Taxation (International and Other Provisions) Act 2010 section 388

Double taxation relief

Section 388 adjusts the amount of income treated as a tax-interest income amount where a company receives double taxation relief in the form of a foreign tax credit against its UK corporation tax.

• Where a company has a tax-interest income amount that qualifies for double taxation relief via a foreign tax credit, the amount treated as tax-interest income is reduced.
• The reduction reflects the portion of the income that is effectively untaxed in the UK because of the foreign tax credit — referred to as "notional untaxed income".
• Notional untaxed income is calculated by dividing the foreign tax credit (the reduction in UK corporation tax) by the company's corporation tax rate before any double taxation credits are applied.
• The effect is that only the portion of the income on which UK corporation tax is actually borne counts as a tax-interest income amount for the corporate interest restriction rules.