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HMRC internal manual

Lloyd's Manual

Double taxation relief: corporate members: Regulations: calculating the foreign tax pool: foreign tax adjustments

It is quite common for the amount of foreign tax to be adjusted; for instance, upwardsfollowing enquiries or downwards following a carry-back claim under the foreign tax code.

If there is an addition to the foreign tax, the formulae at LLM7120and LLM7130 are re- worked. There may be a new ERFT, calculatedunder the first formula at LLM7120. When calculating ASFT underthe second formula, “FT” is the foreign tax including the addition. If, forexample, foreign tax for a territory was originally 300,000, and there is an additional50,000 making 350,000, the calculation is reworked using the sum of 350,000 – ratherthan undertaking a further calculation using 50,000 added to the original calculation.

A similar principle applies if the foreign tax is reduced by repayment. The formulae arere- worked and “FT” is the foreign tax after subtraction of the repaid amount.The Regulations provide for a deduction to be made from AAFST in circumstances where anadjusted sum of foreign tax is reduced. If, for example, foreign tax for a territory wasoriginally 300,000 and there is a repayment of 50,000 leaving 250,000, the calculation isreworked using the sum of 250,000 – rather than undertaking a further calculationusing 50,000 and deducting it from the original calculation.

These tax adjustments apply to the foreign period of accounting for which the creditabletax is payable, and to its corresponding accounting period. The approach outlined forindividual Names for additional payments at LLM7060, and forrefunds at LLM7070, does not apply. Although the approachdescribed there, of relating the adjustments to the periods in which the additionalpayment is made, or the refund is received, has the advantage of avoiding the need forretrospective adjustments, it is not suitable for the corporate member Regulations. Thisis because the restriction described at LLM7120 depends on thetax rates for the period to which the income relates.