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HMRC internal manual

Lloyd's Manual

Double taxation relief: corporate members: pre-pooling rules

For corporate members of Lloyd’s, DTR before the advent of the pooling rules (see LLM7100 and LLM7150) is given subject tothe rules which apply to other companies – see INTM160000 onwards (LLM10000). The special pooling rules which apply for individualmembers do not apply to corporate members. All the other usual conditions for DTR apply tocorporate members as they do to other taxpayers. For example, ICTA88/S795A provides thatDTR can only be given if the taxpayer has taken all reasonable steps to take advantage ofall reliefs and exemptions against the foreign tax liability. There is no obligation tocarry back losses in priority to a carry forward.

In keeping with the underlying principles of the DTR legislation, the credit which may begiven for foreign tax paid on income arising in another country should not exceed the UKtax charge on the same income.

The main difficulties in applying the normal DTR rules for companies are to be found intheir application to US tax. Tax is payable in the US on the basis of returns made by eachmember to the IRS. The US tax code does not recognise the three-year system of accounting.Tax is paid on an annual basis and is not deferred until the declaration of syndicateprofits as it is in the UK. For example in the UK tax paid on the basis of the 2002 returnwill relate to the profits of the 1999 year of account. In the US it will relate to:

  • Investment income and capital gains arising in 2002
  • Profit/loss arising in the final year of the 2000 year of account
  • Profit/loss arising in the second year of the 2001 year of account
  • Profit/loss arising in the first year of the 2002 year of account.

A further difficulty is that some expenses, including profit commission, are allowed inthe UK as deductions against the profits of the year of account to which they relate. Inthe US they are allowed in the year in which they are paid.

A practical approach to dealing with US tax of corporate members is set out at LLM7190.