Taxation (International and Other Provisions) Act 2010 section 39

Credit reduced by reference to accrued income losses

Section 39 reduces the amount of foreign tax credit a person can claim against UK income tax where part of their interest income is exempt from UK tax due to accrued income losses.

• Where a person is entitled to a foreign tax credit against UK income tax on interest income, and part of that interest is exempt from UK tax because of accrued income losses, the credit must be reduced proportionately.
• The reduction applies whether the credit arises under unilateral relief arrangements or under double taxation agreements with other countries.
• The reduced credit is calculated using the formula: ((I − E) ÷ I) × C, where I is the total interest, E is the exempt amount, and C is the credit before reduction.
• Terms used in this section carry the same meaning as in the accrued income profits rules in Chapter 2 of Part 12 of the Income Tax Act 2007.