The overarching principle of the double taxation relief (DTR) rules is that relief is allowed against UK tax on the same income or gain on which foreign tax has been suffered. The credit is limited to the amount of tax which would have been paid in the UK. The existing rules are not clear in relation to non-trading credits on intangibles and loan relationships.
Legislation will be introduced in the Finance Bill 2014 to put beyond doubt that credit for double tax relief is capped on a source by source basis, to ensure that credit is available only up to the amount of UK tax on a particular source of income. This measure will impact non-trading credits for accounting periods beginning on or after 5 December 2013, with transitional provisions where accounting periods straddle this.
Also new rules have been introduced to ensure that credit is not given for foreign tax paid if there are arrangements in place whereby the foreign tax is repaid to another person. These rules will take account of payments made by the foreign tax authority on or after 5 December 2013.
For more information or to discuss the changes contact the TaxDesk on 0845 4900 509 and ask for Paul Howard.