INTM550520 - Hybrids: definition of key terms: meaning of tax

S259B TIOPA 2010 defines tax for the purposes of Part 6A as

  • income tax
  • the charge to corporation tax on income
  • diverted profits tax
  • the CFC charge
  • foreign tax or
  • a foreign CFC charge

The definition of tax does not include

  • any tax on capital gains in the UK, whether CGT or corporation tax on capital gains
  • any other UK capital taxes

Foreign tax is defined as a tax chargeable on income under the law of a territory outside the UK that corresponds to the UK charge to income tax or the UK charge to corporation tax on income.

The legislation defines a foreign tax as a tax that corresponds to the UK income tax or UK charge to corporation tax on income.

Finance Act 2021 introduced s259B(3ZA) which is relevant from the date of Royal Assent of the Finance Act. It clarifies what constitutes a foreign tax by making it clear, for the purposes of the definition of foreign tax, that a tax does not correspond to either UK income tax or UK corporation tax if the tax is brought into account by a different person that the income arises to, as long as that other person (to whom the income has arisen) is regarded as a person for the purposes of the tax. So, if person A in jurisdiction A pays tax that is charged by reference to income arising in its subsidiary company B in jurisdiction B, then that will not be regarded as a foreign tax for the purposes of Part 6A.

For example, US Federal taxes on income correspond to the UK taxes, being imposed at national level, and so are regarded as foreign tax within Part 6A unless excluded by s.259B(3ZA), as will be the case in relation to the US Global Intangible Low-Taxed Income (GILTI) charge. US State taxes are not foreign tax within Part 6A - they do not correspond to UK taxes on income because they are not imposed at national level and there is another tax in the US that is.

Sales or turnover taxes are not foreign taxes that correspond to the UK income tax or charge to corporation tax on income in the UK.

Withholding taxes are specifically excluded from Part 6A (259B(3A)).