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HMRC internal manual

International Manual

Double Taxation Relief: Anti avoidance legislation: Trigger conditions

The legislation applies only if a tax return includes a credit for foreign tax and all of the following conditions apply:

  • The credit results from a scheme or arrangement which has the obtaining of credit relief as one of its main purposes; and
  • the scheme falls within one of the five specified circumstances

A scheme or arrangement that produces excessive credit for foreign tax will have the result that, in substance and taking account of all related arrangements, some income is subject to less tax than would be represented by full UK taxation.

Taking advantage of mitigation expressly and unambiguously provided for in legislation does not in itself constitute avoidance and so would not trigger the rule. For example, the pooling rules allow surplus unrelieved underlying tax from one dividend to be set against tax due on another, which may result in the profits included in certain dividends being effectively untaxed. This fact alone would not constitute evidence of tax avoidance.

Similarly, the legislation setting out the net basis for foreign tax credit on trade receipts provides for approximate methods to be used, taking advantage of aggregation and apportionment within certain limits. Although it is possible that these approximations may increase the amount of credit compared to a precise calculation, their use does not constitute tax avoidance.