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HMRC internal manual

International Manual

HM Revenue & Customs
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Foreign tax paid on trade income: limitation on credit: 1998 legislation: calculating the limit

For all interest on loans (and all foreign interest following the FA98 changes) the rules governing the limitation of credit relief can conveniently be divided into four steps for which instructions are provided as follows

Step 1

Ascertain the gross amount of the foreign interest (INTM168090).

Step 2

Establish the first credit limit by reference to the gross amount of the interest (INTM168100).

Step 3

Calculate the amount to be included in the Corporation Tax computation where adjustment is required for

  1. excess foreign tax paid (INTM168110);
  2. tax `spared’ (INTM168120).

Step 4

For interest on loans within the 1987 legislation, and foreign interest within the 1998 legislation, establish the amount of the profit relating to the interest and the amount of Corporation Tax attributable to that profit (the second credit limit). Limit the credit relief to the lower of the two limits (INTM168130 - INTM168180).