Taxation (International and Other Provisions) Act 2010 section 20

Foreign tax includes tax spared because of international development relief

Section 20 explains how foreign tax that has been waived or reduced under a development incentive in an overseas territory can still be treated as if it had been paid, allowing UK credit relief to be claimed under a double taxation agreement.

• Where a double taxation agreement is in place and a foreign territory grants a tax relief to promote industrial, commercial, scientific, educational or other development, the tax that would otherwise have been payable is treated as though it was actually paid, provided the double taxation agreement makes provision for this.
• All references in this part of the legislation to tax payable, chargeable or not chargeable must be read as including these deemed amounts of spared tax.
• However, when calculating the underlying income or gain for credit relief purposes, the income or gain figure itself is not increased by the amount of spared tax — only the foreign tax credit is affected.
• Where dividends are paid between related companies, credit relief for spared underlying tax on those dividends is only available if the relevant double taxation agreement expressly provides for it.