Double taxation agreements negotiated since the passing of FA72,
together with a number of existing agreements which have
subsequently been amended by a Protocol, often include provisions
for conferring on certain persons resident in the other country the
right to a tax credit in respect of dividends from UK companies. To
prevent excessive tax credits being obtained through
dividend-stripping operations, such agreements usually contain a
provision restricting or denying credit where a dividend is paid
out of pre-acquisition profits.
The precise circumstances in which a restriction will operate
depend upon the terms of the agreement, for example, Article 11(5)
of the agreement with the Irish Republic (SI1976/2151). The
restriction will normally be applied by HMRC International - Centre
for non-residents, Nottingham who are responsible for authorising
payment of tax credits in respect of UK dividends. Any case where
it appears that the restriction may be appropriate should be drawn
to the attention of HMRC International - Centre for non-residents,
Nottingham.
