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HMRC internal manual

International Manual

Foreign tax paid on trade income: limitation on credit: Management/technical fees

Where an agreement provides that management and technical fees may be taxed in the country in which they arise, either under the royalties Article (see INTM153130) or a separate management and technical fees Article (see INTM153140), the foreign country may either tax such fees after deduction of expenses allowable under its own domestic laws, or charge the gross fees at the rate of tax specified in the relevant Article in the agreement. Similarly, where the fees arise in a country with which there is no agreement, that country may tax either the net fees after expenses or the gross fees.

For tax credit relief purposes, either under an agreement or unilaterally, the UK measure of such income is the net fees after deduction of an appropriate amount of expenses, whether incurred in the foreign country or elsewhere, and capital allowances attributable to those fees and allowable in accordance with normal UK rules. (See INTM168010.)

See the last paragraph of INTM161120 for the need to restrict the amount of credit relief allowed in unilateral relief cases where part of the work carried out to earn the management or technical fees is carried out in the UK.