Taxation (International and Other Provisions) Act 2010 section 188

Double taxation relief by way of credit for foreign tax

Section 188 requires a reduction in the amount of double taxation relief (DTR) credit for foreign tax where a disadvantaged person's profits have been reduced following a transfer pricing claim.

• When a disadvantaged person claims a transfer pricing adjustment under section 174, any credit for foreign tax (whether under a double tax treaty or unilateral relief) must be recalculated on the basis of the arm's length provision.
• Two assumptions apply: first, the foreign tax is reduced to exclude any amount that would not have been payable had the arm's length provision applied (Assumption A); second, the relevant profits on which credit is given are reduced by any amount already treated as reduced under the transfer pricing claim (Assumption B).
• Any resulting adjustment to the foreign tax credit can be set against the relief or repayment the disadvantaged person is entitled to under their section 174 claim, and normal time limits for assessments do not prevent this adjustment being made.
• Foreign tax means tax under the law of a territory outside the United Kingdom, or any amount treated as such tax under double taxation arrangements; and whether credit is due is determined without regard to any requirement to make a formal claim for that credit.