LAM09020 - Double Tax Relief: Restriction of foreign tax credit proportionate to split of income on the commercial allocation basis TIOPA10/S97

Where an insurance company carries on more than one category of long-term business the credit relief for any particular category of business must not exceed the amount of foreign tax attributable to that category of business. In practice, as from 1 January 2013, the only relevant categories are BLAGAB and non-BLAGAB.

The foreign tax on any item of income or gain (relevant income) attributable to a category of business is a fraction of the total foreign tax on the relevant income –TIOPA10/S97(2). The fraction is:

RPRI/TRI

RPRI is the amount of the income attributable to a category of business

TRI is the total relevant income to which the foreign tax relates –TIOPA210/S97(3).

The amount of relevant income referable to a category of business is to be determined in accordance with an acceptable commercial method TIOPA10/S97A. The method must be consistent with that in FA12/S98 (BLAGAB Income, losses and expenses LAM05020) or FA12/S115 (trade profit apportionment rules LAM05110). The methods adopted for FA12/S98 and S115 must themselves be consistent with one another.

A single item of foreign investment income may be referable partly to BLAGAB and partly to non-BLAGAB. For the purpose of the DTR calculations the two parts are considered separately.

Ordinarily, the rules do not allow foreign tax on the same amount of income to be relieved partly as credit and partly as an expense. However where the income is attributed to the two separate categories of business, BLAGAB and non-BLAGAB, the relevant amounts may be treated as investment income in the former and trade profit in the latter. It follows that TIOPA10/S31(2)(a) does not deny a deduction.

Where foreign tax is treated as an expense, it is an expense of the business in receipt of the relevant income and given as a deduction in the tax computation for that business’s trade.

As well as BLAGAB and non-BLAGAB, it is possible that credit relief may also be available in the calculation of income from long-term business fixed capital (LAM11000) and other income calculation.