INTM168030 - Foreign tax paid on trade income: limitation on credit: Specific transactions: deduction for foreign tax
Where credit for foreign tax has been denied, a deduction may be given against trade profits based on the lower of two figures:
- »Ê¹ÚÌåÓýapp amount of foreign tax paid for which no credit was given;
- »Ê¹ÚÌåÓýapp amount of loss (if any) calculated in accordance with the above principles, after deducting the foreign tax.
Example 1
| - | Amount |
|---|---|
| Sale of shares | 930 |
| Gross dividend | 100 |
| Purchase of shares | 1000 |
| Overheads & interest | 10 |
| Net profit | 20 |
In the above, tax withheld from the dividend was 15, but credit relief was limited to the tax on 20, which was 6. Hence there is a potential deduction for the balance of 9 foreign tax. However the deduction is limited to any loss on the transaction, after excluding the foreign tax from income. »Ê¹ÚÌåÓýappre was a profit of 20 and foreign tax of 15, so in this example, there was an overall profit of 5, so no deduction may be given.
Example 2
In the above example, if the sale proceeds were 920, the net profit would be 10, so credit relief would be restricted to 3, leaving a potential deduction of 12. »Ê¹ÚÌåÓýapp loss after excluding foreign tax would be 5, so this would be the actual tax deduction.
Example 3
If sale proceeds were 910, there would be no profit and so no credit relief. »Ê¹ÚÌåÓýapp loss after excluding foreign tax would be 15, so all of the foreign tax is deductible.