Taxation (International and Other Provisions) Act 2010 section 70

Underlying tax reflecting interest on loans

Section 70 limits the amount of double taxation credit that a bank (or a company connected with a bank) can claim in respect of underlying tax paid overseas on interest or dividends earned by companies in a dividend-paying chain.

• Where a bank or connected company claims credit for underlying tax on a dividend from a non-UK resident company in which it holds at least 10% of the voting power (directly, indirectly, or via a parent company), and that underlying tax includes foreign tax on interest or dividends earned by a company in the chain, a cap on the credit applies.
• The cap applies only where the company earning the interest or dividends (the "receiving company") would have been within the trade income credit rules of section 44 had it been UK resident — essentially, where the interest or dividends form part of a trading activity.
• The maximum credit for the foreign tax on that interest or those dividends is the amount of UK corporation tax (at the rate in force when the foreign tax was chargeable) calculated on the net income — that is, the gross interest or dividends less the expenditure properly attributable to earning them.
• For these purposes, a "bank" is broadly defined as any company whose trade includes receiving interest or dividends, whether carried on in the UK or elsewhere, and connected company status is determined under the standard corporation tax connected persons rules.