Taxation (International and Other Provisions) Bill

House of Commons

Session 2009 - 10
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Other Bills before Parliament

Taxation (International and Other Provisions) Bill

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 2 — Double taxation relief by way of credit
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(3)
The amount of credit allowed for year L under subsection (2) in respect of the
income must not exceed the difference between—
(a)
T, and
(b)
the amount of credit which was in fact allowed, under subsection (2) or
section 18(2), in respect of the income for any earlier tax year or years.
5
(4)
For the purposes of subsection (3)(a), T is the amount (“A”) of the foreign tax
charged on the income, but this is subject to subsections (5) to (7).
(5)
If Y exceeds FP—

where—
Y is the number of tax years for which credit is allowed, under subsection
10
(2) or section 18(2), against income tax in respect of the income, and
FP is the number of foreign periods of assessment.
(6)
For the purposes of subsection (5), a tax year or foreign period of assessment
for which part only of the income is charged to tax is counted not as one year
or period but as a fraction of a year or period, the fraction being—
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where—
P is that part of the income, and
W is the whole of the income.
(7)
If the same income is charged to different foreign taxes for different foreign
periods of assessment—
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(a)
subsection (5) (read with subsection (6)) is to be applied separately to
each of those taxes, and
(b)
T is the sum of those taxes after subsection (5) has been applied to them
in accordance with paragraph (a).
(8)
In this section—
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“overlap profit” has the same meaning as in Chapter 15 of Part 2 of
ITTOIA 2005 (see section 204 of that Act), and
“foreign period of assessment”, in relation to any income, means a period
for which the income is, under the law of the non-UK territory, charged
to the foreign tax concerned.
30
23
Time limits for claims for relief under section 22(2)
(1)
Relief under section 22(2) requires a claim.
(2)
Any claim for relief by way of credit under section 22(2) against income tax for
any tax year must be made on or before the fifth anniversary of the 31 January
following that tax year, subject to subsection (3).
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(3)
If there is more than one tax year in respect of which such relief may be given,
any claim for the relief must be made on or before the fifth anniversary of the
31 January following the later of those tax years.

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 2 — Double taxation relief by way of credit
15

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Claw-back of relief under section 22(2)
(1)
Subsections (4) and (5) apply if—
(a)
credit against income tax for any tax year is allowed under section 22(2)
in respect of any income (“the original income”), and
(b)
the original income, or any part of it, contributes to an amount which,
5
under section 205 or 220 of ITTOIA 2005, is deducted in calculating
profits of a later tax year (“the later year”).
(2)
For the purposes of subsections (4) and (5), amount A is the difference
between—
(a)
the amount of the credit which, as a result of the application of sections
10
18(2) and 22(2) and subsection (5) of this section, has been allowed
against income tax in respect of so much of the original income as
contributes as mentioned in subsection (1), and
(b)
the amount of the credit which, ignoring sections 22 and 23 and this
section, would have been allowed under section 18(2) against income
15
tax in respect of so much of the original income as contributes as
mentioned in subsection (1).
(3)
For the purposes of subsections (4) and (5), amount B is the amount of credit
which, on the assumption that no amount were deducted under section 205 or
220 of ITTOIA 2005, would be allowable under section 18(2) against income tax
20
in respect of income arising in the later year from the same source as the
original income.
(4)
If amount A exceeds amount B—
(a)
an amount of income tax equal to the excess is charged for the later
year, and
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(b)
the liable person is liable for the tax.
(5)
If amount B exceeds amount A, the liable person is allowed for the later year
an amount of credit equal to the excess.
(6)
In subsections (4) and (5) “the liable person” means the person liable for income
tax charged on the income (if any) arising in the later year from the same source
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as the original income.
(7)
For the purposes of subsections (1) to (6), it is to be assumed that, where an
amount is deducted under section 220 of ITTOIA 2005, each of the overlap
profits added together at Step 1 of the calculation in subsection (3) of that
section contributes to that amount in the proportion which that overlap profit
35
bears to the total that is the result of that Step.
(8)
In this section—
(a)
“overlap profit” has the same meaning as in Chapter 15 of Part 2 of
ITTOIA 2005 (see section 204 of that Act), and
(b)
references to income arising in any year include income received in the
40
year that is income on which income tax is to be calculated by reference
to the amount of income received in the United Kingdom.
Cases in which credit not allowed
25
Credit not allowed if relief allowed against overseas tax
(1)
Subsection (2) applies if relief may be allowed—
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Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 2 — Double taxation relief by way of credit
16

(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.
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(2)
Credit under section 18(2) is not allowed in respect of that tax, whether or not
the relief has been used.
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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
10
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).
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(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.
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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
20
person elects for credit not to be allowed in respect of that income or those
gains.
Exceptions to requirement to be UK resident
28
Unilateral relief for Isle of Man or Channel Islands tax
(1)
Subsection (2) applies if the arrangements—
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(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
30
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—
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(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”).

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 2 — Double taxation relief by way of credit
17

(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.
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(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
10
period” means tax year (see section 288(1ZA) of TCGA 1992).
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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—
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(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.
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(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
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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
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(b)
is levied by or on behalf of a municipality or other local body.
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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)
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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
40
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

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 2 — Double taxation relief by way of credit
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(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—
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(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
10
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)—
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(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,
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“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
25
person, has the meaning given by section 989 of ITA 2007.
Calculating income or gains in respect of which credit is allowed
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
30
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—
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(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).
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(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,

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 2 — Double taxation relief by way of credit
19

(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
5
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—
10
(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—
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(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
20
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
25
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
30
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
35
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.
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(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—

where—

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 2 — Double taxation relief by way of credit
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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
5
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—
10
(a)
within the meaning of Part 3 (see section 136), and
(b)
in respect of which a claim has been made under that Part.
Limits on credit: general rules
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Limit on credit: minimisation of the foreign tax
(1)
The credit under section 18(2) must not exceed the credit which would be
15
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—
20
(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 (2), 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
25
what the person might reasonably be expected to have done in the absence of
relief under this Part.
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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
30
arrangements, and
(b)
a payment is made by a tax authority to P, or any person connected
with P, by reference to the foreign tax.
(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
35
1122 of CTA 2010.
35
Disallowed credit: use as a deduction
(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.
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