Corporation Tax Act 2009 section 1266

Resident partners and double taxation agreements

Section 1266 ensures that a UK resident company's share of income from a foreign firm remains liable to UK corporation tax, even where a double taxation agreement exempts the firm's income as a whole from UK tax.

• Where a UK resident company is a partner in a firm that resides outside the UK or whose trade is controlled and managed abroad, and a double taxation agreement relieves the firm's income from UK corporation tax, the UK company partner must still pay corporation tax on its share of that income.
• The section overrides the exemption that a double taxation agreement would otherwise provide to the UK partner's share of the firm's profits — a principle established following the court case Padmore v CIR (1989), where the Court of Appeal held that such an exemption extended to the UK resident's share.
• The section only removes the double taxation agreement exemption for the UK partner's share of income; it does not deny other forms of relief, such as foreign tax credit relief, that the partner may be entitled to claim.
• For these purposes, any company entitled to a share of the firm's income is treated as a member of the firm, and the residence of the firm may be determined either by where it formally resides (for example, where it was established) or by where its business is controlled and managed.