LLM7140 - Double taxation relief: corporate members: Regulations: calculating the foreign tax pool: foreign tax adjustments

It is quite common for the amount of foreign tax to be adjusted; for instance, upwards following enquiries or downwards following a carry-back claim under the foreign tax code.

If there is an addition to the foreign tax, the formulae at LLM7120 and LLM7130 are re- worked. There may be a new ERFT, calculated under the first formula at LLM7120. When calculating ASFT under the second formula, “FT” is the foreign tax including the addition. If, for example, foreign tax for a territory was originally 300,000, and there is an additional 50,000 making 350,000, the calculation is reworked using the sum of 350,000 – rather than undertaking a further calculation using 50,000 added to the original calculation.

A similar principle applies if the foreign tax is reduced by repayment. The formulae are re- worked and “FT” is the foreign tax after subtraction of the repaid amount. The Regulations provide for a deduction to be made from AAFST in circumstances where an adjusted sum of foreign tax is reduced. If, for example, foreign tax for a territory was originally 300,000 and there is a repayment of 50,000 leaving 250,000, the calculation is reworked using the sum of 250,000 – rather than undertaking a further calculation using 50,000 and deducting it from the original calculation.

These tax adjustments apply to the foreign period of accounting for which the creditable tax is payable, and to its corresponding accounting period. The approach outlined for individual Names for additional payments at LLM7060, and for refunds at LLM7070, does not apply. Although the approach described there, of relating the adjustments to the periods in which the additional payment is made, or the refund is received, has the advantage of avoiding the need for retrospective adjustments, it is not suitable for the corporate member Regulations. This is because the restriction described at LLM7120 depends on the tax rates for the period to which the income relates.