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HMRC internal manual

General Insurance Manual

Double taxation relief: foreign tax on investment income: accounting periods beginning on or after 1 April 2000: section 804C ICTA 1988: limitations applied to a non-insurance subsidiary


GIM12200 onwards describes the way in which credit against corporation tax for foreign tax suffered by a general insurer is restricted by setting expenses against the income. To prevent companies circumventing these restrictions by arranging for overseas investments to be held in a company not subject to them, ICTA88/S804C (10) provides a counter. If there is a scheme or arrangement involving a 75% subsidiary of an insurance company, and the purpose, or one of the main purposes, of the scheme is to prevent the rules about expenses in section 804C from working properly, then an amount of expenses is treated as set against any income which has suffered foreign tax received by the subsidiary. Where the DTR available to the subsidiary by way of credit is restricted by this rule, the unrelieved tax can be set off as an expense in accordance with ICTA88/S811 - section 804C(12).

To work out the restriction, it is assumed that the income was received by the insurance company so that the provisions of section 804C(2) to (4) will apply. The income accruing to any 75% subsidiary subject to this rule will be included in the “total income” of the general insurance company within the meaning of section 804E(2) when working out the restriction.

This rule is similar in purpose and design to that in ICTA88/S798 (5) - restriction of DTR where a bank or other financial concern receives interest or certain dividends carrying foreign tax.