INTM164120 - UK residents with foreign income or gains: dividends

Underlying tax – computation of relevant profits

For dividends paid to the UK on or after 21 March 2000 ICTA88/S799(5) to (7) defines the relevant profits for the purposes of calculating the underlying tax rate. In particular the accounts must be drawn up in accordance with the law of the foreign State and no provisions can be made for reserves, etc., other than those required under that law.

For dividends paid to the UK before 31 March 2001 it was possible for a company to specify that the dividend was paid out of specified profits, or for a specified period. For dividends paid to the UK on or after that date ICTA88\S799(3) has been amended so that it is only possible to specify an accounting period.

Relevant profits are calculated by Underlying Tax Group, Fitz Roy House, Nottingham. But Districts can assist in identifying cases where a limitation of relief should be made.

Where it appears that a group company, resident or not, has manipulated reserves, etc to distort the rate of underlying tax a brief note of the facts should be sent to CT & VAT, International CT (Outward Investment). Alternatively this information should be provided when making a request for an underlying tax rate in respect of a foreign dividend received by a United Kingdom company from a non-resident group company ( INTM164440).

Any enquiry from a company or from its advisers about how relevant profits or the rate of underlying tax should be calculated should be referred to the Underlying Tax Group.