Section 18 | Entitlement to credit for foreign tax reduces UK tax by amount of the credit

(1)Subsection (2) applies if—

(a)under double taxation arrangements, or

(b)under unilateral relief arrangements for a territory outside the United Kingdom,

credit is to be allowed against any income tax, corporation tax or capital gains tax chargeable in respect of any income or chargeable gain.

(2)The amount of those taxes chargeable in respect of the income or gain is to be reduced by the amount of the credit.

(3)In subsection (1) “credit”—

(a)in relation to double taxation arrangements, means credit for tax payable under the law of the territory in relation to which the arrangements are made, and

(b)in relation to unilateral relief arrangements for a territory outside the United Kingdom, means credit for tax payable under the law of that territory,

but see sections 12(3) and 63(5) (dividends: certain tax payable otherwise than under the law of a territory treated as payable under that law).

(3A)References in subsection (3) to tax payable under the law of a territory outside the United Kingdom do not include tax paid by a company in relation to which an election under section 18A of CTA 2009 (exemption for profits or losses of overseas permanent establishments) has effect in respect of a relevant profits amount or relevant losses amount within the meaning of that section.^F1

(4)Subsection (2) applies subject to—

(a)the following provisions of this Chapter,

(b)section 106 (Chapter 1 and this Chapter operate for capital gains tax purposes separately from their operation for the purposes of other United Kingdom taxes), and

(c)Chapter 2 of Part 18 of ICTA (double taxation relief: pooling of foreign dividends paid before 1 July 2009).

(5)Credit is allowed under subsection (2) against any tax only if, under the arrangements concerned, credit is allowable against that tax.

(6)Credit against income tax is given effect at Step 6 of the calculation in section 23 of ITA 2007.