ANNEX 1:: MINOR CHANGES IN THE LAW Change 3: Double taxation relief: unilateral relief for tax on profits of UK branch, agency or permanent establishment: limit: section 30
This change brings into line with practice the law concerning unilateral relief for overseas tax on the income or gains of UK branches, agencies and permanent establishments of non-UK residents.
In certain circumstances in which DTR under a tax treaty is not available, section 794(2)(bb) of ICTA allows credit by way of unilateral relief for overseas tax in respect of the income or gains of a branch or agency of a non-UK resident person who is not a company or of a permanent establishment of a non-UK resident company.
One of the conditions which must be met is imposed by section 794(2)(bb)(ii) of ICTA, namely:
“that the amount of relief claimed does not exceed (or is by the claim expressly limited to) that which would have been available if the branch or agency had been a person resident in the United Kingdom and the income or gains in question had been income or gains of that person.”
On a strict interpretation, this could be taken as meaning that if the taxpayer’s claim was excessive no unilateral relief would be allowed at all. In practice, however, HMRC do not adopt this strict interpretation – which would, in any case, not sit easily with Self Assessment.
Section 30(4), which is based on section 794(2)(bb)(ii) of ICTA, therefore rewrites the provision as a limit on the amount of relief which may be allowed, rather than as a condition which must be met if relief is to be allowed at all.
This change is in taxpayers’ favour in principle. But it is expected to have no practical effect as it is in line with generally accepted practice.