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Offsetting withholding tax against UK corporation

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Hello

I understand that foreign withholding tax can be deducted from UK corporation tax as effectively a tax reducer (allowing for the fact it’s the lower of WHT or UK CT on the sale).

However, what happens if the UK company has made a loss during the year?

Can the WHT be carried forward in the balance sheet and be offset against UK CT in future years?

Thanks

Replies (45)

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By ms998
17th May 2019 10:09

Nope

You can take it as an expense and increase your losses going forward by the tax withheld.

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Replying to ms998:
Psycho
By Wilson Philips
17th May 2019 12:53

Agreed.

Although it can be carried forward in a sense - to relieve tax charged on the overseas income in future years if there was a possibility that future WHT may not be sufficient. In most cases, though, the deduction route tends to be the more effective option.

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Replying to ms998:
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By rae10000
17th May 2019 13:51

But then we only get 19% of the WHT, rather than the full 100%..….?

Also, in prior years it appears the WHT have been written off to sales, and hence calculating a lower CT value, rather than using the WHT as a tax reducer. What's the best way to correct this?

Thanks

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Replying to rae10000:
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By paul.benny
17th May 2019 15:42

I know I'm being like a stuck record... the best way is to get an accountant who understands international tax and has some experience with the country you're dealing with.

This is a specialist area and answers you get on a forum like this can only take account of the limited facts presented in the question. I don't know the answer to the question. But I know enough to know when to seek advice from someone with appropriate expertise.

Until your business starts providing its products free of charge to all comers, please don't expect accountants to provide detailed specialised advice for free.

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Replying to paul.benny:
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By rae10000
17th May 2019 16:31

Mate look....cheers but don't worry yourself.

I am 100% certain we will take advice on this, but there are 2 ways to get that advice - knowing something or knowing nothing.

From the posts I've made / looking on the internet I feel in a small amount of time I've gathered quite a lot of knowledge on the subject - enough to take decisions - no. But enough to be able to have a detailed conversation, where I understand what's happened afterwards.

Like I said, don't worry yourself, people who say go to an accountant on this website are soooooooooooooooo booooooooooooooooring!

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Replying to rae10000:
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By paul.benny
17th May 2019 16:53

Fine. If you made that clear in your first post, no one would have needed to bother saying go to an accountant. But you come across as a someone trying to do diy surgery.

As for people saying 'go to an accountant' being boring... well we're accountants. What do you expect? But there's still no need to be insulting.

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Replying to rae10000:
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By Tax Dragon
17th May 2019 16:57

rae10000 wrote:

I am 100% certain we will take advice on this

So none of the transactions you are talking about have actually happened?

I hope no-one that kindly responds to you feels they are wasting their time.

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Replying to rae10000:
Stepurhan
By stepurhan
17th May 2019 16:59

rae10000 wrote:

I am 100% certain we will take advice on this, but there are 2 ways to get that advice - knowing something or knowing nothing.

Based on previous experience of others like you here I'm almost 100% certain this is not true.

But even if it is, there is no excuse to be rude. This is a FREE forum that is really for accounting professionals (which you clearly aren't). No-one is forcing you to stay if you don't like the answers you are getting.

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Replying to stepurhan:
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By rae10000
17th May 2019 17:09

Well trust me this is the exception to your rule.

I wasn't rude. Not even close. There are a lot of people on this site always looking for a fight - I'm not one of them.

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Replying to rae10000:
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By paul.benny
19th May 2019 12:56

rae10000 wrote:

Well trust me this is the exception to your rule.

I wasn't rude. Not even close. There are a lot of people on this site always looking for a fight - I'm not one of them.

Mr Rae10000 - where I come from, calling people boring is rude. So is accusing professionals freely giving advice of 'looking for a fight'. And - call me old-fashioned - but people also say 'thank you'.

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Replying to paul.benny:
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By rae10000
20th May 2019 11:10

I didn't call you boring, I said just saying 'go to an accountant' is boring, its a subtle but important difference.

Most people on this site are not looking for a fight. But just look over some random posts, its obvious there are some people being deliberately objectionable for the sake of some mild titillation.

More than happy to thank you for advice.

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Replying to rae10000:
By Tim Vane
17th May 2019 16:40

rae10000 wrote:

But then we only get 19% of the WHT, rather than the full 100%..….?

Well that's kind of the point - otherwise the UK tax payer would be subsidising tax payments you are making to another country. The whole point of tax credit relief is to avoid paying taxes twice - but you haven't actually paid any tax on that income in the UK so there is nothing to avoid.

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Replying to Tim Vane:
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By rae10000
17th May 2019 17:07

But we have paid 100% of the withholding tax in the foreign country to their revenue. ie the withholding tax is on services provided to the foreign subsidiary.

From what I've read this is fully deductible against UK corporation tax in the year it occurs.

If we write if off as an expense in a loss making year, it seems unfair that we only get 19% of the value in future, where if we'd made a profit we'd get 100% relief?

Thanks

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Replying to rae10000:
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By Matrix
17th May 2019 17:33

Is it a branch or subsidiary and what is the name of the tax? Have you checked it is creditable in the UK (I can look it up for you if you tell me the name and country)?

Did you take advice on the set up including transfer pricing if you are charging management fees?

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Replying to Matrix:
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By rae10000
20th May 2019 11:03

It is a subsidiary.

There's definitely a DTT in place.

Yes - advice was taken on level transfer pricing, and agreed with their authority.

It seems to me the WHT is 100% deductible against corporation tax as a tax reducer in the year it was withheld.

I think the main issue is - in a loss making year what happens to the WHT suffered? The whole amount has been deducted and paid over to the authority in the foreign country. But if it is written off as an expense here (rather than carried fwd on the balance sheet) we will only get a 19% deduction from CT when the loss is utilised, compared to 100% deduction if we roll it all fwd and use it as a tax reducer.

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Replying to rae10000:
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By Matrix
20th May 2019 13:51

Well if the transfer pricing has been agreed then there isn’t very much you can do. Is this withholding tax on management charges then?

The UK company must have a loss making business even after receiving the charges, maybe this is what you need to address.

The UK does not have a system for carrying forward tax credit pools like in the US.

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Replying to Matrix:
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By Tax Dragon
20th May 2019 14:02

Matrix wrote:

The UK does not have a system for carrying forward tax credit pools like in the US.

Croner-i agrees: "Where neither relief by treaty nor unilateral relief are available (or credit relief has been disclaimed by election), relief is available by way of deduction of the amount of tax paid as an expense against the overseas income. Where, as will frequently be the case, the expense creates a loss, the loss is treated the same as a trading loss and will be available for relief in the same way. This relief will be advantageous where there is no UK tax liability as there is no facility to carry excess tax credits forward or backwards unless they can be utilised under the EUFT rules described above."

(The EUFT rules described above are of no relevance in the OP's case.)

And I agree - partly from my reading of s112, mentioned below.

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Replying to rae10000:
By Tim Vane
17th May 2019 23:21

rae10000 wrote:

From what I've read this is fully deductible against UK corporation tax in the year it occurs.

Ah the whooshing sound of things flying over heads.

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Replying to Tim Vane:
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By rae10000
20th May 2019 10:56

I meant fully deductible as a tax reducer, not as an expense.

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Replying to rae10000:
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By Tax Dragon
20th May 2019 11:03

It is not possible to reduce a tax liability that does not exist. The minimum a liability can be reduced to is Nil.

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Replying to Tax Dragon:
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By rae10000
20th May 2019 11:05

Agreed. Please see another response above I've just made. Hence why I want to roll it forward to use as a tax reducer in a future profitable year, rather than w/o as an expense (thus only getting a 19% deduction) when the carried fwd losses are utilised.

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Replying to rae10000:
Psycho
By Wilson Philips
20th May 2019 11:10

You can carry it forward, but only to reduce tax on the same source, so you may find that carry forward is of no benefit.

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Replying to Wilson Philips:
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By Tax Dragon
20th May 2019 11:41

Wilson Philips wrote:

You can carry it forward.

Are you sure? There doesn't seem to be any element of "claim" about s112 (i.e. it looks mandatory).

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Replying to Tax Dragon:
Psycho
By Wilson Philips
20th May 2019 15:16

Yes, I'm sure. s.112 is in point (in this context) only if the company has elected not to take credit. If they haven't made the elecion, unrelieved foreign tax is carried forward.

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Replying to Wilson Philips:
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By Tax Dragon
20th May 2019 15:29

Wait, what? You're saying that, in order to obtain a relief that I thought was not only automatic but compulsory, the company has to elect not to receive a relief to which I thought it was not entitled?

I know Vile will agree when I say… it’s time I gave up tax.

One last question though: what section provides for a carry forward (in these circumstances)?

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Replying to Tax Dragon:
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By Vile Nortin Naipaan
20th May 2019 15:33

Tax Dragon wrote:

I know Vile will agree when I say… it’s time I gave up tax.

It's always been that time.

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Replying to Vile Nortin Naipaan:
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By Tax Dragon
20th May 2019 15:44

"It's" can be past tense... :-)

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Replying to Tax Dragon:
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By Vile Nortin Naipaan
20th May 2019 16:04

Yes. Depending on context, it can mean "it is", "it has", or belonging to it.

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Replying to Vile Nortin Naipaan:
Psycho
By Wilson Philips
20th May 2019 19:30

Vile Nortin Naipaan wrote:

Yes. Depending on context, it can mean ... or belonging to it.


Only if you don’t know when (not) to use an apostrophe!
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Replying to Tax Dragon:
Psycho
By Wilson Philips
20th May 2019 16:24

If we take the starting point as being that the company has suffered overseas tax that is eligible for relief under the relevant DTT, the taxpayer ahs a choice:

a) the default position of credit against UK tax or
b) by electing out of a) and taking a deduction

It's that simple. If no election is made then credit is carried forward under s.72

(Note that although the questioner has not expressly stated the source/type of the foreign income they have repeatedly referred to a branch.)

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Replying to Wilson Philips:
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By Tax Dragon
20th May 2019 16:59

Wilson Philips wrote:

(Note that although the questioner has not expressly stated the source/type of the foreign income they have repeatedly referred to a branch.)

The branch became a subsidiary at 11.03 today.

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Replying to Tax Dragon:
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By Tax Dragon
20th May 2019 17:01

And since the WHT was on services supplied, that is the only option that makes sense - a person cannot trade with him/her/itself.

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Replying to Tax Dragon:
Psycho
By Wilson Philips
20th May 2019 18:46

I missed that post - darned phone layout

And yes it does make sense. Until i saw that further information I had assumed that the question was about overseas tax paid on profits of a foreign branch of the UK company.

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Replying to rae10000:
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By Matrix
17th May 2019 16:46

If the foreign tax is only claimed as a deduction then you won’t get full relief, just 19%. Can you disclaim capital allowances etc? Discuss with your accountant.

Have a look at the time limit for claiming DTR, I think it is 4 years. You could amend the prior returns if the amounts are material. Ask your accountant why no credit was claimed in these years.

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Replying to ms998:
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By soomay
11th Jun 2019 12:18

May I know what kind of expenses should I record?

If it arose due to interest income, should I treat it as part of interest expenses or tax expenses?

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Replying to ms998:
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By soomay
16th Jun 2019 08:26

May I know what kind of expenses should I record?

If it arose due to interest income, should I treat it as part of interest expenses or tax expenses?

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Caroline
By accountantccole
17th May 2019 11:17

We'd still point you to your accountant for these questions!

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Replying to accountantccole:
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By paul.benny
17th May 2019 11:42

accountantccole wrote:

We'd still point you to your accountant for these questions!

Agree. If you're having trouble identifying whether your foreign operation was a branch or subsidiary (as per your earlier question on this subject) you really need someone that does understand these things.

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Psycho
By Wilson Philips
17th May 2019 18:54

It might help to clarify your thoughts if you understand that a basic principle of double tax relief is that where income is taxable in two countries the overall tax payable will be tax at the higher rate. So if the income is taxable overseas but there is no UK liability the tax payable will be the overseas tax paid. It might seem unfair (it isn’t) but those are the rules and there’s no point in complaining about it here. Just be grateful that you are allowed some measure of relief in being allowed to increase your UK tax losses.

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Replying to Wilson Philips:
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By Tax Dragon
17th May 2019 19:05

If there is any unfairness, it's in having to pay tax in the overseas jurisdiction when there isn't an overall profit.

But the OP is whingeing when s/he should instead be learning from mistakes and.... sorry to be boring.... engaging advisors.

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By sash100
17th May 2019 21:27

This is your third question on this particular branch in two days. You need an accountant with international experience please go as clearly you are struggling with the concept of a branch

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Replying to sash100:
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By rae10000
20th May 2019 11:15

Honestly I'm not.

My other posts, on separate threads, referred to a branch.

This is a separate entity that is not a branch.

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By Vile Nortin Naipaan
20th May 2019 14:53

30 posts, and nobody has addressed the issue of whether the withholding tax could have been avoided in the first place, by just filling in a fuching form (which is quite likely where we have a DTT wiith the country concerned). If it could have been, then deduction from profits or recovery from the overseas tax authority are the only available means of relief.

Well, to be fair, those that have said "fuch off and find an accountant" have probably indirectly addressed this very point.

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Replying to Vile Nortin Naipaan:
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By Matrix
20th May 2019 14:58

I asked for the details of the tax (the name so I could look it up) on 17 May but did not get a response except to say it was covered by a DTT. We do not even know the nature of the withholding. The OP seems to think he has that part covered.

Maybe you will get better responses than me Portia.

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Replying to Vile Nortin Naipaan:
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By Tax Dragon
20th May 2019 15:08

I agree with Matrix. Some OPs don't help themselves. Such are hard to help.

Some respondents - myself included - nevertheless have a tendency to over-engage - sometimes in an apparent effort to help, sometimes not.

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