Taxation (International and Other Provisions) Act 2010 section 371PA

What is "creditable tax"?

Section 371PA defines what counts as "creditable tax" for a controlled foreign company (CFC), which is the tax already paid or borne on the CFC's profits that can be deducted when calculating the CFC charge on UK parent companies.

• Creditable tax is the total of four components: double taxation relief on foreign tax, UK income tax deducted at source on payments, any UK income tax or corporation tax actually charged on the CFC's profits, and any equivalent CFC-type charge imposed by another country.
• "Foreign tax" means both the local tax paid in the CFC's country of residence and any tax paid in a third country (i.e. a country other than the UK or the CFC's home territory).
• "Relevant income tax" means UK income tax that has been deducted at source from a payment received by the CFC, but only to the extent that payment forms part of the CFC's chargeable profits.
• Any tax amounts that have been or will be refunded to the CFC or any other person are excluded from the creditable tax total — only tax that is genuinely borne counts.