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HMRC internal manual

International Manual

UK residents with foreign income or gains: income arising abroad: Branch profits - unrelieved tax

For accounting periods ending on or before 31 March 2000, no credit relief may be allowed for foreign tax paid on the profits of foreign branches where, because of losses elsewhere, there is no trading profit and hence no UK tax is payable on the profits of those branches. This applies even though there may be UK tax payable on other income or gains see George Wimpey International Ltd v Rolfe (62TC597).

For accounting periods ending after 31 March 2000, there is a limited carryforward and carryback available for excess foreign tax paid, that cannot be relieved against UK tax payable on those branch profits for the same accounting period.

For these periods what is now TIOPA10/S73 provides that foreign tax paid in excess of the amount for which credit can be allowed in the period for which the relevant income is charged may, upon the making of a claim within four years (or six years on or before 31 March 2010) of the end of the accounting period in which the excess arises, be carried forward without limit, or backwards to the preceding three accounting periods that begin in the three years immediately before the accounting period in which the surplus arises. It may then be offset against UK tax chargeable on income from the same qualifying source (i.e. branch).

However, no excess unrelieved foreign tax can be carried back to use against branch profits arising in accounting periods ending on or before 31 March 2000.

Where a branch ends in a territory but then a new branch commences in the same territory TIOPA10/S76 treats them as separate overseas permanent establishments. However if the law of the relevant territory treats the old branch and the new branch as a single overseas permanent establishment then TIOPA10/S77 also treats them as one.