Double Taxation Relief Manual: Guidance by country: United States of America: State Taxes - Admissible and inadmissible unilaterally: Alabama - California
General income tax.
General income tax (All claims for credit for this tax must be submitted to HMRC, Customs & International, Tax Treaty Team).
Corporation tax (if `annual corporation tax’ which is a flat rate licence type levy).
General income tax.
Income tax (on individuals and companies).
Corporation franchise tax.
Bank and corporation franchise tax. This tax is charged on a ‘unitary’ or world-wide combined reporting basis.
To determine the profits of a company doing business in California, the Franchise Tax Board apportions the world-wide profits of the company according to the proportion of the company’s sales, property and payroll that is attributable to California.
Moreover, in determining the profits of the company, the Franchise Tax Board includes in its calculations a proportion of the profits of associated companies which, together with the company which does business in California, are regarded as forming a unitary group. If the company makes what is called a ‘water’s edge’ election, a more limited range of other companies is taken into account for this purpose.
Credit relief should be allowed for the tax as follows (see also the February 1995 issue of Tax Bulletin).
If the Californian tax is paid by a company which does business in California through a branch in the United States, the profits of which are taxed in the United Kingdom as part of the profits of a United Kingdom resident company
give credit against the United Kingdom tax, if any, payable on the profits of the United States branch (as computed for United Kingdom tax purposes) for the lesser of
the actual Californian tax paid by the company
the amount of Californian tax which it would have paid if the tax had been imposed only on those profits of the company, and of the other companies whose profits have been taken into account by the Californian Franchise Tax Board, which arise in the United States (not just in California).
The need to look at where profits arise derives from ICTA88/S790 (4). The question of where profits arise is to be determined under United Kingdom law according to where the operations take place from which the profits in substance arise (see DT578, last sub-para. and the case mentioned there).
It can be accepted that all the profits of the branch itself, as computed on an arm’s length basis for United Kingdom tax purposes, arise in the United States. However, the profits of other companies which have been included in the calculations by the Franchise Tax Board are to be regarded as arising in the United States only if the test mentioned in the previous sub-paragraph is satisfied.
Inspectors should use their judgement in deciding how far to pursue enquiries into the precise figures. Credit relief will be available for United States Federal income tax paid on the profits of the branch. If it can be seen that the United Kingdom tax on the profits is covered by Federal income tax and by the Californian tax - currently payable at a flat rate of 9.3 per cent - that would have been paid on the profits of the Californian branch computed on an arm’s length basis, then further enquiries will not be necessary.
Refer to HMRC, Business International, Tax Treaty Team any claim to credit relief from a company which does not have a branch in California but whose profits have been included by the Franchise Tax Board in its calculations of Californian tax payable.
If the Californian tax is paid by a company resident outside the United Kingdom which pays a dividend to a United Kingdom company
The Underlying Tax Group, Fitz Roy House, Nottingham will take the Californian tax into account in computing the relief, if any, due to the United Kingdom company for underlying tax in respect of the dividend (INTM 164360 onwards).
Corporation income tax.
Personal income tax.
Insurance companies tax on marine insurance companies.
Insurance companies tax on general insurance companies.
Any claim for credit in respect of a tax not mentioned should be referred to HMRC, Business International, Tax Treaty Team in accordance with the general guidance at INTM161310