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HMRC internal manual

Double Taxation Relief Manual

HM Revenue & Customs
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Double Taxation Relief Manual: Guidance by country: United States of America: Restriction of credit

In general, United States withholding tax is imposed on all distributions made to non-residents by United States corporations.


to the extent that such payments are not of an income nature under United States law (although they may be income for the purposes of United Kingdom law), but are deemed to be either a return of capital or a distribution of capital gains, they are not subject to tax;

certain dividends may be exempt from tax because they are deemed to have been made out of profits not earned in the United States.

(A list of United States Corporations etc. known to have paid dividends exempt or partly exempt from United States withholding tax is given in DT19869.)

In most cases within (b) United States withholding tax is deducted from the full amount of the dividend and the recipient is entitled to claim a refund when the amount not liable to withholding tax has been agreed between the paying corporations etc. and the United States Internal Revenue Service (usually in the following year). In such cases, either

No withholding tax is deducted from part of the dividends (or, exceptionally, from the whole amount), or

withholding tax on the full dividend is deducted but is held in suspense by the payer until the correct amount of withholding tax is agreed with the United States Internal Revenue Service. Any balance is then paid to the shareholder and, if it is paid to a United Kingdom paying agent, he may pass it on to the United Kingdom Revenue, thus reducing the amount of provisional credit given by the paying agent and increasing the amount of United Kingdom Tax deducted.

Tax credit relief is not due in respect of any withholding tax deducted from dividends that can be recovered by the shareholder (see INTM161250). In this connection it may be necessary for a shareholder himself to take steps to recover the excess withholding tax from the paying agent or from the Internal Revenue Service..