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HMRC internal manual

Company Taxation Manual

ACT: FID: foreign profits: definitions and outline of scheme

ICTA88/S246I (1) - (10)

ICTA88/S246I introduced the terms foreign source profits (FSP) and distributable foreign profits (DFP).

A company could obtain repayment of surplus ACT if FID paid could be matched with DFP. FSP were used to calculate the extent to which surplus ACT was repayable.

An FSP for an accounting period was any income or gain:

  • which was included in a company’s profits (after making all deductions and giving all relief’s) chargeable to CT for that period,


  • in respect of which double taxation relief (DTR) was given by credit against the CT payable. This relief was given by credit either under a double tax agreement or unilaterally.

In finding whether any particular income or gain was included in a company’s profits chargeable to CT, it may have decided how to allocate deductions such as charges on income, management expenses or group relief or some non-trading deposits on loan relationships against its various profits. A company would maximise the repayable ACT by allocating the deductions against UK profits and overseas profits that had suffered the least foreign tax.

The distributable foreign profit was the FSP less the relevant amount of tax.

The ‘relevant amount of tax’ was the greater of:

  • the foreign tax payable in respect of the FSP, and
  • the CT payable, before DTR was afforded, in respect of the FSP.

Foreign tax was any tax imposed by an overseas territory for which double taxation relief was afforded, and ICTA88/S788 (5) applied (tax spared relief - see ITH578 -ITH580).

FA96 amended the definition of relevant amount of tax for accounting periods ending after 28 November 1995, to make plain its interpretation.

Where deductions were set against overseas profits to give an amount of FSP, the foreign tax was found by applying the foreign tax rate to the FSP. The figure for foreign tax would then be different from the DTR figure shown in the CT computation.