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HMRC internal manual

Double Taxation Relief Manual

USA: Double taxation agreement, Exchange of Notes: Article 10

With reference to paragraph 7 of Article 10 (Dividends):

it is understood that the general principle of the “dividend equivalent amount”, as used in United States law, is to approximate that portion of the income mentioned in paragraph 7 of Article 10 that is comparable to the amount that would be distributed as a dividend if such income were earned by a subsidiary incorporated in the United States. For any year, a foreign corporation’s dividend equivalent amount is equal to the after-tax earnings attributable to the foreign corporation’s (i) income attributable to a permanent establishment in the United States, (ii) income from real property in the United States that is taxed on a net basis under Article 6 (Income from Real Property), and (iii) gain from a real property interest taxable by the United States under paragraph 1 of Article 13 (Gains), reduced by any increase in the foreign corporation’s net investment in US assets or increased by any reduction in the foreign corporation’s net investment in US assets.