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

Applying section 42(2) to non-trading credits from loan relationships etc.

Section 49B limits the amount of foreign tax credit that can be claimed against UK corporation tax on non-trading credits arising from loan relationships, derivative contracts, or intangible fixed assets, by taking into account related non-trading debits.

• Where a company has a non-trading credit on which foreign tax has been paid (e.g. withholding tax on interest received from abroad), the foreign tax credit is capped at the corporation tax rate multiplied by the net amount of that credit after deducting related non-trading debits.
• Related non-trading debits are those arising in the same accounting period and from the same loan relationship, derivative contract, or intangible fixed asset as the non-trading credit, reduced by any amounts already used against other non-trading credits on the same item.
• The deduction for related debits is capped at the amount of the non-trading credit itself, so the formula can never produce a negative result.
• Non-trading credits and debits cover those arising under the loan relationship rules (Part 5 of CTA 2009, including deemed loan relationships and derivative contracts) and the intangible fixed assets rules (Part 8 of CTA 2009).