LAM09260 - Double Tax Relief: General limitations on credit relief: pension business and minimisation of foreign tax TIOPA10/S33

Relief is limited to the lowest possible rate of foreign tax. TIOPA10/S33 requires all reasonable steps to minimise the tax payable in the other territory. Where there is a double taxation agreement (DTA) then it is assumed that all appropriate claims are made under the DTA. Credit relief is not available for any tax suffered by a company in excess of the treaty rate – see INTM161250.

This is particularly relevant to life assurance companies which carry on pension business. Under a number of DTAs the rate of withholding tax on dividends is reduced or eliminated where the beneficial owner of dividends or interest is a pension scheme. See INTM157020 for links to the UK’s DTAs. LAM09270 covers claims under a DTA.

Insurers are expected to have the processes in place to ensure that the reduced rate of WHT available under a DTA is claimed. Where a reduced rate of WHT is applied retrospectively (due to claims made directly or via a custodian), and DTR has been claimed as a deduction in the trading computation under TIOPA10/S112 on the basis of the full rate of WHT, that reduction must be notified to HMRC within the time limit specified in TIOPA10/S115. Any adjustment to policyholder liabilities will be reflected in the accounting period in which the refund occurs not the accounting period in which the income subject to withholding tax was received.