The Double Taxation Relief (Taxes on Income) (Foreign Interest and Dividends) Regulations 1999

Explanatory Note

(This note is not part of the Regulations)

These Regulations replace the Double Taxation Relief (Taxes on Income) (Foreign Loan Interest) Regulations 1988 (S.I. 1988/88).

Sections 798 and 798B of the Income and Corporation Taxes Act 1988 (1988 c. 1) (as substituted and inserted by sections 103(1) and 105 of the Finance Act 1998) provide that the amount of the credit for foreign tax on foreign interest and foreign dividends allowable against income tax or corporation tax charged on the profits of a trade (other than an insurance business) is to be limited by treating the amount of the foreign interest or foreign dividends as reduced by an amount equal to the taxpayer’s financial expenditure in relation to the earning of the interest or dividends. These Regulations specify matters to be taken into account in determining the amount that it is just and reasonable to attribute to the earning of the interest or dividends, in cases where the amount of the taxpayer’s financial expenditure (“finance costs”) is not readily ascertainable.

Regulation 1 provides for citation and commencement, and regulation 2 for interpretation.

Regulation 3 specifies, in relation to the finance costs, the rates at which bids are made in an interbank market (e.g. LIBID). Different provision is made for cases where it would be impracticable to establish the interbank bid rates in a particular interbank market, or the taxpayer establishes that in relation to a chargeable period, the sums attributable under these Regulations exceed his actual finance costs (so far as they can be ascertained), where the best estimate of his actual finance costs is to be used.

Regulation 4 provides for the determination of interbank bid rates of interest.

Regulation 5 revokes the Double Taxation Relief (Taxes on Income) (Foreign Loan Interest) Regulations 1988 and contains transitional provision.