Finance Act 1982

66 Double taxation relief: underlying tax reffecting interest on loans

(1) This section applies in a case where

(a) a bank or a company connected with a bank makes a claim for an allowance by way of credit in accordance with Chapter II of Part XVIII of the Taxes Act; and

(b) the claim relates to underlying tax on a dividend paid by the overseas company, within the meaning of section 508 of that Act; and

(c) that underlying tax is or includes tax payable under the law of a territory outside the United Kingdom on or by reference to interest on a loan made in the course of its business by that overseas company or by such a third, fourth or successive company as is referred to in subsection (2) or subsection (3) of that section; and

(d) if the company which made the loan had been resident in the United Kingdom, then, in determining its liability to corporation tax, expenditure related to the earning of the interest on the loan would be deductible in computing the profits of the company brought into charge to tax.

(2) If, in a case where this section applies, the underlying tax is or includes an amount of spared tax, then, for the purposes of corporation tax, the amount which, apart from this subsection, would be the amount of the dividend shall be treated as increased by an amount equal to so much of that 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 " has the same meaning as in section 65 above; and the permitted amount, in relation to spared tax which is referable to the whole or any part of the interest referred to in subsection (1)(c) above, is an amount which does not exceed—

(a) 15 per cent, of the interest to which that spared tax is referable ; or

(b) if it is less, the amount of that spared tax which under any arrangements is to be taken into account for the purpose of allowing credit against corporation tax in respect of the dividend concerned.

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

(a) the underlying tax is or includes an amount of tax which is not spared tax, and

(b) that amount of tax exceeds 15 per cent, of the interest to which it is referable, then, for the purposes of corporation tax, the amount which,

apart from this subsection, would be the amount of the dividend shall be treated as reduced by a sum equal to the excess.

(5) Where this section applies, the amount of the credit referred to in paragraph (a) of subsection (1) above which is referable to the underlying tax payable as mentioned in paragraph (c) of that subsection shall not exceed 15 per cent, of so much of the interest referred to in that paragraph as is included in the relevant profits of the company paying the dividend; and for the purposes of this subsection—

(a) " relevant profits " has the same meaning as, by virtue of section 506 of the Taxes Act, it has for the purposes of the computation of underlying tax ; and

(b) the amount of the interest shall be determined without making any deduction in respect of any foreign tax.

(6) In subsection (1) above " bank " means a company carrying on, in the United Kingdom or elsewhere.—

(a) a banking business ; or

(b) another business which includes the making of loans where the circumstances of the business are such that, in determining the liability of the company to corporation tax, expenditure related to the earning of the interest on those loans is deductible in computing the profits brought into charge to tax ;

and section 533 of the Taxes Act (connected persons) applies for the purposes of subsection (1) above.

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

(8) Where the loan referred to in subsection (1)(c) above was made pursuant to an agreement entered into before 1st April 1982 this section does not apply to any underlying tax which is referable to interest on that loan payable before 1st April 1983 but, subject thereto, this section applies where the underlying tax is referable to interest payable on or after 1st April 1982.