Double tax relief (DTR) definition

View the related Tax Guidance about Double tax relief (DTR)

Double tax relief

Double tax reliefWhen income arises in a foreign country to a UK resident company and that income is taxable in that foreign country (for example, withholding tax on interest or royalties, or tax on the profits of an overseas permanent establishment (PE)), a double tax charge will arise. This is because the UK company is generally taxed in the UK on its worldwide profits (although this will only be the case for an overseas PE if the UK company has not elected to exempt the profits of its PEs (see the Foreign branch exemption ― overview guidance note).However, the UK may give the company relief for the foreign tax by crediting the foreign tax against the UK tax charged on that income. The UK has three options for providing relief from double taxation: two via credit relief and one by way of deduction from the profits of the business.These are summarised below, but for further commentary and examples, see Simon’s Taxes D4.803 onwards and E6.4.In addition, a UK resident company (or other person) may need to withhold from payments it makes to foreign people. This is often the case for interest payments, royalty payments and rental payments in respect of UK property.For interest payments, a double tax treaty will often reduce the rate at which UK tax needs to be withheld, sometime to zero. However, the payer needs to receive a treaty direction from HMRC in order to be able to actually make those payments without (or at a

Corporate interest restriction ― calculating tax-interest expense amounts and tax-EBITDA

Corporate interest restriction ― calculating tax-interest expense amounts and tax-EBITDAWhy do we need to calculate these amounts?This guidance note sets out details of the initial calculations a group will need to undertake for the purposes of the corporate interest restriction (CIR) regime. For a general overview of the regime, see the Corporate interest restriction ― overview guidance note.Having established who is part of the worldwide group, the next step to take when looking at the CIR is to calculate the aggregate net tax-interest expense for all companies in the worldwide group that are within the charge to UK corporation tax. In order to do this, it is necessary to calculate the net tax-interest expense (or income) for each relevant company and then sum these amounts. Details of how to go about this are set out under ‘Calculating tax-interest expense amounts’ below. Net tax-interest expense is also required to calculate tax-EBITDA.In order to undertake the CIR calculations in both the fixed ratio method (see the Corporate interest restriction ― fixed ratio method guidance note) and the group ratio method (see the Corporate interest restriction ― group ratio method guidance note), it is first necessary to calculate tax-EBITDA for each relevant company. Again, these figures are the aggregate for the worldwide group. Aggregate tax-EBITDA is the amount to which the fixed ratio (30%) or, if an election is made, the variable group ratio percentage (GRP) is applied when calculating a group’s interest allowance for a given period of account. Details of