Taxation (International and Other Provisions) Act 2010 section 49

Restricting section 44(3) if company is a bank or connected with a bank

Section 49 restricts the amount of expenses and deductions a company can use to reduce its foreign income for double taxation credit purposes, where the company is a bank or is connected with a bank and the funding costs actually included are significantly less than the notional funding costs.

• This section applies when a company claiming double taxation credit relief is a bank (or connected with a bank) and the funding costs actually included in the expense calculation are significantly below what those costs would notionally be.
• Where the section applies, the shortfall between the notional funding costs and the actually included funding costs must be added to the expenses taken into account under section 44(3), thereby reducing the net foreign income against which credit can be claimed.
• Notional funding costs are calculated based on the relevant bank's average funding costs, applied to the capital that would be needed to wholly fund the transaction giving rise to the foreign income.
• Included funding costs are the actual funding costs incurred by the company (or any connected company) in respect of capital used to fund the relevant transaction, to the extent those costs are already included in the section 44(3) calculation.