Finance Act 1982

65 Double taxation relief: interest on certain overseas loans

(1) This section applies in a case where—

(a) in any chargeable period the profits of any person (in this section referred to as " the lender") which are brought into charge to income tax or corporation tax include an amount, computed in accordance with section 503 of the Taxes Act, in respect of interest (in this section referred to as " foreign loan interest") on a loan made to a person resident in a territory outside the United Kingdom; and

(b) in determining the liability of the lender to income tax or corporation tax, expenditure related to the earning of the foreign loan interest is deductible in computing the profits referred to in paragraph (a) above ; and

(c) the lender is entitled in accordance with Chapter II of Part XVIII of the Taxes Act (double taxation relief) to credit for foreign tax chargeable on or by reference to the foreign loan interest.

(2) If, in a case where this section applies, the foreign tax referred to in subsection (1)(c) above is or includes an amount of spared tax, then, for the purposes of income tax or corporation tax, the amount which, apart from this subsection, would be the amount of the foreign loan interest shall be treated as increased by so much of the spared tax as does not exceed the permitted amount, as defined in subsection (3) below; but nothing in this subsection prejudices the operation of section 503 of the Taxes Act in relation to foreign tax which is not spared tax.

(3) In this section " spared tax " means foreign tax which, although not payable, falls to be taken into account for the purposes of credit by virtue of section 497(3) of the Taxes Act; and the permitted amount, in relation to spared tax which is referable to the whole or any part of the foreign loan interest, is an amount which does not exceed—

(a) 15 per cent, of the interest to which the spared tax is referable, computed without regard to any increase under subsection (2) above ; or

(b) if it is less, the amount of that spared tax for which, in accordance with any arrangements applicable to the case in question, credit falls to be given as mentioned in subsection (1)(c) above.

(4) If, in a case where this section applies.—

(a) the foreign tax referred to in subsection (1)(c) above is or includes an amount of tax which is not spared tax, and

(b) that amount of tax exceeds the amount of the credit which, by virtue of Chapter II of Part XVIII of the Taxes Act and subsection (5) below, is allowed for that foreign tax against income tax or corporation tax,

then, for the purposes of income tax or corporation tax, the amount which, apart from this subsection, would be the amount of the foreign loan interest shall be treated as reduced by a sum equal to the excess.

(5) Where this section applies, the amount of the credit for foreign tax referred to in subsection (1)(c) above which, in accordance with Chapter II of Part XVIII of the Taxes Act, is to be allowed against income tax or corporation tax shall not exceed 15 per cent, of the foreign loan interest, computed without regard to any increase under subsection (2) or any reduction under subsection (4) above.

(6) This section shall be construed as if it were included in Chapter II of Part XVIII of the Taxes Act.

(7) Where the loan on which the foreign loan interest is payable was made pursuant to an agreement entered into before 1st April 1982, this section does not apply in relation to interest payable before 1st April 1983, but subject thereto, this section applies in relation to interest payable on or after 1st April 1982.