Taxation (International and Other Provisions) Act 2010 section 85

Section 83(2) and (4): schemes about effect of paying foreign tax

Section 85 targets schemes or arrangements that artificially inflate the foreign tax credit a person can claim against their UK tax liability, by ensuring the net foreign tax cost to all participants is less than the credit being claimed.

• The section applies where a person ("C") has claimed or can claim a foreign tax credit under a double taxation arrangement, and that credit arises through a scheme or arrangement.
• The key test is whether, when C entered the scheme, it could reasonably be expected that the total foreign tax paid by all participants would increase by less than the credit C is claiming — in other words, the scheme generates a bigger UK tax credit than the real foreign tax cost.
• The "foreign-tax total" is calculated by adding up all foreign tax paid by everyone involved in the scheme's transactions, then deducting any tax reliefs, deductions or allowances that arise to any of those participants as a consequence of the foreign tax being paid.
• For capital gains tax purposes, the relevant "chargeable period" means the tax year.