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Application of foreign dividend provisions to branches or agencies in the UK of persons resident elsewhere

20.--(1) After section 806J of the Taxes Act 1988 insert--

"Application of foreign dividend provisions to branches or agencies in the UK of persons resident elsewhere

806K.--(1) Sections 806A to 806J shall apply in relation to an amount of eligible unrelieved foreign tax arising in a chargeable period in respect of any of the income of a branch or agency in the United Kingdom of a person resident outside the United Kingdom as they apply in relation to eligible unrelieved foreign tax arising in an accounting period of a company resident in the United Kingdom in respect of any of the company's income, but with the modifications specified in subsection (2) below.
(2) Those modifications are--
(a) take any reference to an accounting period as a reference to a chargeable period;
(b) take any reference to corporation tax as including a reference to income tax;
(c) take the reference in section 806A(4)(a) to section 797 as a reference to sections 796 and 797;
(d) in relation to income tax, for subsection (2) of section 806B substitute the subsection (2) set out in subsection (3) below.
(3) That subsection is--
"(2) In Case A, the difference between--
(a) the amount of the credit allowed as mentioned in section 806A(4)(b), and

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(b) the greater amount of credit that would have been so allowed if, for the purposes of section 796, the amount of income tax borne on the dividend as computed under that section were charged at a rate equal to the upper percentage,
shall be an amount of eligible unrelieved foreign tax."."
(2) The amendment made by sub-paragraph (1) has effect in relation to--
(a) dividends arising on or after 31st March 2001, and
(b) foreign tax in respect of such dividends,
(and accordingly the single related dividend or single unrelated dividend which by virtue of that amendment falls to be treated as arising in any chargeable period shall not include any dividend arising on or before 30th March 2001).

Unrelieved foreign tax: profits of overseas branch or agency

20A.--(1) After section 806K of the Taxes Act 1988 insert--

"Unrelieved foreign tax: profits of overseas branch or agency

Carry forward or carry back of unrelieved foreign tax
806L.--(1) This section applies where, in any accounting period of a company resident in the United Kingdom, an amount of unrelieved foreign tax arises in respect of any of the company's qualifying income from an overseas branch or agency of the company.
(2) The amount of the unrelieved foreign tax so arising shall be treated for the purposes of allowing credit relief under this Part as if it were foreign tax paid in respect of, and computed by reference to, the company's qualifying income from the same overseas branch or agency--
(a) in the next accounting period (whether or not the company in fact has any such income from that source in that accounting period), or
(b) in such one or more preceding accounting periods, beginning not more than three years before the accounting period in which the unrelieved foreign tax arises, as result from applying the rules in subsection (3) below,
or partly in the one way and partly in the other.
(3) Where any unrelieved foreign tax is to be treated as mentioned in paragraph (b) of subsection (2) above, the rules for determining the accounting periods in question (and the amount of the unrelieved foreign tax to be so treated in relation to each of them) are that the unrelieved foreign tax must be so treated under that paragraph--
1. that--
(a) credit for, or for any remaining balance of, the unrelieved foreign tax is allowed against corporation tax in respect of income of a later one of the accounting periods beginning as mentioned in that paragraph,
before
(b) credit for any of the unrelieved foreign tax is allowed against corporation tax in respect of income of any earlier such period;
2. that, before allowing credit for any of the unrelieved foreign tax against corporation tax in respect of income of any accounting period, credit for foreign tax is allowed--
(a) first for foreign tax in respect of the income of that accounting period, other than unrelieved foreign tax arising in another accounting period; and
(b) then for unrelieved foreign tax arising in any accounting period before that in which the unrelieved foreign tax in question arises.
(4) For the purposes of this section, the cases where an amount of unrelieved foreign tax arises in respect of any of a company's qualifying income from an overseas branch or agency in an accounting period are those cases where--

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(a) the amount of the credit for foreign tax which under any arrangements would, apart from section 797, be allowable against corporation tax in respect of that income,
exceeds
(b) the amount of the credit for foreign tax which under the arrangements is allowed against corporation tax in respect of that income;
and in any such case that excess is the amount of the unrelieved foreign tax in respect of that income.
(5) For the purposes of this section, a company's qualifying income from an overseas branch or agency is the profits of the overseas branch or agency which are--
(a) chargeable under Case I of Schedule D; or
(b) included in the profits of life reinsurance business or overseas life assurance business chargeable under Case VI of Schedule D by virtue of section 439B or 441.
(6) Where (whether by virtue of this subsection or otherwise) an amount of unrelieved foreign tax arising in an accounting period falls to be treated under subsection (2) above for the purposes of allowing credit relief under this Part as foreign tax paid in respect of, and computed by reference to, qualifying income of an earlier accounting period, it shall not be so treated for the purpose of any further application of this section.
(7) In this section "overseas branch or agency", in relation to a company, means a branch or agency through which the company carries on a trade in a territory outside the United Kingdom.
Provisions supplemental to section 806L
806M.--(1) This section has effect for the purposes of section 806L and shall be construed as one with that section.
(2) If, in any accounting period, a company ceases to have a particular overseas branch or agency, the amount of any unrelieved foreign tax which arises in that accounting period in respect of the company's income from that overseas branch or agency shall, to the extent that it is not treated as mentioned in section 806L(2)(b), be reduced to nil (so that no amount arises which falls to be treated as mentioned in section 806L(2)(a)).
(3) If a company--
(a) at any time ceases to have a particular overseas branch or agency in a particular territory ("the old branch or agency"), but
(b) subsequently again has an overseas branch or agency in that territory ("the new branch or agency"),
the old branch or agency and the new branch or agency shall be regarded as different overseas branches or agencies.
(4) If, under the law of a territory outside the United Kingdom, tax is charged in the case of a company resident in the United Kingdom in respect of the profits of two or more of its overseas branches or agencies in that territory, taken together, then, for the purposes of--
(a) section 806L, and
(b) subsection (3) above,
those overseas branches or agencies shall be treated as if they together constituted a single overseas branch or agency of the company.
(5) Unrelieved foreign tax arising in respect of qualifying income from a particular overseas branch or agency in any accounting period shall only be treated as mentioned in subsection (2) of section 806L on a claim.
(6) Any such claim must specify the amount (if any) of the unrelieved foreign tax--
(a) which is to be treated as mentioned in paragraph (a) of that subsection; and
(b) which is to be treated as mentioned in paragraph (b) of that subsection.

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(7) A claim under subsection (5) above may only be made before the expiration of the period of--
(a) six years after the end of the accounting period mentioned in that subsection, or
(b) if later, one year after the end of the accounting period in which the foreign tax in question is paid."
(2) The amendment made by sub-paragraph (1) has effect in relation to unrelieved foreign tax arising in any accounting period ending on or after 1st April 2000.
(3) No such tax shall be treated by virtue of that amendment as foreign tax in respect of income arising in any accounting period ended on or before 31st March 2000.'.

No. 107, in page 531, line 8, at end insert--


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