Taxation (International and Other Provisions) Act 2010 section 85A

Section 83(2) and (4): schemes involving deemed foreign tax

Section 85A targets schemes or arrangements that exploit deemed foreign tax credits — situations where the Tax Acts treat an amount as if it were foreign tax paid, but little or no real foreign tax is actually paid by any participant in the scheme.

• The section applies where an amount (called "amount X") is treated under the Tax Acts as if it were foreign tax paid in respect of a source of income, and either Condition A or Condition B is met.
• Condition A is met if, at the time the claimant entered into the scheme, it could reasonably be expected that no real foreign tax would be paid by any participant.
• Condition B is met if some real foreign tax was expected to be paid by a participant, but the increase in the total foreign tax paid by all participants would be less than the credit the claimant could claim in respect of the deemed foreign tax amount.
• Key definitions include "real foreign tax" (the actual foreign tax charged on the underlying income that the deemed amount represents), "participant" (any person party to or concerned in the scheme), and "claimant" (a person who has claimed or can claim a foreign tax credit for a chargeable period).