INTM164220 - UK residents with foreign income or gains: dividends
Dividends received by UK companies on or after 31 March 2001 - the mixer cap
ICTA1988/S799 allows credit relief to be given for underlying
tax against UK tax payable on a dividend. In the past this has
solely been limited to the amount of foreign tax borne on the
relevant profits by the company paying the dividend as is properly
attributable to the proportion of those represented by the
dividend.
FA2000, as amended by FA2001, introduced a further
limitation. The new S799(1A) means that for any dividend paid to a
UK recipient on or after 31 March 2001 the amount of underlying tax
taken into account with respect to any dividend will not exceed the
answer produced by the following formula.
(D+U) x M%
where
- D is the dividend,
- U is the amount of underlying tax paid overseas and
- M is the CT rate when the dividend was paid (30% in 2000).
The cap relates only to underlying tax. If the country in
question imposes a withholding tax, this is not included at that
level, as it is not a tax borne on the relevant profits by the
company paying the dividend. It is borne by the recipient. But if
the dividend then passes through an intermediate company, it
becomes underlying tax of that company and would be included at
that level for the purposes of calculating the mixer cap there.
The actual underlying tax paid is added to the dividend
received by the UK company to arrive at the amount of income to be
taken into account for Case V purposes under S795. This is so even
if only a capped amount is to be allowed as credit.
S797 still applies to limit the amount of foreign credit to
the amount of UK tax payable on that Case V income.
The provisions apply to any DTR claim made on or after 31
March 2001 on a dividend paid by a non-resident company to a UK
company, unless the dividend was paid before that date. If that
claim includes underlying tax from another company further down the
chain the cap applies even if that subsidiary's dividend was itself
paid before 31 March 2001.
The cap is not applied where dividends are mixed within the
same country, subject to detailed Regulations (SI2001/1162).
For mixed dividends the UTG will calculate both the mixer cap
and the amount of Case B Eligible Unrelieved Foreign Tax (EUFT -
see
INTM164230 onwards). Relevant guidance
can be found at:
INTM164440: information UTG require
INTM164460: what the UTG will give the
district
INTM164470 onwards, for examples of
the Case V and credit relief calculation for a dividend received on
or after 31 March 2001
