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HMRC internal manual

International Manual

UK residents with foreign income or gains: corporation tax: Intangible fixed assets: Non-trading items: Limit on relief - examples

INTM167475 shows how TIOPA10/S49B applies a limit on double taxation relief for foreign tax arising on non-trading credits from intangible fixed assets in some circumstances. The following examples illustrate the two scenarios described there:

Example - single non-trading credit on the intangible fixed asset in the period

A company receives a gross royalty of 200 on an intangible fixed asset which has been subject to withholding tax of 30 and there is an amortisation relief debit relating to the asset of 80 (all figures are sterling equivalents).

Then NTC-D = 120 and the amount of relief for the withholding tax is limited to the amount of corporation tax on 120, which at a rate of 20% is 24.

Example - more than one credit on the intangible fixed asset in the period

A company has acquired an intangible fixed asset which it licenses in three different jurisdictions. This gives rise to gross royalties during the accounting period of

  • Royalty 1: 100 with no withholding tax,
  • Royalty 2: 60 with 15% withholding tax of 9, and
  • Royalty 3: 40 with 5% withholding tax of 2.

There was an amortisation relief debit of 50 relating to the intangible fixed asset.

Each of the royalties on which there was withholding tax are non-trading credits relating to an item within the scope of TIOPA10/S49B. For each of these non-trading credits the non-trading debit is in respect of the same intangible fixed asset as the non-trading credit and so TNTD = 50. The company chooses to start with royalty 3:

  • Royalty 3: A = 0, NTC = 40 and D = 40 (TNTD capped at 40). Then NTC-D = 0 and no double taxation relief is available for the withholding tax of 2.
  • Royalty 2: A = 40 and NTC = 60 so D = 50-40 = 10 and NTC-D = 50. The limit on DTR is then 10 (assuming a CT rate of 20%) and so all of the withholding tax of 9 on this royalty is available for double taxation relief.