INTM164515 - UK residents with foreign income or gains: dividends
Determination of rates of foreign underlying tax - Case V - tax spared - example
Tax `spared'. Where credit is to be given for tax `spared' (see
INTM161270) two underlying rates are calculated
i) the actual rate, taking into account any tax paid for the
purpose of calculating the gross dividend (ICTA88/S795 (3) ) and,
ii) the deemed rate, taking also into account the tax which
would have been taken into account had it been payable but for the
`sparing' provisions.
The starting point for the Case V computation is the dividend
received by the shareholder.
Example
The overseas country makes taxable profits of 157,894. These are subject to tax of 5%. If they had not qualified under the specific provision for tax spared in the double taxation agreement they would have been taxed at 25%.
| Dividend received | 150,000 |
| Agreed underlying rates Actual 5% Deemed 25% (including the actual tax rate of 5%) |
|
| Case V computation |
|
| Dividend | 150,000 |
| Gross at actual underlying rate (5%) | 7,894 |
| Case V income | 157,894 |
| Corporation Tax at 30% | 47,362 |
| Less deemed underlying tax (including actual tax) (£157,894 at 25%) | 39,474 |
| Net Corporation Tax payable | 7,888 |
