INTM620340 - Offshore Receipts in respect of Intangible Property (ORIP): Exemptions: Foreign tax at least half of UK tax

ITTOIA05/Ch2A/S608L&M

This exemption applies where a person suffers tax in their territory of residence in relation to the relevant intangible property income, and that local tax equates to at least 50% of the tax charge that would arise on that income under Chapter 2A. This exemption is not contingent on a claim.

Where the conditions of the exemption are met, no charge arises to that person under Chapter 2A for that tax year - section 608L(1) provides that section 608A does not apply to that person.

For the purposes of this exemption, the definition of residence in section 608D is amended so that the exclusion for persons only liable to tax on a territorial or remittance basis, and the exclusion for persons subject to an express denial of relief under a DTA, do not apply. The effect of this adjustment is that the definition of residence for the purposes of section 608L is wider than the definition of residence which generally applies for Chapter 2A.

The exemption operates by comparing the “local tax amount” with the “corresponding UK tax”.

Where the local tax amount paid in respect of UK-derived amounts is at least half of the corresponding UK tax that would otherwise be chargeable in respect of those same UK-derived amounts, the exemption applies.

The local tax amount is defined as tax which is paid in a person’s territory of residence in respect of UK-derived amounts arising to that person in that tax year. Further rules for calculating the local tax amount are set out in section 608M.

Local taxes which are determined under designer rate provisions are not taken into account when considering this exemption. Section 608L(4) defines “designer tax provisions” as those which allow a person to exercise significant control over the amount of tax that they pay.

The “corresponding UK tax” is defined as the amount of income tax that would be charged under Chapter 2A in respect of UK-derived amounts which arise during the tax year, on the basis that section 608A applies, and no reliefs or allowances are available to the person.

Section 608M sets out the conditions for computing the local tax amount. Where an amount of tax is paid which covers UK-derived amounts and other amounts, the tax paid is apportioned between those two categories on a just and reasonable basis.

Where any repayment of tax, or payment in respect of a credit for tax, is made to any person, and that repayment or payment is directly or indirectly in respect of any tax paid in respect of UK-derived amounts, the local tax paid is reduced by the amount of payment or repayment.

The reduction of the local tax amount in respect of repayments or payments for credits can be apportioned, on a just and reasonable basis, between amounts of tax paid in relation to UK-derived amounts, and other amounts.

Any reduction of the local tax amount in respect of repayments or payments for credits applies after any apportionment of tax paid between amounts paid in relation to UK-derived amounts and other amounts.