief arrangements) in respect of more than one capital gain, apply subsection (2) successively to each capital gain, taking the gains in the order which will result in the greatest reduction in the person's capital gains tax liability for the tax year.
(4) In subsection (2)—
TG is the total amount of the chargeable gains accruing to the person in the tax year,
X is the total amount of the gains (if any) to which subsection (2) has already been applied, and
C is the amount of the gain in respect of which the credit is to be allowed.
(5) The rules for calculating an amount of capital gains tax under subsection (2) are—
(a) the calculation is to be made in accordance with sections 31 and 32, and
(b) no credit is to be allowed for foreign tax.
(6) For the purposes of subsection (3) the following are “tax-relief arrangements”—
(a) double taxation arrangements, and
(b) unilateral relief arrangements for a territory outside the United Kingdom.
(1) In subsection (2) “the total credit” means—
F
+
G
where—
F is the total credit, under all tax-relief arrangements, allowed under section 18(2) against a person's income tax for any tax year, and
G is the total credit, under all tax-relief arrangements, allowed under section 18(2) against the person's capital gains tax for that tax year.
(2) The total credit is not to be more than—
I
+
C
—
A
where—
I is the total income tax payable by the person for the tax year,
C is the total capital gains tax payable by the person for the tax year, and
A is the total amount of the tax treated under section 414 of ITA 2007 (gift aid) as deducted from gifts made by the person in the tax year.
(3) In calculating I and C for the purposes of subsection (2), no reduction is to be made for credit under section 18(2).
(4) Subsection (2) applies in addition to sections 36 and 40.
(5) For the purposes of subsection (1) the following are “tax-relief arrangements”—
(a) double taxation arrangements, and
(b) unilateral relief arrangements for a territory outside the United Kingdom.