Introduction Details of the Section
2.Subsections (1) and (2) amend section 798A of the Income and Corporation Taxes Act 1988 (ICTA) by introducing after section 798(3) new subsections (3A), (3B) and (3C) to limit the amount of the DTR for foreign tax paid on trade receipts.
3.The new subsection (3A) applies new subsection (3B) to banks and companies connected with banks which have not taken into account a reasonable apportionment of their funding costs in calculating their allowable double taxation relief.
4.Subsection (3B) requires that the allowable deductions and expenses, a reasonable apportionment of which is required to be deducted under section 798A(3) (a), (b) and (c), include a bank’s notional funding costs.
5.Subsection (3) defines the expressions used in subsections (3A) and (3B).
6.Subsections (3) and (4) amend section 798B of ICTA by inserting after section 798B(4) new subsections (4A), (4B) and (4C). These subsections will ensure that where there is an avoidance scheme which arranges for an item of income to be received by an investment company for the purpose of avoiding the effect of section 798A, then provided it is reasonable to suppose that the receipt would have been a trade receipt if it had been received by a connected company, it will be treated as trading income for the purposes of calculating DTR.
7.The amendments will have effect in relation to credits for foreign tax which relate to payments of foreign tax or income received in respect of which foreign tax has been deducted on or after 22nd April 2009.