Budget 2010 – Double tax relief avoidance
The Chancellor has announced new measures to counter double tax relief (DTR) avoidance. The changes are likely to impact banks and financial institutions using avoidance schemes to claim double tax relief where they have not suffered the cost of the foreign tax.
New legislation will be introduced in Finance Bill 2010 to confirm taxpayers may only deduct foreign tax from foreign income where the foreign tax has been included as part of taxable income. The Government will also introduce legislation to reaffirm the scope of the targeted DTR anti-avoidance rule.
The legislation will be effective for foreign tax paid or payable on or after 1 April 2010 for corporation tax and 6 April 2010 in relation to income tax and capital gains tax.
There will also be amendments to the manufactured overseas dividend (MOD) regulations mainly relating to the offset rules to stop financial traders effectively obtaining relief for foreign tax twice. The amendments will have effect in relation to MODs paid or treated as paid 21 days after 24 March 2010.