Commentary

D4.1003 Banks: Underlying tax restriction

Corporate tax
Corporate tax | Commentary

D4.1003 Banks: Underlying tax restriction

Corporate tax | Commentary

D4.1003 Banks: Underlying tax restriction

Trade income

Specific provisions1 apply to limit underlying tax which UK banks can claim on dividends received from foreign related companies. Under these rules certain expenses are allocated to trade income which has suffered foreign tax. From 22 April 2009, it is stipulated in the legislation that banks (and companies connected with banks) are required to include a reasonable apportionment of their funding costs within these expenses2.

This net foreign income is then used to calculate the amount of credit relief that can be claimed (see E6.434 for details). The provisions apply where:

  1.  

    (a)     a bank (or a company connected with a bank) makes a claim for underlying tax relief on a dividend ('the overseas dividend') paid by an overseas company; and

  2.  

    (b)     that underlying tax is (or includes) foreign tax on interest or dividends earned or received in the course of its business by the overseas company (or by a third, fourth or successive company); and

  3.  

    (c)     if the company which received the interest or dividends ('the company') had been resident in the UK, TIOPA 2010, s 44 (formerly ICTA 1988, s 798A) would apply3.

The credit for underlying tax is not to exceed the UK corporation tax (calculated at the rate in force at the time when the foreign tax was chargeable), on the

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