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
32

(b)
under section 459(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) or 459(1)(a) of CTA 2009.
(6)
In this section “non-trading credit” means a non-trading credit for the purposes
5
of Part 5 of CTA 2009 (loan relationships).
56
Non-trading debits on intangible fixed assets
(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
10
the formula—

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
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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).
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(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—
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“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.
Taking account of foreign tax underlying dividends
30
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.
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(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
40

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 2 — Double taxation relief by way of credit
33

(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
5
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
10
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).
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Calculation if dividend paid by non-resident company to resident company
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(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
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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—

where—
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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
30
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—
(a)
set off against the recipient’s own tax under that law, or
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(b)
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
40
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
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calculation at Step 3 but reduced by any amount calculated at Step 4.

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 2 — Double taxation relief by way of credit
34

(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).
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Meaning of “relevant profits” in section 58
(1)
This section applies for the purposes of section 58.
(2)
“Relevant profits”, if the dividend is within subsection (3), means the profits in
5
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
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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).
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(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.
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(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
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(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
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(b)
profits previously treated as relevant profits for the purposes of section
58, 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
35
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
40
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.

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 2 — Double taxation relief by way of credit
35

(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—
5
(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.
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(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.
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Calculation if section 58 does not apply
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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
20
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—
25
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
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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.
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Meaning of “relevant profits” in section 61
(1)
This section applies for the purposes of section 61.
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(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.
40
(3)
“Relevant profits”, if the dividend is not paid for a specified period but is paid
out of specified profits, means those profits.

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 2 — Double taxation relief by way of credit
36

(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
5
(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—
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(a)
profits previously distributed, or
(b)
profits previously treated as relevant profits for the purposes of section
61, 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
15
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
20
the generality of paragraph 4(1) of Schedule 9 (references to rewritten
provisions include references to superseded provisions).
Taking account of tax underlying dividends that is not foreign tax
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)
25
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—
30
(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—
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(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—
40
(a)
any income tax or corporation tax payable by the overseas company in
respect of its profits, and

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 2 — Double taxation relief by way of credit
37

(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
5
power in S.
Tax underlying dividend treated as underlying tax paid by dividend’s recipient
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
10
(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.
15
(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.
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(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
25
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,
30

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.
35
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
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section.

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 2 — Double taxation relief by way of credit
38

(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—
5
(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
10
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).
15
(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
20
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
25
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.
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Limitations on section 65(4)
(1)
Section 65(4) is subject to the limitations set out in subsections (2) and (3).
30
(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
35
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.
Tax underlying dividends: restriction of relief, and particular cases
67
Restriction of relief if underlying tax at rate higher than rate of corporation tax
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(1)
Subsection (6) applies if—
(a)
conditions A and B are met, and
(b)
one of conditions C and D is met.