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Mixing it
TERRY WAGGOTT provides a basic spreadsheet to facilitate eligible unrelieved foreign tax calculations.
THE EXTRA RELIEF that can be generated by making claims for eligible unrelieved foreign tax in onshore mixers is astonishing. Eligible unrelieved foreign tax pooling and surrenders can also prompt further tax planning since they can replace group relief, which in turn can invoke capital allowance disclaimers in other group companies.
Mixing it
TERRY WAGGOTT provides a basic spreadsheet to facilitate eligible unrelieved foreign tax calculations.
THE EXTRA RELIEF that can be generated by making claims for eligible unrelieved foreign tax in onshore mixers is astonishing. Eligible unrelieved foreign tax pooling and surrenders can also prompt further tax planning since they can replace group relief, which in turn can invoke capital allowance disclaimers in other group companies.
But anyone attempting eligible unrelieved foreign tax calculations soon realises the need to ensure that they make sense. However, the explanations provided by, for example, the Inland Revenue website are plentiful, but are not always clear. (See www.inlandrevenue.gov.uk/manuals/intmanual/INTM164210.htm) Also, the commercial software is brilliant, but can be difficult to navigate without a good background knowledge of the subject and may not lend itself to tax planning scenarios. A simple way of facilitating tax planning and of checking that any calculations are valid is useful, regardless of whether they are prepared manually or by using commercial software.
For these reasons, I prepared Table 1 , which is a very basic spreadsheet based on the excellent article by David Blumenthal, 'The Four Step Solution' (see Taxation , 8 April 2004 at page 35).
Line 23 of Table 1 shows underlying tax pooled to eliminate the onshore mixer's United Kingdom tax liability. Lines 24 and 29 show the surrenders to other group companies. An explanation of the formulae used and notes to Table 1 are given below.
Table 1: Eligible unrelieved foreign tax in an onshore mixer
| Related low tax companies | |||||||
| A | B | C | D | E | F | G | H |
| 5 | Company 1 | Company 2 | Company 3 | Company 2 + Company 3 | Total | Company 1 Formulas | |
| 6 | 100% | 100% | 40% | ||||
| 7 | Net | 600,000 | 115,000 | 75,000 | 190,000 | 790,000 | 600,000 |
| 8 | Withholding tax (WHT) | 30,000 | 0 | 30,000 | 30,000 | ||
| 9 | Underlying tax (ULT) | 340,000 | 46,000 | 46,000 | 386,000 | 340,000 | |
| 10 | Less management expenses | (2,000) | (2,000) | (2,000) | |||
| 11 | "Gross" | 970,000 | 161,000 | 73,000 | 234,000 | 1,204,000 | =SUM(c7:c10) |
| 12 | 38.14% | 28.57% | 0.00% | 19.66% | =(+c8+c9)/c11 | ||
| 13 | |||||||
| 14 | CT at 30% | 291,000 | 70,200 | 361,200 | =c11*0.3 | ||
| 15 | DTR restricted - Note 1 | 291,000 | 46,000 | 337,000 | =IF(c14<(c8+c9),c14,(c8+c9)) | ||
