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HMRC internal manual

Double Taxation Relief Manual

Double Taxation Relief Manual: Guidance by country: United States of America: Relief from double taxation from 2003: Dividends

The new UK/USA Agreement applies from 1st and 6th April 2003 respectively for the purposes of UK CT and IT.

The general thrust of the Article is the same as is set out at INTM153250 but there are some additional points that need to be mentioned.

Tax Planning: US dividends

Article 24(4)(c) deals with a particular form of tax planning which when applied in conjunction with s793A ICTA 1988 effectively denies the objective of the scheme.

S793A is the provision which provides that where a tax treaty contains specific limitations on double taxation relief, unilateral relief [s790 ICTA 1988] will no longer be available as a fall back.

This catches, for instance, a US/UK preference share repurchase arrangement. Essentially, this is a financing plan, whereby a US parent company sells to an investor (and agrees to repurchase in a defined period) preferred shares issued by its US subsidiary company. The result of the arrangement is that the US group receives an interest deduction, since US domestic law views this a secured financing arrangement. By contrast, with appropriate structuring an UK company could simply receive dividends with underlying tax attached to them. Article 24(4)(c) provides that tax credit relief will no longer be given in this situation.

RP International, External Relations Group (Advisory) would like to see any cases where it is seems from the CTSA Return for any AP ending after 1 April 2003 where there has been a significant change in the tax credit relief claims in respect of US dividends.