Taxation (International and Other Provisions) Act 2010 section 49A

Limit on credit in cases involving qualifying loan relationships of CFCs

Section 49A limits the amount of double taxation credit relief available to a UK resident company where its loan relationship profits are connected to a lending chain involving controlled foreign companies (CFCs) that have claimed an exemption for qualifying loan relationship profits.

• The section applies where a CFC exemption claim has been made for qualifying loan relationship profits, and a UK company in the same lending chain has loan relationship credits arising from the same arrangement
• The foreign tax credit available to the UK company is capped at the corporation tax rate multiplied by the UK company's share of the "relevant profit amount" — broadly, the profit margin retained in the lending chain after deducting the creditor CFC's qualifying loan relationship credits
• This additional cap applies on top of the normal foreign tax credit limit, and if the formula produces nil, no credit is allowed at all
• The relevant profit amount is allocated on a just and reasonable basis among all parties in the lending chain (excluding the creditor CFC), including anyone who has made or received a loan out of which the onward loan is funded

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