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Hi,
If there is a double taxation treaty and extra tax is payable in the UK (e.g. 10%) on the taxable profits, why do we deduct from the taxable profits the tax allowable depreciation, reducing balance, in full?
EG the investment was 580m reducing balance 4 years. in Year 1 Kaplan Exam kit Exercise 2 is reducing -145m (580m * 0.25), instead of -43.5m (580m * 0.25 [reducing balance rate] *0.30 [UK tax rate as per the question]).
Is this right because of a singularity of double taxation treaties?
Thanks in advance
The taxable profits are the profits after subtracting tax allowable depreciation. If you think back to Paper F6, we calculate the taxable profits by replacing the accounting depreciation with the tax allowable depreciation (the capital allowances).
With double taxation relief, the taxable profit is the same, it is simply that if the tax rate in the ‘home’ country is higher than in the other country then just the extra tax on the taxable profits is payable.
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