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HMRC internal manual

International Manual

Double Taxation Relief: Anti avoidance legislation: General clearances

Below are set out some situations where credit arises for foreign tax where, subject to the paragraph below, there is no possibility of the legislation applying. In other situations the legislation may or may not apply. In all cases, however, it will apply only if there is a scheme or arrangement that has tax avoidance as its sole or one of its main purposes.

These general clearances will not apply if income is received by a person for the purpose of coming within the clearance. For example, if income is received by non-trading company rather than a connected trading company in order to fall within the portfolio investment clearance (see below), then the clearance will not apply.

There are three categories of general clearance:

Small claims

This applies to any case where the total credit for foreign tax claimed by a person together with any connected person in respect of any chargeable period is less than £100,000. For this purpose the usual definitions of connected person at ITA07/S993 (for individuals) and CTA10/S1122 (for companies) apply. A chargeable period is an accounting period of a company or year of assessment for an individual.

Portfolio Investment Holding

An individual or company holds foreign shareholdings within an investment portfolio. The dividends are taxed as investment income with credit for foreign tax deducted and without entitlement to underlying tax credit.

Intellectual property

A company holds intellectual property acquired or established in the course of its trade, and tax is deducted from royalty income. This will not include cases where intellectual property is created specifically for the purpose of creating an avoidance scheme or arrangement.