Taxation (International and Other Provisions) Act 2010 section 189

Double taxation relief by way of deduction for foreign tax

Section 189 restricts the amount of foreign tax that can be deducted from UK profits when a disadvantaged person's income has already been reduced under a transfer pricing adjustment claim.

• Where a transfer pricing claim reduces a disadvantaged person's income and that same income also qualifies for a deduction for foreign tax, the transfer pricing reduction must be applied first before any foreign tax deduction.
• Foreign tax paid on the portion of income eliminated by the transfer pricing reduction is disregarded and cannot be claimed as a deduction against UK profits.
• Without this restriction, a UK resident could claim a deduction for foreign tax exceeding the actual foreign tax payable on the reduced level of profits, resulting in over-relief.
• Any necessary adjustment to implement this restriction can be set against relief or repayment due under the transfer pricing claim, and normal time limits for assessments do not prevent such adjustments from being made.