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HMRC internal manual

Company Taxation Manual

HM Revenue & Customs
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Particular topics: dividend-stripping: double taxation agreements

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.