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
21

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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.
(2)
The taxpayer’s income is to be treated as reduced by the amount of the
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disallowed credit.
(3)
Subsection (4) applies if the application of section 40(2) prevents an amount of
credit for foreign tax from being allowable against capital gains tax.
(4)
The taxpayer’s chargeable gains are to be treated as reduced by the amount of
the disallowed credit.
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(5)
Subsection (2) or (4) applies only so far as the amount of disallowed credit does
not exceed the amount of any loss attributable to the income or gain in respect
of which the foreign tax was paid.
(6)
For the purposes of subsection (5), payment of the foreign tax is to be taken into
account despite section 31(2).
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Limit on, and reduction of, credit against income tax
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Amount of limit
(1)
This section is about the amount of credit allowed under section 18(2) against
a person’s income tax for any tax year.
(2)
The amount of credit in respect of income from any particular source must not
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exceed the difference between—
(a)
the amount of income tax to which the person would be liable for the
tax year if the person were charged to income tax on—


and
(b)
the amount of income tax to which the person would be liable for the
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tax year if the person were charged to income tax on—

(3)
If credit is allowed (whether or not under the same tax-relief arrangements) in
respect of income from more than one source, apply subsection (2) successively
to the income from each source, taking the sources in the order which will
result in the greatest reduction in the person’s income tax liability for the tax
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year.
(4)
In subsection (2)—
TI is the person’s total income for the tax year,
X is the income (if any) to which subsection (2) has already been applied,
and
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C is the income in respect of which the credit is to be allowed.
(5)
The rules for calculating an amount of income tax under subsection (2) are—
(a)
the calculation is to be made in accordance with sections 31 and 32, and
(b)
no credit is to be allowed for foreign tax, and
(c)
no reduction is to be made under section 26 of FA 2005 (trusts for the
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benefit of a vulnerable beneficiary), but

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 2 — Double taxation relief by way of credit
22

(d)
any other income tax reduction under the Income Tax Acts is to be
made.
(6)
See section 29(2) and (3) of ITA 2007 (tax reductions limited by reference to tax
liability) for further limits on the total amount of credit for foreign tax to be
allowed to a person against income tax.
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(7)
For the purposes of subsection (3) the following are “tax-relief
arrangements”—
(a)
double taxation arrangements, and
(b)
unilateral relief arrangements for a territory outside the United
Kingdom.
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Credit against tax on trade income: further rules
(1)
Apply section 36(2) in accordance with subsections (2) to (5) if the tax against
which the credit is to be allowed is income tax on trade income.
(2)
Treat the reference to income from any particular source as a reference to trade
income arising out of a transaction, arrangement or asset.
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(3)
C is the income arising out of the transaction, arrangement or asset in
connection with which the credit arises.
(4)
In calculating an amount of income tax under section 36(2) deduct, from the
income arising out of the transaction, arrangement or asset in connection with
which the credit arises, deductions which would be allowed in a calculation of
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the taxpayer’s liability in respect of that income.
(5)
Treat section 36(3) as referring—
(a)
to trade income instead of income, and
(b)
to a transaction, arrangement or asset instead of a source.
(6)
In subsection (4) “deductions” includes a just and reasonable apportionment of
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deductions that relate—
(a)
partly to the income arising out of the transaction, arrangement or asset
in connection with which the credit arises, and
(b)
partly to other matters.
(7)
In this section “trade income” means income chargeable to tax under—
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(a)
Chapter 2 or 18 of Part 2 of ITTOIA 2005 (trade profits and post-
cessation receipts), or
(b)
Chapter 3 or 10 of Part 3 of ITTOIA 2005 (profits of property businesses
and post-cessation receipts).
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Credit against tax on royalties: further rules
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(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 36(2)—
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(a)
royalty income arising in more than one foreign jurisdiction in a tax
year in respect of the asset is to be treated as a single item of income,
and

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 2 — Double taxation relief by way of credit
23

(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.
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Credit reduced by reference to accrued income losses
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(1)
Subsection (5) applies if each of conditions A to C is met.
(2)
Condition A is that a person is entitled under section 18(2) to credit against
income tax.
(3)
Condition B is that the income tax is calculated by reference to income
consisting of interest in respect of which the person is entitled under section
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679 of ITA 2007 (no income tax on interest so far as matched by accrued income
losses) to an exemption from liability to income tax.
(4)
Condition C is that—
(a)
the arrangements are unilateral relief arrangements for a territory
outside the United Kingdom and the credit is allowed as a result of
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section 9, or
(b)
the arrangements are double taxation arrangements and the credit is
allowed as a result of the inclusion in the arrangements of any
provision corresponding to that section.
(5)
The amount of the credit is to be reduced to the amount given by—

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where—
I is the amount of the interest,
E is the amount of the exemption, and
C is the amount the credit would be apart from this subsection.
(6)
Expressions used in this section and in Chapter 2 of Part 12 of ITA 2007
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(accrued income profits) have the same meaning in this section as in that
Chapter.
Limit on credit against capital gains tax
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Amount of limit
(1)
This section is about the amount of credit allowed under section 18(2) against
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a person’s capital gains tax for any tax year.
(2)
The amount of credit in respect of any particular capital gain must not exceed
the difference between—
(a)
the amount of capital gains tax to which the person would be liable for
the tax year if the person were charged to capital gains tax on—

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and
(b)
the amount of capital gains tax to which the person would be liable for
the tax year if the person were charged to capital gains tax on—

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 2 — Double taxation relief by way of credit
24

(3)
If credit is allowed (whether or not under the same tax-relief arrangements) in
respect of more than one capital gain, apply subsection (2) successively to each
capital gain, taking the gains in the order which will result in the greatest
reduction in the person’s capital gains tax liability for the tax year.
(4)
In subsection (2)—
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TG is the total amount of the chargeable gains accruing to the person in
the tax year,
X is the total amount of the gains (if any) to which subsection (2) has
already been applied, and
C is the amount of the gain in respect of which the credit is to be allowed.
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(5)
The rules for calculating an amount of capital gains tax under subsection (2)
are—
(a)
the calculation is to be made in accordance with sections 31 and 32, and
(b)
no credit is to be allowed for foreign tax.
(6)
For the purposes of subsection (3) the following are “tax-relief
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arrangements”—
(a)
double taxation arrangements, and
(b)
unilateral relief arrangements for a territory outside the United
Kingdom.
Limit on total credit against income tax and capital gains tax
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Amount of limit
(1)
In subsection (2) “the total credit” means—


where—
F is the total credit, under all tax-relief arrangements, allowed under
section 18(2) against a person’s income tax for any tax year, and
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G is the total credit, under all tax-relief arrangements, allowed under
section 18(2) against the person’s capital gains tax for that tax year.
(2)
The total credit is not to be more than—


where—
I is the total income tax payable by the person for the tax year,
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C is the total capital gains tax payable by the person for the tax year, and
A is the total amount of the tax treated under section 414 of ITA 2007 (gift
aid) as deducted from gifts made by the person in the tax year.
(3)
In calculating I and C for the purposes of subsection (2), no reduction is to be
made for credit under section 18(2).
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(4)
Subsection (2) applies in addition to sections 36 and 40.
(5)
For the purposes of subsection (1) the following are “tax-relief
arrangements”—
(a)
double taxation arrangements, and
(b)
unilateral relief arrangements for a territory outside the United
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Kingdom.