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HMRC internal manual

International Manual

From
HM Revenue & Customs
Updated
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UK residents with foreign income or gains: corporation tax: Loan relationships: grossing up of income and expense relief

The general rule resulting from CTA09/S464 is that the amounts relating to loan relationships that are brought in in accordance with CTA09 Part V are the only amounts that shall be brought into account for the purposes of Corporation Tax unless specifically stated otherwise. Various computational rules that are necessary when interest suffers foreign tax are given by

  • TIOPA10/S31(5) preserves the operation of Section 31(1) to (3) (INTM167040) so that where credit relief is claimed the gross amount of the interest is taken into account for tax purposes, although no addition is made for tax `spared’ (INTM161270), even if the interest is shown net in the accounts;
  • TIOPA10/S44(6) preserves the computational rules where interest is a trading receipt and TIOPA10/S37 applies to a claim for credit relief (INTM168090);
  • TIOPA10/S112 (3) which preserves the operation of Section 112 (INTM161050) where credit relief is not claimed, so that the foreign tax can be treated as reducing the amount of the interest for tax purposes, even if it is shown gross in the accounts. If the interest is shown net and credit relief is not claimed, the correct position for tax purposes is that the gross amount of the interest is brought into account and then treated as reduced by the foreign tax.

The principles described in INTM167160 onwards have to be applied separately to each credit relating to interest on a loan relationship.