(1) Subsection (2) is about the amount of credit allowed under section 18(2) against corporation tax to which a company is liable in respect of any income or chargeable gain.
(2) The credit must not exceed—
R
×
I
G
where—
R is the rate of corporation tax payable by the company, before any credit under this Part, on the company's income or chargeable gains for the accounting period in which the income arises or the gain accrues, and
IG is the amount of the income or gain (but see subsection (3)).
(3) For the purposes of applying subsection (2), IG is reduced (or extinguished) by any amount allocated to it under—
section 52(2) (general deductions),
section 53(2) (earlier years' deficits on loan relationships),
section 54(2) or (4) (debits on loan relationships),
section 55(5) (current year's deficits on loan relationships), or
section 56(2) (debits on intangible fixed assets).
(4) Subsection (2) is to be read with—
section 43, which, if the company has a permanent establishment outside the United Kingdom, is about attributing profits to the establishment for the purposes of applying subsection (2),
sections 44 to 49, which modify how subsection (2) applies in connection with allowing credit against tax on trade income (as defined in section 44), section 49B, which requires subsection (2) to be applied separately to certain non-trading credits, and
sections 50 and 51, which require subsection (2) to be applied as if corporation tax were charged in a modified way on profits of the company for the period from loan relationships and intangible fixed assets.
(5) See also section 49A which contains an additional limit on credit allowed in certain cases involving CFCs.
43 Profits attributable to permanent establishments for purposes of section 42(2)
(1) This section applies in determining for the purposes of section 42(2) the amount of the profits of a UK resident company on which corporation tax is or would be chargeable that is attributable to a permanent establishment of the company in a territory outside the United Kingdom.
(2) The amount of the profits of the company that is attributable to the permanent establishment is the amount that the permanent establishment would have made if it were a distinct and separate enterprise which—
(a) engaged in the same or similar activities under the same or similar conditions, and
(b) dealt wholly independently with the company.
(3) In applying subsection (2) assume that—
(a) the permanent establishment has the same credit rating as the company, and
(b) (subject to subsection (5)) the permanent establishment has such equity and loan capital as it could reasonably be expected to have if the equity and loan capital of the company were allocated in accordance with subsection (4).
(4) The allocation is one made on a just and equitable basis between the permanent establishments in territories outside the United Kingdom through which the company carries on business and the entity that the company would consist of if each such permanent establishment were an entity distinct and separate from the company.
(5) If the permanent establishment is in a full treaty territory (within the meaning of Chapter 3A of Part 2 of CTA 2009) subsection (3)(b) has effect subject to the double taxation arrangements having effect in relation to the territory.
(6) Subsections (3)(b) to (5) prevail over any allotment of equity or loan capital to the permanent establishment made by the company.
(7) If the company is an insurance company ... , in applying subsection (2) assume that the permanent establishment has such free assets as it would have in the circumstances described in that subsection.
(8) The Commissioners for Her Majesty's Revenue and Customs may by regulations make provision as to the meaning of “free assets” in subsection (7).
(1) Apply section 42(2) in accordance with subsections (2) and (3) if the tax against which the credit is to be allowed is corporation tax on income that is trade income.
(2) The amount of the credit must not exceed the corporation tax attributable to the income arising out of the transaction, arrangement or asset in connection with which the credit arises.
(3) In calculating the amount of corporation tax attributable to any income, take into account—
(a) deductions which would be allowed in calculating the company's liability, and
(b) expenses of a company connected with the company, so far as reasonably attributable to the income,
but see section 49 (restriction if company is a bank or is connected with a bank).
(4) In subsection (3)(a) “deductions” includes a just and reasonable apportionment of deductions that relate—
(a) partly to the transaction, arrangement or asset from which the income arises, and
(b) partly to other matters.
(5) Section 1122 of CTA 2010 (meaning of “connected”) applies for the purposes of subsection (3)(b).
(6) In this section “trade income” means—
(a) income chargeable to tax under Chapter 2 or 15 of Part 3 of CTA 2009 (trade profits and post-cessation receipts),
(b) income chargeable to tax under Chapter 3 or 9 of Part 4 of CTA 2009 (profits of property businesses and post-cessation receipts),
(c) income which arises from a source outside the United Kingdom and is chargeable to tax under section 979 of CTA 2009 (charge to tax on income not otherwise charged), and
(d) any other income or profits which by a provision of ICTA is or are—
(i) chargeable to tax under Chapter 2 of Part 3 of CTA 2009, or
(ii) calculated in the same way as the profits of a trade,
but does not include income to which section 99 of this Act (insurance companies) applies.
(7) In subsection (6) the references—
(a) to income chargeable under Chapter 15 of Part 3 of CTA 2009, and
(b) to income chargeable under Chapter 9 of Part 4 of CTA 2009,
do not include income that would, but for the repeal by CTA 2009 of section 103 of ICTA (post-cessation receipts where pre-cessation profits calculated on an earnings basis and other post-cessation receipts that become due or are ascertained after cessation), have been chargeable to corporation tax under that section.
45 Credit against tax on trade income: anti-avoidance rules
(1) If a company (“A”) carrying on a trade giving rise to trade income enters into a scheme or arrangement with another person (“B”) a main purpose of which is to alter the effect of section 44(2) and (3) in relation to A, income received in pursuance of the scheme or arrangement is to be treated for the purposes of section 44(2) and (3) as trade income of B (and not as income of A).
(2) Income of a person (“D”) is to be treated for the purposes of section 44 as trade income (if it is not otherwise trade income) of D if—
(a) the income is received by D as part of a scheme or arrangement entered into by D and a connected person (“C”),
(b) had C received the income, it would be reasonable to assume that it would be trade income of C, and
(c) a main purpose of the scheme or arrangement is to produce the result that section 44(2) and (3) will not have effect in relation to the income because it is received by D.
(3) For the purposes of subsection (2)(b) it is to be assumed that, in the case of any relevant transaction to which a relevant person is a party, C were that party to the transaction.
(4) In subsection (3)—
“relevant person” means—
D, or
any other connected person who is a party to the scheme or arrangement mentioned in subsection (2), and
“relevant transaction” means any of the transactions giving rise to the income mentioned in subsection (2)(b).
(5) In subsections (2) to (4) “connected person” means a person with whom D is connected.
(6) Section 1122 of CTA 2010 (meaning of “connected”) applies for the purposes of subsection (5).
(7) In this section “trade income” has the same meaning as in section 44.
46 Applying section 44(2): asset in hedging relationship with derivative contract
(1) If an asset is in a hedging relationship with a derivative contract, section 44(2) applies in relation to the asset as if the income arising from the asset is the income arising from the asset and the contract taken together, subject to subsection (2).
(2) Take account of the income or loss from the derivative contract only so far as reasonably attributable to the hedging relationship.
(3) For the purposes of subsection (1), an asset is in a hedging relationship with a derivative contract if—
(a) the asset is acquired as a hedge of risk in connection with the contract, or
(b) the contract is entered into as a hedge of risk in connection with the asset.
(4) If an asset or a contract is wholly or partly designated as a hedge for the purposes of a person's accounts, that is conclusive for the purposes of subsection (3).
(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 44(2)—
(a) royalty income arising in more than one foreign jurisdiction in an accounting period in respect of the asset is to be treated as income arising from a single asset, 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.
48 Applying section 44(2): “portfolio” of transactions, arrangements or assets
(1) Subsection (5) applies if each of conditions A to C is met.
(2) Condition A is that transactions, arrangements or assets are treated by a taxpayer as a series or group (“the portfolio”).
(3) Condition B is that credits for foreign tax arise in respect of the portfolio.
(4) Condition C is that—
(a) it is not reasonably practicable to prepare a separate calculation of income for the purposes of section 44(2) in respect of each transaction, arrangement or asset, or
(b) a separate calculation of income in respect of each transaction, arrangement or asset for the purposes of section 44(2) would not, compared with an aggregated calculation, make a material difference to the amount of credit for foreign tax which is allowable.
(5) The income arising from the portfolio, or part of the portfolio, may be aggregated and apportioned for the purposes of section 44(2) in a just and reasonable manner.
49 Restricting section 44(3) if company is a bank or connected with a bank
(1) Section 44(3) is subject to subsection (2) of this section if—
(a) the company is a bank or is connected with a bank, and
(b) the amount of the included funding costs is significantly less than the amount of the notional funding costs.
(2) The amount of the notional funding costs is to be included in the amount to be taken into account under section 44(3), but only so far as it exceeds the amount of the included funding costs.
(3) In this section—
“the company” means the company mentioned in section 44(3)(a),
“included funding costs” means the total of the funding costs that are—
incurred by the company, or any company connected with the company, in respect of capital used to fund the relevant transaction, and
included in the amount to be taken into account under section 44(3) before the application of subsection (2) of this section,
“notional funding costs” means the funding costs that the relevant bank would incur (on the basis of its average funding costs) in respect of the capital that would be needed to wholly fund the relevant transaction if that transaction were funded in that way,
“the relevant bank” means the bank that is the company, or with which the company is connected, and
“the relevant transaction” means the transaction, arrangement or asset from which the income mentioned in section 44(1) arises.
(4) The following provisions apply for the purposes of this section—
section 1120 of CTA 2010 (meaning of “bank”), and
section 1122 of CTA 2010 (meaning of “connected”).
49A Limit on credit in cases involving qualifying loan relationships of CFCs
(1) This section applies if—
(a) a claim is made under Chapter 9 of Part 9A (controlled foreign companies: exemptions for profits from qualifying loan relationships) in relation to an accounting period (“the relevant period”) of a CFC (“the creditor CFC”),
(b) in the relevant period, the creditor CFC has a qualifying loan relationship in relation to which another CFC is the ultimate debtor by virtue of section 371IG(4) or (5), and
(c) a UK resident company (“the relevant UK company”) has loan relationship credits which arise in the relevant period from—
(i) loan B (see section 371IG(3)(b)), or
(ii) loans out of which loan B is wholly or partly funded (directly or indirectly).
(2) So far as any credit allowed under section 18(2) to the relevant UK company is referable to loan relationship credits falling within subsection (1)(c) which arise in an accounting period of the relevant UK company, the credit must not exceed—
R × S
where—
R has the same meaning as in section 42(2), and
S is—
the relevant UK company's share of the relevant profit amount (see subsection (4)), or
if only X% of the total amount of the loan relationship credits falling within subsection (1)(c) arises in the accounting period, X% of the relevant UK company's share of the relevant profit amount.
(If the amount given by the formula above is nil, no credit is allowed.)
(3) The limit on credit contained in subsection (2) is in addition to the limit given by section 42(2).
(4) Take the following steps to determine the relevant profit amount and the relevant UK company's share of that amount.
Step 1 Determine the total amount of the loan relationship credits which arise in the relevant period from loan B to the person who made loan B.
Step 2 Deduct from the amount determined at step 1 above the credits from the creditor CFC's qualifying loan relationship determined at step 1 in section 371IF for the relevant period. The result is the relevant profit amount.
Step 3 On a just and reasonable basis, apportion the relevant profit amount amongst all the persons falling within subsection (5) (although the amount apportioned to a person may be nil). The relevant UK company's share of the relevant profit amount is the amount apportioned to it (and is nil if no amount is apportioned to it).
(5) The following persons (apart from the creditor CFC) fall within this subsection—
(a) the person who made loan B, and
(b) any person who has made or received a loan out of which loan B is wholly or partly funded (directly or indirectly).
(6) In this section—
(a) references to loan B do not include any part of loan B—
(i) which loan A (see section 371IG(3)(a)) is not made and used to fund, or
(ii) in relation to which the requirement of section 371IG(3)(c) is not met,
(b) “loan relationship credit” means, in relation to a person, a credit which the person has under Part 5 of CTA 2009 or would have were the person a UK resident company within the charge to corporation tax, and
(c) “loan” has the same meaning as it has in Chapter 9 of Part 9A.
49B Applying section 42(2) to non-trading credits from loan relationships etc
(1) Subsection (2) applies for the purposes of section 42(2) if—
(a) the company has a non-trading credit relating to an item, and
(b) there is in respect of that item an amount of foreign tax for which, under the arrangements, credit is allowable against United Kingdom tax.
(2) Credit for the foreign tax in respect of that item must not exceed—
R × ( NTC – D )
where—
R has the same meaning as in section 42(2),
NTC is the amount of the non-trading credit, and
D is the amount given by subsection (3).
(3) D in the formula in subsection (2) is calculated as follows—
Step 1 Calculate the total amount (“TNTD”) of the non-trading debits which are to be brought into account by the company—
in the same accounting period, and
in respect of the same loan relationship, derivative contract or intangible fixed asset,
as the non-trading credit.
Step 2 Calculate the total (“A”) of the amounts which, as amount D, have already been deducted under subsection (2) from other non-trading credits which are to be brought into account in the same period and in respect of the same relationship, contract or asset.
Step 3 Calculate the amount given by—
TNTD – A
Step 4 If the amount calculated at step 3 is greater than or equal to NTC, then D equals NTC. Otherwise, D is the amount calculated at step 3.
(4) In this section—
“intangible fixed asset” has the same meaning as in Part 8 of CTA 2009,
“non-trading credit” means—
a non-trading credit for the purposes of Part 5 of CTA 2009 (which is about loan relationships but also has application in relation to deemed loan relationships and derivative contracts), or
a non-trading credit for the purposes of Part 8 of CTA 2009 (intangible fixed assets), and
“non-trading debit” means—
a non-trading debit for the purposes of Part 5 of CTA 2009, or
a non-trading debit for the purposes of Part 8 of CTA 2009.
(1) Subsection (2) applies for the purposes of section 42(2) if the company has at least one non-trading credit for the period that is eligible for double taxation relief.
(2) Assume that the charge to corporation tax on income, as applied by section 299 of CTA 2009, is charged on TNTC, not on the non-trading profits that the company has for the period in respect of its loan relationships.
(3) For the purposes of subsection (1), a non-trading credit relating to an item is “eligible for double taxation relief” if there is in respect of that item an amount of foreign tax for which, under the arrangements, credit is allowable against United Kingdom tax calculated by reference to that item.
(4) In this section—
“non-trading credit” means a non-trading credit for the purposes of Part 5 of CTA 2009 (loan relationships), and
“TNTC” is the total amount of the company's non-trading credits for the period.
(1) Subsection (2) applies for the purposes of section 42(2) if the company has at least one non-trading credit for the period that is eligible for double taxation relief.
(2) Assume that the charge to corporation tax on income, as applied by section 752 of CTA 2009, is charged on TNTC, not on the non-trading gains arising to the company in the period on intangible fixed assets.
(3) For the purposes of subsection (1), a non-trading credit relating to an item is “eligible for double taxation relief” if there is in respect of that item an amount of foreign tax for which, under the arrangements, credit is allowable against United Kingdom tax calculated by reference to that item.
(4) In this section—
“non-trading credit” means a non-trading credit for the purposes of Part 8 of CTA 2009 (intangible fixed assets), and
“TNTC” is the total amount of the company's non-trading credits for the period.
(1) Subsection (2) applies for the purposes of section 42 if in the accounting period there is any amount (“the deduction”) that for corporation tax purposes is deductible from, or otherwise allowable against, profits of more than one description.
(2) The company may allocate the deduction in such amounts, and to such of its profits for the period, as it thinks fit.
53 Earlier years' non-trading deficits on loan relationships
(1) Subsection (2) applies for the purposes of section 42 if an amount (“the deficit”) is carried forward to the period under section 457(1) of CTA 2009 (non-trading deficits on loan relationships set against profits of subsequent years).
(2) The deficit can be allocated only to the company's non-trading profits for the period, but the company may allocate the deficit to such of those profits, and in such amounts, as the company thinks fit.
(3) In this section “non-trading profits” has the meaning given by section 457(5) of CTA 2009.
(1) Subsection (2) applies for the purposes of section 42 if the company has at least one non-trading credit for the period that is eligible for double taxation relief.
(2) That much of the company's non-trading debits for the period as is given by the formula—
T
N
T
D
—
(
C
B
+
C
F
+
G
R
)
may be allocated by the company to such of its profits for the period, and in such amounts, as the company thinks fit, but this is subject to subsection (4).
(3) Subsection (4) applies for the purposes of section 42 if—
(a) the company has at least one non-trading credit for the period that is eligible for double taxation relief, and
(b) the company sets the whole or part of XS against profits of the period in pursuance of a current-year provision or claim.
(4) So much of the company's non-trading debits as is equal to that amount of XS must be allocated to the profits against which that amount of XS is set in pursuance of the current-year provision or claim.
(5) In this section, if the company has a non-trading deficit (“D”) on its loan relationships for the period—
CB is so much of D as is the subject of a carry-back claim,
CF is so much of D as is carried forward to a subsequent accounting period in accordance with a carry-forward provision,
GR is so much of D as is surrendered as group relief under section 99 of CTA 2010, and
if D > CB + CF + GR then XS is so much of D as is given by the formula—
D
—
(
C
B
+
C
F
+
G
R
)
(6) For the purposes of subsections (1) and (3), a non-trading credit relating to an item is “eligible for double taxation relief” if there is in respect of that item an amount of foreign tax for which, under the arrangements, credit is allowable against United Kingdom tax calculated by reference to that item.
(7) In this section—
“carry-back claim” means a claim—
under section 389(1) of CTA 2009 (insurance companies: carry-back, to earlier accounting periods, of non-trading deficit on loan relationships), or
under section 459(1)(b) or 463B(1)(b) of CTA 2009 (carry-back: other companies),
“carry-forward provision” means—
section 391 of CTA 2009 (insurance companies), or
section 457(1) , 463G(5) or 463H(4) of CTA 2009 (other companies),
“current-year provision or claim” means—
section 388(1) of CTA 2009 (insurance companies: non-trading deficit on loan relationships set against current year's profits), or
a claim under section 459(1)(a) or 463B(1)(a) of CTA 2009 (other companies: setting of deficit against current year's profits),
“non-trading credit” means a non-trading credit for the purposes of Part 5 of CTA 2009 (loan relationships),
“non-trading debit” means a non-trading debit for the purposes of that Part, and
“TNTD” is the total amount of the company's non-trading debits for the period.
55 Current year's non-trading deficits on loan relationships
(1) Subsection (5) applies for the purposes of section 42 if conditions A and B are met.
(2) Condition A is that the company—
(a) has no non-trading credits for the period, or
(b) has non-trading credits for the period but none of those credits is eligible for double taxation relief.
(3) For the purposes of subsection (2)(b), a non-trading credit relating to an item is “eligible for double taxation relief” if there is in respect of that item an amount of foreign tax for which, under the arrangements, credit is allowable against United Kingdom tax calculated by reference to that item.
(4) Condition B is that an amount (“the deficit”) is set against any of the company's profits for the period—
(a) under section 388(1) of CTA 2009 (insurance company's non-trading deficit on loan relationships set against current year's profits), or
(b) under section 459(1)(a) or 463B(1)(a) of CTA 2009 (other company's non-trading deficit on loan relationships set against current year's profits).
(5) The deficit can be allocated only to profits against which the deficit is set under section 388(1) , 459(1)(a) or 463B(1)(a) of CTA 2009.
(6) In this section “non-trading credit” means a non-trading credit for the purposes of Part 5 of CTA 2009 (loan relationships).
(1) Subsection (2) applies for the purposes of section 42 if the company has at least one non-trading credit for the period that is eligible for double taxation relief.
(2) That much of the company's non-trading debits for the period as is given by the formula—
T
N
T
D
—
C
F
may be allocated by the company to such of its profits for the period, and in such amounts, as the company thinks fit.
(3) In subsection (2)—
TNTD is the total amount of the company's non-trading debits for the period, and
CF is the amount (if any) carried forward to the next accounting period under section 753(3) of CTA 2009 (carry forward of non-trading loss so far as neither subject to a claim to set it against profits of current period nor surrendered by way of group relief).
(4) For the purposes of subsection (1), a non-trading credit relating to an item is “eligible for double taxation relief” if there is in respect of that item an amount of foreign tax for which, under the arrangements, credit is allowable against United Kingdom tax calculated by reference to that item.
(5) In this section—
“non-trading credit” means a non-trading credit for the purposes of Part 8 of CTA 2009 (intangible fixed assets), and
“non-trading debit” means a non-trading debit for the purposes of that Part.
57 Credit in respect of dividend: taking account of underlying tax
(1) Subsections (2) and (3) apply if, as a result of provision made by the arrangements, underlying tax is to be taken into account in considering whether any and (if so) what credit is to be allowed against corporation tax, income tax or capital gains tax in respect of a dividend.
(2) The amount of underlying tax to be taken into account as a result of the provision is to be calculated—
(a) under section 58 if the dividend is one paid by a company resident outside the United Kingdom to a company resident in the United Kingdom, and
(b) under section 61 if the dividend is not one paid by a company resident outside the United Kingdom to a company resident in the United Kingdom.
(3) No underlying tax is to be taken into account as a result of the provision if, under the law of any territory outside the United Kingdom, a deduction is allowed to a resident of the territory in respect of an amount determined by reference to the dividend.
(4) See also—
(a) section 63 (underlying tax paid in the United Kingdom, or otherwise outside the non-UK territory, treated in some cases as underlying tax paid in the non-UK territory), and
(b) section 65 (underlying tax paid in respect of profits of a company which pays a dividend treated in some cases as underlying tax paid in respect of profits of company to which dividend is paid).
58 Calculation if dividend paid by non-resident company to resident company
(1) A calculation under this section (see section 57(2)(a)) is as follows—
Step 1 Calculate the amount of the foreign tax borne on the relevant profits by the company paying the dividend.
Step 2 Calculate how much of that amount is properly attributable to the proportion of the relevant profits represented by the dividend.
Step 3 Calculate the amount given by—
(
D
+
P
A
)
×
M
where—
D is the amount of the dividend,
PA is the amount given by the calculation at Step 2, and
M is the rate of corporation tax applicable to profits of the recipient for the accounting period in which the dividend is received or, if there is more than one such rate, the average rate over the whole of that accounting period.
Step 4 If under the law of the non-UK territory the dividend has been increased for tax purposes by an amount to be—
set off against the recipient's own tax under that law, or
paid to the recipient so far as it exceeds the recipient's own tax under that law,
calculate the amount of the increase.
Step 5 If the amount given by the calculation at Step 2 is less than the amount given by the calculation at Step 3, UT is the amount given by the calculation at Step 2 but reduced by any amount calculated at Step 4.
Step 6 If the amount given by the calculation at Step 2 is equal to or more than the amount given by the calculation at Step 3, UT is the amount given by the calculation at Step 3 but reduced by any amount calculated at Step 4.
(2) In this section “UT” means the amount of underlying tax to be taken into account as a result of the provision mentioned in section 57(1).
(1) This section applies for the purposes of section 58.
(2) “Relevant profits”, if the dividend is within subsection (3), means the profits in respect of which the dividend is treated as paid for the purposes of section 931H of CTA 2009 (dividends derived from transactions not designed to reduce tax).
(3) A dividend is within this subsection if—
(a) it is received in an accounting period of the recipient in which the recipient is not a small company for the purposes of Part 9A of CTA 2009 (company distributions: see section 931S of that Act), and
(b) for the purposes of section 931H of that Act, it is treated as paid in respect of profits other than relevant profits (see subsection (4) of that section).
(4) “Relevant profits”, if the dividend is not within subsection (3) but is paid for a specified period, means—
(a) the distributable profits of that period, plus
(b) if the total dividend exceeds those profits, so much of the distributable profits of preceding periods as is equal to the excess.
(5) “Relevant profits”, if the dividend is not within subsection (3) and is not paid for a specified period, means—
(a) the distributable profits of the last period for which accounts of the company were made up which ended before the dividend became payable, plus
(b) if the total dividend exceeds those profits, so much of the distributable profits of preceding periods as is equal to the excess.
(6) In subsection (4)(b) or (5)(b), the reference to distributable profits of preceding periods does not include—
(a) profits previously distributed, or
(b) profits previously treated as relevant profits for the purposes of section 58 or 61 of this Act, section 799 of ICTA or section 506 of the Income and Corporation Taxes Act 1970.
(7) For the purposes of subsection (4)(b) or (5)(b), the profits of the most recent preceding period are to be taken into account first, then the profits of the next most recent preceding period, and so on.
(8) In this section “distributable profits”, in relation to a company, means the profits available for distribution as shown in accounts relating to the company—
(a) drawn up in accordance with the law of the country or territory under whose law the company is incorporated or formed, and
(b) making no provision for reserves, bad debts, impairment losses or contingencies other than such as is required to be made under the law of that country or territory.
(9) The reference in subsection (6)(b) to section 799 of ICTA is without prejudice to the generality of paragraph 4(1) of Schedule 9 (references to rewritten provisions include references to superseded provisions).
60 Underlying tax to be left out of account on claim to that effect
(1) Subsection (2) applies if—
(a) under the arrangements a company resident in the United Kingdom makes a claim for an allowance by way of credit in accordance with this Chapter, and
(b) the claim relates to a dividend paid to the company by a company resident outside the United Kingdom.
(2) The claim may be framed so as to exclude amounts of underlying tax specified for the purpose in the claim.
(3) Any amounts of underlying tax so excluded are to be left out of account for the purposes of section 57.
A calculation under this section (see section 57(2)(b)) is as follows—
Step 1 Calculate the amount of the foreign tax borne on the relevant profits by the body corporate paying the dividend.
Step 2 Calculate how much of that amount is properly attributable to the proportion of the relevant profits represented by the dividend.
Step 3 If under the law of the non-UK territory the dividend has been increased for tax purposes by an amount to be—
set off against the recipient's own tax under that law, or
paid to the recipient so far as it exceeds the recipient's own tax under that law,
calculate the amount of the increase.
Step 4 The amount of underlying tax to be taken into account as a result of the provision mentioned in section 57(1) is the amount given by the calculation at Step 2 but reduced by any amount calculated at Step 3.
(1) This section applies for the purposes of section 61.
(2) “Relevant profits”, if the dividend is paid for a specified period, means—
(a) the profits of that period, plus
(b) if the total dividend exceeds the distributable profits of that period, so much of the distributable profits of preceding periods as is equal to the excess.
(3) “Relevant profits”, if the dividend is not paid for a specified period but is paid out of specified profits, means those profits.
(4) “Relevant profits”, if the dividend is paid neither for a specified period nor out of specified profits, means—
(a) the profits of the last period for which accounts of the body corporate paying the dividend were made up which ended before the dividend became payable, plus
(b) if the total dividend exceeds the distributable profits of that period, so much of the distributable profits of preceding periods as is equal to the excess.
(5) In subsection (2)(b) or (4)(b), the reference to distributable profits of preceding periods does not include—
(a) profits previously distributed, or
(b) profits previously treated as relevant profits for the purposes of section 58 or 61 of this Act, section 799 of ICTA or section 506 of the Income and Corporation Taxes Act 1970.
(6) For the purposes of subsection (2)(b) or (4)(b), the profits of the most recent preceding period are first to be taken into account, then the profits of the next most recent preceding period, and so on.
(7) In this section “distributable profits”, in relation to a period, means profits available for distribution of the period.
(8) The reference in subsection (5)(b) to section 799 of ICTA is without prejudice to the generality of paragraph 4(1) of Schedule 9 (references to rewritten provisions include references to superseded provisions).
63 Non-UK company dividend paid to 10% investor: relief for UK and other tax
(1) If condition A is met, and one of conditions B and C is met, subsection (5) applies for the purpose of allowing, under the arrangements, credit against corporation tax in respect of a dividend paid by a company resident outside the United Kingdom (“the overseas company”) to another company (“the recipient company”).
(2) Condition A is that the recipient company—
(a) controls directly or indirectly, or
(b) is a subsidiary of a company which controls directly or indirectly,
at least 10% of the voting power in the overseas company.
(3) Condition B is that the recipient company is resident in the United Kingdom.
(4) Condition C is that—
(a) the recipient company is resident outside the United Kingdom, but
(b) the dividend forms part of the profits of a permanent establishment of the recipient company in the United Kingdom.
(5) There is to be taken into account, as if it were tax payable under the law of the territory (“territory R”) in which the overseas company is resident—
(a) any income tax or corporation tax payable by the overseas company in respect of its profits, and
(b) any tax which, under the law of any territory outside the United Kingdom other than territory R, is payable by the overseas company in respect of its profits.
(6) For the purposes of subsection (2), one company (“S”) is a subsidiary of another company (“P”) if P controls, directly or indirectly, at least 50% of the voting power in S.
64 Meaning of “dividend-paying chain” of companies
(1) For the purposes of sections 65, 67 and 70 there is a dividend-paying chain if—
(a) condition A is met, and
(b) one of conditions B to D is met.
(2) Condition A is that a company (“the second company”) pays a dividend to another company (“the first company”).
(3) Condition B is that there is a third company which is a 10% associate of, and pays a dividend to, the second company.
(4) Condition C is that there is a succession of companies consisting of—
(a) a third company which is a 10% associate of, and pays a dividend to, the second company, and
(b) a fourth company which is a 10% associate of, and pays a dividend to, the third company.
(5) Condition D is that there is a succession of companies consisting of—
(a) a third company which is a 10% associate of, and pays a dividend to, the second company, and
(b) two or more companies (the fourth and fifth companies, and so on) each of which is a 10% associate of, and pays a dividend to, the company above it in the succession.
(6) For the purposes of this section, a company (“X”) is a 10% associate of another company (“H”) if H—
(a) controls directly or indirectly, or
(b) is a subsidiary of a company which controls directly or indirectly,
at least 10% of the voting power in X or at least 10% of the ordinary share capital of X.
(7) For the purposes of subsection (6), a company (“S”) is a subsidiary of another company (“P”) if P controls, directly or indirectly, at least 50% of the voting power in S.
65 Relief for underlying tax paid by company lower in dividend-paying chain
(1) Subsection (4) applies if conditions E and F are met.
(2) Condition E is that there is a dividend-paying chain (see section 64) in which—
(a) the first company is the recipient company mentioned in section 63, and
(b) the second company is the overseas company mentioned in that section.
(3) Condition F is that there is underlying tax, payable by a company (“L”) lower in the chain than the second company, that would be taken into account under this Part if—
(a) the dividend paid by L to the company (“K”) above L in the chain had been paid—
(i) by a company resident outside the United Kingdom to a company resident in the United Kingdom, and
(ii) at the time when the dividend paid by the second company is received by the first company, and
(b) double taxation arrangements had provided for the underlying tax to be taken into account.
(4) The underlying tax is to be treated—
(a) for the purposes of section 63(5), and
(b) for the purposes of subsection (3),
as tax paid by K in respect of its profits, but see section 66 (limitations).
(5) In applying section 63 for the purpose of deciding whether condition F is met, read section 63(2) as if “ , or at least 10% of the ordinary share capital of, ” were inserted after “at least 10% of the voting power in”.
(6) Section 58 (first method of calculating amount of underlying tax to be taken into account) does not apply for the purposes of subsections (3) and (4) unless the company referred to in subsection (2)(a) is resident in the United Kingdom and, even if that company is resident in the United Kingdom, section 58 applies for those purposes only—
(a) if K and L are not resident in the same territory, or
(b) in such other cases as may be prescribed by regulations made by the Treasury.
(7) Section 61 (second method of calculation) applies for the purposes of subsections (3) and (4) if section 58 does not apply for those purposes.
(1) Section 65(4) is subject to the limitations set out in subsections (2) and (3).
(2) No tax is to be taken into account in respect of a dividend paid by a company resident in the United Kingdom except—
(a) corporation tax, and
(b) any tax for which the company is entitled to credit under this Part.
(3) No tax is to be taken into account in respect of a dividend paid by a company resident outside the United Kingdom to another such company unless it could have been taken into account, under the provisions of this Part other than section 65(4), had the other company been resident in the United Kingdom.
67 Restriction of relief if underlying tax at rate higher than rate of corporation tax
(1) Subsection (6) applies if—
(a) conditions A and B are met, and
(b) one of conditions C and D is met.
(2) Condition A is that a company (“the claimant company”) makes a claim for an allowance by way of credit in accordance with this Part.
(3) Condition B is that the claim relates to underlying tax on a dividend paid to the claimant company by a company resident outside the United Kingdom (“the overseas company”).
(4) Condition C is that the underlying tax is, or includes, an amount in respect of tax payable at a high rate by the overseas company and—
(a) that amount would not be, or would not be included in, the underlying tax, or
(b) any part of that amount would not be included in the underlying tax,
but for the existence of, or but for there having been, an avoidance scheme (see section 68).
(5) Condition D is that—
(a) there is a dividend-paying chain (see section 64) in which—
(i) the first company is the claimant company, and
(ii) the second company is the overseas company, and
(b) the underlying tax is, or includes, an amount in respect of tax payable at a high rate by a company lower in the chain than the overseas company and—
(i) that amount would not be, or would not be included in, the underlying tax, or
(ii) any part of that amount would not be included in the underlying tax,
but for the existence of, or but for there having been, an avoidance scheme (see section 68).
(6) The amount of credit to which the claimant company is entitled on the claim is to be determined as if the tax payable at a high rate had instead been tax at the relievable rate.
(7) For the purposes of this section, tax payable by a company is “tax payable at a high rate” so far as the amount payable exceeds the amount that would represent tax at the relievable rate on the profits of the company which, for the purposes of this Part, are taken to bear the payable tax.
(8) In this section “the relievable rate” means the rate of corporation tax in force when the dividend mentioned in subsection (3) was paid.
(1) In section 67 “avoidance scheme” means any scheme or arrangement in respect of which each of conditions A to C is met.
(2) Condition A is that the purpose, or one of the main purposes, of the scheme or arrangement is to have an amount of underlying tax taken into account on a claim for an allowance by way of credit in accordance with this Part.
(3) Condition B is that the parties to the scheme or arrangement include—
(a) the company which is the claimant company for the purposes of section 67,
(b) a company related to the claimant company, or
(c) a person connected with the claimant company.
(4) Condition C is that the parties to the scheme or arrangement include a person who was not under the control of the claimant company at any time before the doing of anything as part of, or in pursuance of, the scheme or arrangement.
(5) For the purposes of subsection (3)(b), a company (“R”) is related to the claimant company if the claimant company—
(a) controls directly or indirectly, or
(b) is a subsidiary of a company which controls directly or indirectly,
at least 10% of the voting power in R.
(6) For the purposes of subsection (3)(c), whether a person is connected with another is determined in accordance with section 1122 of CTA 2010.
(7) For the purposes of subsection (4), a person who is a party to a scheme or arrangement is to be taken to have been under the control of the claimant company at all the following times—
(a) any time when the claimant company would have been taken (in accordance with sections 450 and 451 of CTA 2010) to have had control of the person for the purposes of Part 10 of CTA 2010 (close companies),
(b) any time when the claimant company would have been so taken if sections 450 and 451 of CTA 2010 applied (with the necessary modifications) in the case of partnerships and unincorporated associations as they apply in the case of companies, and
(c) any time when the person acted in relation to the scheme or arrangement, or any proposal for it, either directly or indirectly under the direction of the claimant company.
(8) For the purposes of subsection (5), the claimant company is a subsidiary of another company (“P”) if P controls, directly or indirectly, at least 50% of the voting power in the claimant company.
(9) In this section “arrangement” means an arrangement of any kind, whether in writing or not.
(1) This section applies if—
(a) a company resident outside the United Kingdom (“company A”) has paid tax under the law of a territory outside the United Kingdom in respect of any of its profits,
(b) some or all of those profits become profits of another company resident outside the United Kingdom (“company B”) otherwise than as a result of the payment of a dividend to company B, and
(c) company B pays a dividend out of those profits to another company, wherever resident.
(2) If this section applies, this Part has effect, so far as relating to the determination of underlying tax in relation to any dividend paid—
(a) by any company resident outside the United Kingdom (whether or not company B),
(b) to a company resident in the United Kingdom,
as if company B had paid the tax paid by company A in respect of those profits of company A which have become profits of company B as mentioned in subsection (1)(b).
(3) But the amount of relief under this Part which is allowable to a company resident in the United Kingdom is not to exceed the amount which would have been allowable to that company had those profits become profits of company B as a result of the payment of a dividend by company A to company B.
(1) Subsection (2) applies if—
(a) a bank, or a company connected with a bank, makes a claim for an allowance by way of credit in accordance with this Chapter,
(b) there is a dividend-paying chain (see section 64) in which—
(i) the first company is the claimant, and
(ii) the second company is a company resident outside the United Kingdom,
(c) the claimant—
(i) controls directly or indirectly, or
(ii) is a subsidiary of a company which controls directly or indirectly,
at least 10% of the voting power in the second company,
(d) the claim relates to underlying tax on a dividend paid by the second company,
(e) that underlying tax is, or includes, tax payable under the law of a territory outside the United Kingdom on, or by reference to, interest or dividends earned or received in the course of its business by a company (“the receiving company”) which is—
(i) the second company, or
(ii) a company lower in the chain than the second company, and
(f) section 44 would have applied to the receiving company had it been resident in the United Kingdom.
(2) The amount of the credit for the tax mentioned in subsection (1)(e) (“the non-UK tax”) is not to exceed the sum equal to corporation tax, at the rate in force at the time the non-UK tax was chargeable, on—
I
D
—
E
where—
ID is the amount of the interest or dividends mentioned in subsection (1)(e), and
E is the amount of the receiving company's expenditure which is properly attributable to the earning of that interest or those dividends.
(3) For the purposes of subsection (1)(a)—
(a) “bank” means a company carrying on, in the United Kingdom or elsewhere, any trade which includes the receipt of interest or dividends, and
(b) whether a company is connected with a bank is determined in accordance with section 1122 of CTA 2010.
(4) For the purposes of subsection (1)(c), the claimant is a subsidiary of another company (“P”) if P controls, directly or indirectly, at least 50% of the voting power in the claimant.
(1) Subsections (2) and (3) apply in relation to a claim for credit in respect of underlying tax in relation to a dividend paid by a company resident outside the United Kingdom to a company resident in the United Kingdom if, under the law of a territory outside the United Kingdom, tax is payable by any one company resident in the territory (“the responsible company”) in respect of the aggregate profits, or aggregate profits and aggregate gains, of—
(a) that company and another company resident in the territory, or
(b) that company and two or more other companies resident in the territory,
taken together as a single taxable entity.
(2) This Part, so far as relating to the determination of underlying tax in relation to any dividend paid by any of the companies mentioned in subsection (1)(a) or (b) (the “non-resident companies”) to another company (“the payee company”), has effect as if—
(a) the non-resident companies, taken together, were a single company,
(b) anything done by or in relation to any of the non-resident companies (including the payment of the dividend) were done by or in relation to that single company, and
(c) that single company were related to the payee company if the company which actually pays the dividend is related to the payee company.
(3) In particular, this Part has effect as if—
(a) the relevant profits for the purposes of section 58 is a single aggregate figure in respect of that single company, and
(b) the tax paid in the territory by the responsible company is tax paid in the territory by that single company.
(4) For the purposes of this section, a company (“X”) is related to another company (“H”) if H—
(a) controls directly or indirectly, or
(b) is a subsidiary of a company which controls directly or indirectly,
at least 10% of the voting power in X.
(5) For the purposes of subsection (4), H is a subsidiary of another company (“P”) if P controls, directly or indirectly, at least 50% of the voting power in H.
(1) Section 71B has effect in relation to an accounting period of a company resident in the United Kingdom which has an overseas permanent establishment (“the PE”) if, in that or any earlier accounting period, condition A or B is met.
(2) Condition A is met in relation to an accounting period if, for the purposes of any tax chargeable under the law of the PE territory—
(a) a loss or other amount attributable to the PE is deducted from or otherwise allowed against amounts of any person other than the company, and
(b) as a result, there is a decrease in the tax chargeable in respect of a foreign taxable period ending in the accounting period.
(3) Condition B is met in relation to an accounting period if—
(a) tax is chargeable under the law of the PE territory in respect of the aggregate profits, or aggregate profits or gains, of the PE and persons other than the company,
(b) a loss or other amount attributable to the PE is deducted from or otherwise allowed against, or is brought into account as a deduction or other allowance in calculating, amounts other than amounts of the PE, and
(c) as a result, there is a decrease in the tax chargeable in respect of a foreign taxable period ending in the accounting period.
(4) In this section—
“foreign taxable period” means any period in respect of which the tax in question is chargeable under the law of the PE territory, and
“the PE territory” means the territory in which the PE is situated.
71B Reduction of foreign tax paid on profits of overseas PE
(1) For the purposes of allowing credit relief under this Part, the amount of foreign tax paid in respect of the company's qualifying income from the PE in the accounting period is reduced (but not below nil) by the relevant amount for that period.
(2) In calculating any amount chargeable to corporation tax, any deduction for an amount of foreign tax paid in respect of the company's qualifying income from the PE in the accounting period is reduced (but not below nil) by the relevant amount for that period.
(3) In this section “the relevant amount” for the accounting period means the total of—
(a) the amount of the decrease in the tax chargeable in respect of a foreign taxable period ending in the accounting period (if the accounting period is one in relation to which condition A or B in section 71A is met), and
(b) any excess tax carried forward to the accounting period.
(4) For this purpose excess tax is carried forward to the accounting period so far as the relevant amount for the previous accounting period exceeds the amount of foreign tax paid in respect of the company's qualifying income from the PE in that previous period.
(5) In determining the relevant amount, a deduction or allowance of the kind referred to in condition A or B in section 71A is to be ignored if it results in a deduction or other allowance that is reduced under section 259JC (counteraction where mismatch arises because of a relevant multinational and the UK is the parent jurisdiction).
(6) If, for any accounting period, it becomes necessary for the relevant amount to be reduced or increased, an adjustment may be made (whether or not by an officer of Revenue and Customs)—
(a) by way of an assessment, the modification of an assessment, amendment or disallowance of a claim, or otherwise, and
(b) despite any time limit imposed by or under any enactment.
(7) In this section “the company's qualifying income from the PE” means the profits of the PE which are profits chargeable under Chapter 2 of Part 3 of CTA 2009 of a trade carried on partly, but not wholly, outside the United Kingdom.
(1) Section 73(1) applies if, in an accounting period of a company resident in the United Kingdom—
(a) the amount of the credit for foreign tax which under the arrangements would, if section 42 were ignored, be allowable against corporation tax in respect of the company's qualifying income from an overseas permanent establishment, exceeds
(b) the amount of the credit for foreign tax which under the arrangements is allowed against corporation tax in respect of the company's qualifying income from that overseas permanent establishment.
(2) For the purposes of subsection (1) and section 73(1), the company's qualifying income from an overseas permanent establishment is the profits of the overseas permanent establishment which are—
(a) profits, chargeable under Chapter 2 of Part 3 of CTA 2009, of a trade carried on partly, but not wholly, outside the United Kingdom, ...
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) In sections 73 to 78—
“the company” means the company mentioned in subsection (1),
“the excess” means the excess referred to in that subsection,
“the PE” means the overseas permanent establishment mentioned in that subsection, and
“period A” means the accounting period mentioned in that subsection.
73 Carry-forward and carry-back of unrelieved foreign tax
(1) For the purposes of allowing credit relief under this Part, the excess is to be treated—
(a) as if it were foreign tax paid in respect of, and calculated by reference to, the company's qualifying income from the PE in the accounting period after period A (whether or not the company in fact has any qualifying income from that source in the accounting period after period A), or
(b) in accordance with the rules in section 74, as if it were foreign tax paid in respect of, and calculated by reference to, the company's qualifying income from the PE in one or more of the recent periods, or
(c) partly as mentioned in paragraph (a) and partly as mentioned in paragraph (b).
(2) If in period A the company ceases to have the PE, the excess, so far as it is not treated as mentioned in subsection (1)(b), is to be reduced to nil (so that none of the excess is to be treated as mentioned in subsection (1)(a)).
(3) If an amount is treated as mentioned in subsection (1)(b) it is not to be so treated for the purpose of any further application of subsection (1).
(4) In subsection (1)(b) “recent period” means an accounting period which is earlier than period A but begins not more than 3 years before period A.
(1) This section sets out the rules mentioned in section 73(1)(b).
(2) The first rule is that—
(a) credit for the excess, or for any remaining balance of the excess, is allowed against corporation tax in respect of a later recent period, before
(b) credit for any of the excess is allowed against corporation tax in respect of any earlier recent period.
(3) The second rule is that, before allowing credit for any of the excess against corporation tax in respect of income of any particular accounting period (“period P”), credit for foreign tax is allowed—
(a) first for foreign tax in respect of the income of period P, other than amounts which are foreign tax as a result of applying section 73(1) to an excess from an accounting period other than period P, and
(b) then for amounts which are foreign tax as a result of applying section 73(1) to an excess from an accounting period before period P.
(4) In subsection (2) “recent period” means an accounting period which is earlier than period A but begins not more than 3 years before period A.
75 Two or more establishments treated as a single establishment
(1) Subsection (2) applies if, under the law of a territory outside the United Kingdom, tax is charged in respect of the profits of two or more overseas permanent establishments in that territory, taken together.
(2) For the purposes of the provisions of sections 72 to 78 other than the excepted provisions, those overseas permanent establishments are to be treated as if they together constituted a single overseas permanent establishment.
(3) In subsection (2) “the excepted provisions” means section 73(2), this section and section 77.
76 Former and subsequent establishments regarded as distinct establishments
(1) If the company—
(a) at any time ceases to have a particular overseas permanent establishment in a particular territory (“the old establishment”), but
(b) subsequently again has an overseas permanent establishment in that territory (“the new establishment”),
the old establishment and the new establishment are, for the purposes of the provisions of sections 72 to 78 other than the excepted provisions, to be regarded as different overseas permanent establishments.
(2) In subsection (1) “the excepted provisions” means sections 73(2), 75 and 77.
(1) The excess is to be treated as mentioned in section 73(1) only on a claim.
(2) A claim under subsection (1) must specify—
(a) the amount (if any) of the excess which is to be treated as mentioned in section 73(1)(a), and
(b) the amount (if any) of the excess which is to be treated as mentioned in section 73(1)(b).
(3) A claim under subsection (1) must be made not more than—
(a) 4 years after the end of period A, or
(b) if later, 1 year after the end of the accounting period in which the foreign tax concerned is paid.