Section 31 | Calculation of income or gain where remittance basis does not apply

(1)Subsection (2) applies if—

(a)under the arrangements, credit is to be allowed for foreign tax in respect of any income or gain, and

(b)section 32(2) (cases where UK tax payable by reference to amount received in UK) does not apply.

(2)In calculating the amount of the income or gain for the purposes of income tax, corporation tax or capital gains tax—

(a)no deduction is to be made for foreign tax or special withholding tax, whether in respect of the same or any other income or gain, and

(b)if the credit is for foreign tax in respect of a dividend, the amount of the dividend is to be treated as increased by any underlying tax within subsection (3).

(3)In relation to a dividend, underlying tax is within this subsection if—

(a)under the arrangements it is to be taken into account in considering whether any, and (if so) what, credit is to be allowed in respect of the dividend,

(b)because the amount given by Step 2 of the calculation under section 58 is more than the amount given by Step 3 of that calculation, it is not to be taken into account in considering the questions mentioned in paragraph (a), or

(c)under section 60(3) it is not to be taken into account in considering those questions.

(4)The amount of any income or gain is not to be increased under subsection (2)(b) by reference to any foreign tax which, although not payable, is treated by section 20(2) as having been payable.

(5)Subsections (1) to (4) have effect for the purposes of corporation tax despite—

(a)section 464(1) of CTA 2009 (matters to be brought into account in the case of loan relationships only under Part 5 of that Act), and

(b)section 906(1) of CTA 2009 (matters to be brought into account in respect of intangible fixed assets only under Part 8 of that Act).

(6)In this section “special withholding tax” means special withholding tax—

(a)within the meaning of Part 3 (see section 136), and

(b)in respect of which a claim has been made under that Part.