Among the draft Finance Bill clauses recently published were amendments to the UK double tax relief rules (“DTR Rules”) which are likely to be of interest to many UK based corporates with overseas income streams.
The general aim of the DTR Rules is to allow relief for foreign tax against UK tax on the same income or gains on which foreign tax has been suffered. If a repayment of that foreign tax is made by a foreign tax authority to the taxpayer or a connected person, the credit against UK tax is correspondingly reduced. This sounds logical and straightforward, but the system is complex in practice and some taxpayers have tried to claim credit against UK tax for amounts greater than the amounts of foreign tax actually suffered.
The Finance Bill 2014 will amend the DTR Rules, with effect from 5 December 2013, to:
- reduce the credit allowed against UK tax where a repayment of tax is made by a foreign tax authority to a third person who is not connected with the relevant taxpayer if the repayment to that third person is part of a scheme; under the previous rules, a repayment reduced the UK tax credit only if made to the taxpayer or a connected person; and
- counter schemes that attempt to “cross-credit” some of the foreign tax on income arising under loans or from intellectual property and other intangible assets; the aim is to put beyond doubt that credits for foreign tax on such income will be limited to the UK corporation tax on that income and not available to set against UK tax on other income.
Alongside the measures tightening up the CFC and world-wide debt cap rules (see our earlier blog here), this represents a tightening up of the tax regime for UK based multinationals which have generally been net beneficiaries of recent Budgets as the Chancellor seeks to make the UK an attractive jurisdiction for holding companies.