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 1 — Double taxation arrangements and unilateral relief arrangements
7

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Rule 3: interaction between double taxation arrangements and rules 1 and 2
(1)
Credit for tax paid under the law of the territory is not allowed under section
9 or 10 in the case of any income or gains if any credit for that tax is allowable
in respect of that income or those gains under double taxation arrangements
made in relation to the territory.
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(2)
If credit in respect of an amount of tax may be allowed under double taxation
arrangements made in relation to the territory, credit is not allowed under
section 9 or 10 in respect of that tax.
(3)
If double taxation arrangements made in relation to the territory contain
express provision to the effect that relief by way of credit is not to be given
10
under the arrangements in cases or circumstances specified or described in the
arrangements, credit is not allowed under section 9 or 10 in those cases or
circumstances.
12
Rule 4: cases in which, and calculation of, credit allowed for tax on dividends
(1)
Credit under section 9 for overseas tax on a dividend paid by a company (“P”)
15
resident in the territory is allowed only if section 13, 14, 15 or 16 so provides.
(2)
If credit is allowed in principle as a result of at least one of sections 14, 15 and
16, any tax in respect of P’s profits that is paid by P under the law of the
territory is to be taken into account in considering whether any, and (if so)
what, credit is in fact to be allowed under section 9 in respect of the dividend.
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(3)
If credit is allowed in principle as a result of at least one of sections 15 and 16,
there is to be taken into account, as if it were tax payable under the law of the
territory, any tax that would be so taken into account under section 63(5) if the
recipient of the dividend—
(a)
directly or indirectly controlled, or
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(b)
were a subsidiary of a company that directly or indirectly controlled,

at least 10% of the voting power in P.
(4)
For the purposes of subsection (3), the recipient is a subsidiary of another
company if the other company controls, directly or indirectly, at least 50% of
the voting power in the recipient.
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13
Rule 5: credit for tax charged directly on dividend
(1)
This section applies for the purposes of section 12(1).
(2)
Credit under section 9 for overseas tax on a dividend paid by a company (“P”)
resident in the territory is allowed if—
(a)
the overseas tax is charged directly on the dividend (whether by charge
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to tax, deduction of tax at source or otherwise), and
(b)
neither P nor the recipient of the dividend would have borne any of that
tax if the dividend had not been paid.
14
Rule 6: credit for underlying tax on dividend paid to 10% associate of payer
(1)
This section applies for the purposes of section 12(1).
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(2)
Credit under section 9 for overseas tax on a dividend paid by a company (“P”)
resident in the territory is allowed if conditions A and B are met.

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 1 — Double taxation arrangements and unilateral relief arrangements
8

(3)
Condition A is that—
(a)
the recipient of the dividend is a company resident in the United
Kingdom, or
(b)
the recipient is a company resident outside the United Kingdom but the
dividend forms part of the profits of a permanent establishment of the
5
recipient in the United Kingdom.
(4)
Condition B is that the recipient—
(a)
directly or indirectly controls, or
(b)
is a subsidiary of a company which directly or indirectly controls,

at least 10% of the voting power in P.
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(5)
For the purposes of subsection (4), the recipient is a subsidiary of another
company if the other company controls, directly or indirectly, at least 50% of
the voting power in the recipient.
15
Rule 7: credit for underlying tax on dividend paid to sub-10% associate
(1)
This section applies for the purposes of section 12(1).
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(2)
Credit under section 9 for overseas tax on a dividend paid by a company (“P”)
resident in the territory is allowed if each of conditions A to C is met.
(3)
Condition A is that—
(a)
the recipient of the dividend is a company resident in the United
Kingdom, or
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(b)
the recipient is a company resident outside the United Kingdom but the
dividend forms part of the profits of a permanent establishment of the
recipient in the United Kingdom.
(4)
Condition B is that the recipient—
(a)
directly or indirectly controls, or
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(b)
is a subsidiary of a company which directly or indirectly controls,

less than 10% of the voting power in P.
(5)
If condition B is met, in subsection (6) “the held percentage” means the voting
power in P which is directly or indirectly controlled by—
(a)
the recipient, or
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(b)
a company of which the recipient is a subsidiary.
(6)
Condition C is that—
(a)
the held percentage has been reduced below 10%,
(b)
the recipient shows that the reduction below the 10% limit (and any
further reduction)—
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(i)
could not have been prevented by any reasonable endeavours
on the part of the recipient, a parent or an associate, and
(ii)
was due to a cause or causes not reasonably foreseeable by the
recipient, a parent or an associate when control of the relevant
voting power was acquired, and
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(c)
the recipient shows that no reasonable endeavours on the part of the
recipient, a parent or an associate could have restored, or (as the case
may be) increased, the held percentage to at least 10%.
(7)
For the purposes of subsection (6) a company is an “associate” if—
(a)
the company is neither the recipient nor a parent,
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Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 1 — Double taxation arrangements and unilateral relief arrangements
9

(b)
before the reduction, the voting power in P that is in question was
controlled otherwise than directly by the recipient, and
(c)
the company is relevant for determining whether, before the reduction,
the recipient—
(i)
indirectly controlled, or
5
(ii)
was a subsidiary of a company which directly or indirectly
controlled,

at least 10% of the voting power in P.
(8)
In subsections (6) and (7) “parent” means a company of which the recipient is
a subsidiary.
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(9)
In subsection (6) “the relevant voting power” means—
(a)
the voting power in P as a result of which relief was due under section
14 before the reduction, or
(b)
if control of the whole of that voting power was not acquired at the
same time, that part of the voting power of which control was last
15
acquired.
(10)
For the purposes of this section, the recipient is a subsidiary of another
company if the other company controls, directly or indirectly, at least 50% of
the voting power in the recipient.
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Rule 8: credit for underlying tax on dividend paid by exchanged associate
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(1)
This section applies for the purposes of section 12(1).
(2)
Credit under section 9 for overseas tax on a dividend paid by a company (“P”)
resident in the territory is allowed if each of conditions A to C is met.
(3)
Condition A is that—
(a)
the recipient of the dividend is a company resident in the United
25
Kingdom, or
(b)
the recipient is a company resident outside the United Kingdom but the
dividend forms part of the profits of a permanent establishment of the
recipient in the United Kingdom.
(4)
Condition B is that the recipient—
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(a)
directly or indirectly controls, or
(b)
is a subsidiary of a company which directly or indirectly controls,

less than 10% of the voting power in P.
(5)
If condition B is met, in subsection (6) “the held percentage” means the voting
power in P which is directly or indirectly controlled by—
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(a)
the recipient, or
(b)
a company of which the recipient is a subsidiary.
(6)
Condition C is that—
(a)
the held percentage has been acquired in exchange for voting power in
another company (“X”),
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(b)
before the exchange, the recipient—
(i)
directly or indirectly controlled, or
(ii)
was a subsidiary of a company which directly or indirectly
controlled,

at least 10% of the voting power in X,
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Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 1 — Double taxation arrangements and unilateral relief arrangements
10

(c)
the recipient shows that the exchange (and any reduction after the
exchange)—
(i)
could not have been prevented by any reasonable endeavours
on the part of the recipient, a parent or an associate, and
(ii)
was due to a cause or causes not reasonably foreseeable by the
5
recipient, a parent or an associate when control of the relevant
voting power was acquired, and
(d)
the recipient shows that no reasonable endeavours on the part of the
recipient, a parent or an associate could have restored, or (as the case
may be) increased, the held percentage to at least 10%.
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(7)
For the purposes of subsection (6) a company is an “associate” if—
(a)
the company is neither the recipient nor a parent,
(b)
before the exchange, the voting power in X that is in question was
controlled otherwise than directly by the recipient, and
(c)
the company is relevant for determining whether, before the exchange,
15
the recipient—
(i)
indirectly controlled, or
(ii)
was a subsidiary of a company which directly or indirectly
controlled,

at least 10% of the voting power in X.
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(8)
In subsections (6) and (7) “parent” means a company of which the recipient is
a subsidiary.
(9)
In subsection (6) “the relevant voting power” means—
(a)
the voting power in X as a result of which relief was due under section
14 before the exchange, or
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(b)
if control of the whole of that voting power was not acquired at the
same time, that part of the voting power of which control was last
acquired.
(10)
For the purposes of this section, the recipient is a subsidiary of another
company if the other company controls, directly or indirectly, at least 50% of
30
the voting power in the recipient.
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Rule 9: credit in relation to dividends for spared tax
(1)
Subsection (2) applies if—
(a)
under the law of the territory, an amount of tax (“the spared tax”)
would, but for a relief, have been payable by a company resident in the
35
territory (“company A”) in respect of any of its profits,
(b)
company A pays a dividend out of those profits to another company
resident in the territory (“company B”),
(c)
company B, out of profits which consist of or include the whole or part
of that dividend, pays a dividend to a company resident in the United
40
Kingdom (“company C”), and
(d)
the circumstances are such that, had company B been resident in the
United Kingdom, it would have been entitled, as a result of the
operation of section 20(2) in relation to double taxation arrangements
made in relation to the territory, to treat the spared tax for the purposes
45
of Chapter 2 as having been payable.
(2)
The spared tax is to be taken into account—

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 2 — Double taxation relief by way of credit
11

(a)
for the purposes of sections 9 to 16, and
(b)
subject to section 31(4), for the purposes of Chapter 2 in its application
to relief under these rules in relation to the dividend paid to company
C,

as if it had been payable and paid.
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(3)
References in these rules and that Chapter—
(a)
to tax payable or chargeable, or
(b)
to tax not chargeable directly or by deduction,

are to be read in accordance with subsection (2).
(4)
Except as provided by subsection (2), in relation to any dividend paid—
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(a)
by a company resident in the territory,
(b)
to a company resident in the United Kingdom,

credit as a result of these rules is not to be given under section 63(5) in respect
of tax which would have been payable under the law of the territory, or under
the law of any other territory outside the United Kingdom, but for a relief.
15
(5)
Subsection (4) has effect despite any double taxation arrangements—
(a)
made in relation to the territory, or
(b)
made in relation to any other territory outside the United Kingdom,

which make provision about a relief given, under the law of the territory in
relation to which the arrangements are made, with a view to promoting
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industrial, commercial, scientific, educational or other development in a
territory outside the United Kingdom.
(6)
In this section “these rules” means sections 9 to 16 and this section.
Chapter 2
Double taxation relief by way of credit
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Effect to be given to credit for foreign tax allowed against UK tax
18
Entitlement to credit for foreign tax reduces UK tax by amount of the credit
(1)
Subsection (2) applies if—
(a)
under double taxation arrangements, or
(b)
under unilateral relief arrangements for a territory outside the United
30
Kingdom,

credit is to be allowed against any income tax, corporation tax or capital gains
tax chargeable in respect of any income or chargeable gain.
(2)
The amount of those taxes chargeable in respect of the income or gain is to be
reduced by the amount of the credit.
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(3)
In subsection (1) “credit”—
(a)
in relation to double taxation arrangements, means credit for tax
payable under the law of the territory in relation to which the
arrangements are made, and
(b)
in relation to unilateral relief arrangements for a territory outside the
40
United Kingdom, means credit for tax payable under the law of that
territory,

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 2 — Double taxation relief by way of credit
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but see sections 12(3) and 63(5) (dividends: certain tax payable otherwise than
under the law of a territory treated as payable under that law).
(4)
Subsection (2) applies subject to—
(a)
the following provisions of this Chapter,
(b)
section 106 (Chapter 1 and this Chapter operate for capital gains tax
5
purposes separately from their operation for the purposes of other
United Kingdom taxes), and
(c)
Chapter 2 of Part 18 of ICTA (double taxation relief: pooling of foreign
dividends paid before 1 July 2009).
(5)
Credit is allowed under subsection (2) against any tax only if, under the
10
arrangements concerned, credit is allowable against that tax.
(6)
Credit against income tax is given effect at Step 6 of the calculation in section
23 of ITA 2007.
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Time limits for claims for relief under section 18(2)
(1)
Subsections (2) and (3) apply to a claim for relief under section 18(2).
15
(2)
If the claim is for credit for foreign tax in respect of any income or chargeable
gain charged to income tax or capital gains tax for a tax year, the claim must be
made on or before—
(a)
the fourth anniversary of the end of that tax year, or
(b)
if later, the 31 January following the tax year in which the foreign tax is
20
paid.
(3)
If the claim is for credit for foreign tax in respect of any income or chargeable
gain charged to corporation tax for an accounting period, the claim must be
made not more than—
(a)
four years after the end of that accounting period, or
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(b)
if later, one year after the end of the accounting period in which the
foreign tax is paid.
20
Foreign tax includes tax spared because of international development relief
(1)
Subsections (2) and (4) apply if the arrangements are double taxation
arrangements.
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(2)
For the purposes of this Chapter, any amount within subsection (3) is to be
treated as having been payable.
(3)
An amount is within this subsection if it is an amount of tax that would have
been payable under the law of a territory outside the United Kingdom but for
a relief—
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(a)
given under the law of that territory with a view to promoting
industrial, commercial, scientific, educational or other development in
a territory outside the United Kingdom, and
(b)
about which provision is made in double taxation arrangements.
(4)
References in this Chapter—
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(a)
to tax payable or chargeable, or
(b)
to tax not chargeable directly or by deduction,

are to be read in accordance with subsection (2).

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 2 — Double taxation relief by way of credit
13

(5)
Subsections (2) and (4) have effect subject to—
(a)
subsection (6), and
(b)
section 32(5) (income and gains taxed on remittance basis not to be
increased under section 32 by amounts treated by this section as having
been payable).
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(6)
If section 63(5) applies because conditions A and B in section 63 are met, relief
is not given in accordance with section 63(5) (relief for certain tax underlying
dividends paid between related companies) because of this section unless
double taxation arrangements make express provision for the relief.
(7)
Subsection (6) does not affect the operation of section 17(2) (treatment, for
10
purposes of unilateral relief, of dividend paid by foreign company that has
received dividends from a company benefiting from tax-sparing relief).
Interpretation of Chapter
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Meaning of “the arrangements”, “the non-UK territory”, “foreign tax” etc
(1)
In this Chapter (except section 18)—
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“the arrangements” means the arrangements mentioned in section 18(1),
“the non-UK territory” means the territory mentioned in section 18(3),
“foreign tax” means tax chargeable under the law of the non-UK
territory—
(a)
for which credit may be allowed under the arrangements, and
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(b)
which is not special withholding tax, and
“underlying tax” means, in relation to any dividend, tax which is not
chargeable in respect of that dividend directly or by deduction.
(2)
In subsection (1) “special withholding tax” has the same meaning as in Part 3
(see section 136).
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(3)
The definitions in subsection (1) are to be read with sections 17(3) and 20(4)
(meaning of references to tax payable or chargeable, and of references to tax not
chargeable directly or by deduction).
(4)
See also section 8(2) (meaning of references to tax payable or paid under the
law of a territory outside the United Kingdom).
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Credits where same income charged to income tax in more than one tax year
22
Credit for foreign tax on overlap profit if credit for that tax already allowed
(1)
Subsection (2) applies in relation to foreign tax (“FT”) paid in respect of any
income if—
(a)
the income is overlap profit, and
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(b)
credit for FT would have been allowed under section 18(2) against
income tax chargeable for a tax year (“year L”) in respect of the income
but for the fact that credit for FT had been allowed against income tax
chargeable in respect of the income for a previous tax year.
(2)
Credit for FT is allowed against income tax chargeable for year L in respect of
40
the income.