188体育

Example 1

The results of a company for the year ended 31 December 1995 are as below.

Case I	拢4,000	听
Chargeable gains (UK)	拢2,000	听
Case V: dividend (gross) from company:	听	听
A	拢5,000	foreign tax rate 40%
B	拢10,000	foreign tax rate 35%
C	拢4,000	foreign tax rate 30%
D	拢8,000	foreign tax rate 20%

The company pays FID of 拢20,000 (ACT 拢5,000) and ordinary dividends of 拢10,000 (ACT拢2,500).

It surrenders ACT of 拢1,000 to a subsidiary.

Assume the company is liable to CT at 33%, and the ACT rate is 1/4.

The company鈥檚 CT liability must be computed. There are no deductions to be set against foreign source profits (FSP).

听	Profit	Tax at 33%	DTR	ACT Set off	CT
Case I	拢4,000	拢1,320	拢800	拢520	听
Chargeable gain	拢2,000	拢660	拢400	拢260	听
Case V: dividend (gross) from company:	听	听	听	听	听
A	拢5,000	拢1,650	拢1,650	听	听
B	拢10,000	拢3,300	拢3,300	听	听
C	拢4,000	拢1,320	拢1,200	拢120	听
D	拢8,000	拢2,640	拢1,600	拢1,040	听
听	拢2,360	拢780	听	听	听

Matching of FID with distributable foreign profits (DFP).

The FSP brought into charge to tax, and the DFP are:

Dividend from Company A	拢5,000	听
less foreign tax	拢2,000	听
equals DFP	拢3,000	拢3,000
Dividend from Company B	拢10,000	听
less foreign tax	拢3,500	听
equals DFP	拢6,500	拢6,500
Dividend from Company C	拢4,000	听
less UK tax	拢1,320	听
equals DFP	拢2,680	拢2,680
Dividend from Company D	拢8,000	听
less UK tax	拢2,640	听
equals DFP	拢5,360	拢5,360
Total DFP	拢17,540	听

These figures cannot simply be taken from the CT computation. The foreign tax to be taken into account is the amount paid on the FSP, and not the amount of the double taxation relief (DTR) in the CT computation.

The maximum FID which can be matched are 拢17,540, and the company elects to match this amount of FID with these DFPs (CTM21320).

Calculation of ACT available for set off or repayment.

ACT is not available if it has already been dealt with (CTM21410). Returning to the CT computation, the ACT that has not been dealt with is 拢4,140, as is shown below.

ACT paid	拢7,500	听
less ACT set off under ICTA88/S239 (1)	拢2,360	听
less ACT surrendered	拢1,000	拢3,360
ACT not dealt with	拢4,140	听

The notional foreign source ACT must then be calculated (CTM21420).

The company elects for FID of 拢17,540 to be qualifying FID (CTM21430). The ACT which the company would have paid in respect of the qualifying FID is 拢4,385(拢17,540 / 4).

The matched FSP underlying the matched DFP are treated as the profits chargeable to CT, being the dividends from Companies A, B, C and D.

From the CT computation it is seen that ACT of 拢1,160 would be set off against the CT liability on such profits (拢120 on dividends from Company C and 拢1,040 on dividends from Company D). The notional foreign source ACT is therefore 拢4,385 - 拢1,160 = 拢3,225.

The surplus ACT available for set off or repayment is then the lower of 拢4,140 and 拢3,225.

ACT of 拢780 is set off under ICTA88/S246Q against the remaining CT liability of the period (unless it has already been paid), and the balance of 拢2,445 (拢3,225 - 拢780) is repaid.

Example 2

This example shows the effect of deductions available.

The results of a company for the year ended 31 December 1995 are as follows.

Case I	拢4,000	听
Chargeable gains (UK)	拢2,000	听
Case V: dividend (gross) from company:	听	听
A	拢5,000	foreign tax rate 40%
B	拢10,000	foreign tax rate 35%
C	拢4,000	foreign tax rate 30%
D	拢8,000	foreign tax rate 20%

The company receives 拢15,000 group relief.

The company pays FID of 拢20,000 (ACT 拢5,000) and ordinary dividends of 拢10,000 (ACT拢2,500). It surrenders ACT of 拢1,000 to a subsidiary.

Assume the company is liable to CT at 33%, and the ACT rate is 1/4.

The company鈥檚 CT liability must be computed. The company allocates the 拢15,000 group relief first against UK profits and then against overseas profits which have suffered the least foreign tax.

听	Profit	Group relief	Net profit	Tax at 33%	DTR set off
Case I	拢4,000	拢4,000	nil	nil	nil
CG (UK)	拢2,000	拢2,000	nil	nil	nil
Dividend from company:	听	听	听	听	听
A	拢5,000	Nil	拢5,000	拢1,650	拢1,650
B	拢10,000	Nil	拢10,000	拢3,300	拢3,300
C	拢4,000	拢1,000	拢3,000	拢990	拢990
D	拢8,000	拢8,000	nil	nil	nil

No ACT has been set against CT.

Matching the FID with DFP.

Under the FID rules the company can choose, in determining the FSP, how to allocate its deductions. In theory this can be independent of the allocation chosen in determining DTR but in practice the company will invariably follow the same allocation.

The FSP brought into charge to tax, and the foreign and UK tax suffered, are:

Dividend from Company A	拢5,000	听
less foreign tax	拢2,000	听
equals DFP	拢3,000	拢3,000
Dividend from Company B	拢10,000	听
less foreign tax	拢3,500	听
equals DFP	拢6,500	拢6,500
Dividend from Company C	拢3,000	听
less UK tax	拢990	听
equals DFP	拢2,010	拢2,010
Total DFP	拢11,510	听

The maximum FID which can be matched are 拢11,510, and the company elects to match this amount of FID with these DFP (CTM21320).

Calculation of ACT available for set off or repayment.

ACT is not available if it has already been dealt with (CTM21410).

If you look back to the CT computation, you will see that no ACT is set off against CT. Of the total 拢7,500 ACT paid, 拢1,000 has been surrendered leaving 拢6,500 which has not already been dealt with.

The next step is to calculate the notional foreign source ACT (CTM21420).

The company elects for FID of 拢11,510 to be qualifying FID (CTM21430). The ACT which the company would have paid in respect of the qualifying FID is 拢2,877(拢11,510 / 4).

The matched FSP underlying the matched 拢11,510 DFP are treated as the profits chargeable to CT. These dividends are:

Dividend from Company A	拢5,000	听
Dividend from Company B	拢10,000	听
Dividend from Company C	拢3,000	听

In computing the notional CT, where any deduction has been given in reaching an FSP the notional DTR is found by reference to the FSP plus that deduction, so that the usual DTR rules applies. (This is so far accounting periods ending after 28 November 1995 only. For earlier accounting periods, the notional DTR is found by reference to the FSP only. So far an earlier accounting period, if the overseas income is reduced by any deduction, the notional DTR may differ from that in the real CT computation.)

The notional CT liability on dividends A, B and C is fully covered by notional DTR. TheACT that would have been paid on the qualifying FID is 拢2,877. None is set off against the notional liability so notional foreign source ACT is 拢2,877.

The surplus ACT which is available for repayment or set off under the FID provisions is then the lower of 拢6,500 (the ACT that has not been dealt with) and 拢2,877 (the notional foreign source ACT). No amount can be set off since there is no CT liability after DTR and 拢2,877 is repaid.

Of the 拢20,000 FID paid by the company, it has only matched 拢11,510 (the maximum it could) leaving 拢8,490 which is capable of further matching.

In the year ended 31 December 1996 the companies鈥� results are as follows.

Case V: Dividend (gross) from Company E 拢10,000 foreign tax rate 35%, from Company F 拢8,000 30% and from Company G 拢6,000 25%.

The company receives 拢10,000 group relief.

The company also has a subsidiary whose income consists only of a dividend (gross) of 拢10,000 from Company H, with a foreign tax rate of 35%. The subsidiary had no overseas income in earlier years.

The company pays a further FID of 拢5,000, with ACT 拢1,250. It also has 拢8,490 unmatched FID of the previous accounting period.

Assume the company is liable to CT at 33%, and the ACT rate is 1/4.

The company鈥檚 CT liability must be computed. The company allocates the group relief against overseas profits that have suffered the least foreign tax.

听	Profit	Group relief	Net profit	Tax at 33%	DTR set off
Dividend from Company E	拢10,000	听	拢10,000	拢3,300	拢3,300
Dividend from Company F	拢8,000	拢4,000	拢4,000	拢1,320	拢1,320
Dividend from Company G	拢6,000	拢6,000	听	听	听

The subsidiary of the company also has DFPs arising from the dividend from Company H.

Dividend from Company H	拢10,000	听
less foreign tax	拢3,500	听
equals DFP	拢6,500	听

These 拢6,500 DFP can be treated as eligible profits of the parent and thus available for matching.

The maximum FID which can be matched are therefore 拢15,680 (拢9,180 + 拢6,500).

The company has an unmatched FID of 拢8,490 of the previous accounting period, and a 拢5,000 FID of this accounting period, both of which it elects to match. It elects for the previous period鈥檚 unmatched FID of 拢8,490 to be matched in part with DFP deriving from the dividend from Company E (拢6,500) with the remainder matched with DFP deriving from part of the dividend from Company F (拢1,990). It also elects for the current period鈥檚 FID of 拢5,000 to be matched with 拢5,000 of the subsidiary鈥檚 DFP.

The parent then has DFP which have not been used for matching of 拢690 (拢2,680 - 拢1,990) deriving from dividends from Company F, and the subsidiary has unused DFP of 拢1,500 (拢6,500 - 拢5,000) deriving from dividends from Company H.

Calculation of ACT available for set off or repayment.

ACT is not available if it has already been dealt with (CTM21410). Returning to the CT computation for the period ended 31 December 1996, there is no CT liability after DTR so no ACT is set off against CT. None of the ACT of 拢1,250 has been dealt with.

The CT position for the period ended 31 December 1995 has been considered above. The 拢2,877 repayment previously made under the FID provisions must be deducted from the ACT that has not already been dealt with (CTM21410).

Thus ACT of 拢6,500 - 拢2,877 = 拢3,623 has not already been dealt with.

The notional foreign source ACT (CTM21420) must be calculated for the period ended 31 December 1996. It also has to be recalculated for the period ended 31 December 1995, and for each period compared with the ACT that has not already been dealt with.

Notional foreign source ACT for the period ended 31 December 1996.

The company elects for FID of 拢5,000 to be qualifying FID (CTM21430). The ACT which the company would have paid in respect of the qualifying FID is 拢1,250(拢5,000 / 4).

The matched FSP underlying the matched eligible profits represent part of the dividend from Company H. The calculation for the DFP on this foreign source profit was:

Dividend from Company H	拢10,000	听
less foreign tax	拢3,500	听
equals DFP	拢6,500	听

Of the 拢6,500 available, only 拢5,000 has been matched against an FID. So the portion of the total DFP available which is matched is 拢5,000 / 拢6,500, and the matched FSP underlying the matched eligible profits are 拢5,000 / 拢6,500 x 拢10,000 = 拢7692.

The 拢7,692 is treated as the profits chargeable to CT. The notional CT is covered by DTR and so no ACT is set off. The notional foreign source ACT is therefore 拢1,250.

The surplus ACT that is available for repayment or set off under the FID provisions is then the lower of 拢1,250 and 拢1,250. No amount can be set off and so 拢1,250 is repaid to the company.

Notional foreign source ACT for the period ended 31 December 1995.

The FID previously treated as qualifying FID are ignored (CTM21460).

At the end of the accounting period, the company had 拢8,490 unmatched FID. It can now elect for this FID of 拢8,490 to be qualifying FID. The ACT which the company would have paid in respect of the qualifying FID is 拢2,122 (拢8,490 / 4).

The matched FSP underlying the matched DFP are treated as the profits chargeable to CT. These FSP came in the form of 拢10,000 dividends from Company E and also part of the 拢4,000 dividends from Company F. The calculation for the DFP on this last foreign source profit was:

Dividend from Company F	拢4,000	听
less UK tax	拢1,320	听
equals DFP	拢2,680	听

The portion of the Company F FSP underlying the matched DFP is calculated in the same way as above 拢1,900 / 拢2,680 x 拢4,000 = 拢2,970.

So the matched FSP underlying the matched DFP amount to 拢12,970 (拢10,000 + 拢2,970).

In computing the notional CT, where any deduction has been given in reaching on FSP notional DTR is again found by reference to the FSP plus that deduction.

Thus for the dividend of 拢2,970 from company F the DTR is 拢1,990 / 拢2,680 x 拢1,320 =拢980 which equals the notional CT liability on that dividend, and no ACT is set off.

The notional CT liability on the dividend from Company E is also fully covered by DTR.

The notional foreign source ACT is therefore 拢2,122.

The ACT which is available for repayment or set off under the FID provisions is then the lower of the ACT not already dealt with - 拢3,623 and the notional foreign source ACT -拢2,122. No amount can be set off, so 拢2,122 is repaid.

Example 3

This shows a reckoning after the end of an accounting period of an international headquarters company (IHC).

For the APE 31 December 1996 a company has the following details.

1 June 1996	FID paid as an IHC	拢20,000
1 December 1996	FID paid not as an IHC	拢10,000
30 September 1996	FID received	拢15,000

No FID have previously been received. The company was an IHC in the accounting period ended 31 December 1995. Assume an ACT rate of 25% and a CT rate of 33%.

The company鈥檚 only profit chargeable to CT is Case V income 拢12,000, with foreign tax suffered at 40%.

When paying the first FID the company thinks it will be an IHC throughout the accounting period and does not account for ACT. When paying the second FID, the company realises it is not an IHC. But no ACT is due on the CT61 for the quarter ended 31 December 1996 because there is no excess of FID paid as a non IHC over FID received.

Calculation of Amount A.

Applying the steps at CTM21550:

Total FID paid	拢30,000	听
Minus FID received	拢15,000	听
Net FID paid	拢15,000	听
ACT due on FID	拢3,750	听
Minus ACT paid	拢0	听
Amount A	拢3,750	听

Calculation of Amount B.

Amount B is the ACT that would be repaid or set off on a claim under ICTA88/S246N if the company had not treated itself as an IHC at any time in the accounting period.

CT computation:

Case V profits chargeable	拢12,000	听
CT	拢3,960	听
Minus DTR	拢3,960	听
CT chargeable	拢0	听
FSP	拢12,000	听
Minus foreign tax	拢4,800	听
DFP	拢7,200	听

The company elects to match the DFP with 拢7,200 of the FID paid, and elects for thesematched FID to be qualifying FID.

On net FID paid of 拢15,000, ACT of 拢3,750 would have been paid.

The ACT that would not have been dealt with is 拢3,750 because as shown above no amount would be set off in the CT computation (CTM21410).

The notional foreign source ACT is found by applying the assumptions in ICTA88/S246P (CTM21420).

The qualifying FID are assumed to be the only distributions made, with no distributions treated as received.

The ACT that would be due on these qualifying FID is 拢1,800.

The matched FSP underlying the matched DFP are treated as the profits chargeable to CT.

Notional profits chargeable	拢12,000	听
CT	拢3,960	听
Minus DTR	拢3,960	听
CT due	拢0	听

The notional foreign source ACT is 拢1,800, since there is no set off against the notional CT liability.

The amount that would have been repayable under Section 246N is therefore the lower of 拢3,750 and 拢1,800, i.e. 拢1,800.

This is amount B.

Since amount A exceeds amount B, the excess of 拢1,950 is treated as an amount of ACT due from the company. The company pays this.

Example 4

This shows a further reckoning following additional matching.

In the next accounting period to 31 December 1997, the company鈥檚 income chargeable to CT includes Case V income of 拢30,000 with foreign tax suffered at 50%.

The company鈥檚 DFP for the period deriving from this income are:

FSP	拢30,000	听
Minus foreign tax	拢15,000	听
DFP	拢15,000	听

The company paid FID of 拢30,000 in the previous accounting period. But the maximum amount the company can elect to be qualifying FID is 拢15,000, because of the FID received. 拢7,200 FID have been matched with DFPs of the previous accounting period. The company now elects to match 拢7,800 of those FID with 拢7,800 of the DFP of 1997, and elects for these FID to be qualifying FID.

Because the company has previously made a payment under ICTA88/S246U (2) in respect of 1996, and has now matched FID paid in 1996 with DFP in 1997, the company is due a repayment.

The repayment is found by recalculating what the 1996 amount A minus amount B payment would have been, if the 1997 matched DFP had been taken into account before calculating that payment.

Amount A in respect of the FID paid in 1996 is unchanged at 拢3,750. The calculation ofamount B is now reworked.

To find amount B, we find what ACT would be repayable if the company had not treated itself as an IHC at any time in the accounting period.

The ACT that would not have been dealt with for 1996 is still 拢3,750.

The notional foreign source ACT is found by applying the assumptions in Section 246P (CTM21420).

The qualifying FID are assumed to be the only distributions made, with no distributionstreated as received. The qualifying FID are now 拢7,200 plus 拢7,800, totalling 拢15,000.

The ACT that would be due on these qualifying FID is 拢3,750.

The matched FSP underlying the matched DFP are treated as the profits chargeable to CT.

The company has matched 拢7,800 of the 1997 DFP. The foreign tax rate is 50%, so thematched FSP underlying these matched DFP are 拢15,600.

听	1996 matched FSP	1997 matched FSP
Notional profits chargeable	拢12,000	拢15,600
CT	拢3,960	拢5,148
Minus DTR	拢3,960	拢5,148
CT due	Nil	Nil

The notional foreign source ACT is 拢3,750, since there is no set off against the notional CT liability.

The amount that would be repayable is therefore the lower of 拢3,750 and 拢3,750, so this is amount B.

Amount A is also 拢3,750, so the recalculated amount A minus amount B is now nil.

The company is entitled to repayment under ICTA88/S246W of the 拢1,950 previously paid under ICTA88/S246U (2).