Double taxation relief: underlying tax on dividends referable to an overseas branch: accounting periods beginning before 1 April 2000: restriction of credit under section 802 ICTA 1988: example
- A United Kingdom insurance company transacting general business carries on that business through branches in countries A and B. It is charged to tax under Case I of Schedule D in respect of its general insurance business. The total investment income referable to the company’s general business (including franked investment income and group income) is £4,000,000 which includes overseas dividends as follows:
- £900,000 from companies resident in country A (of which £600,000 comes from a company in which the United Kingdom company controls 25 per cent of the voting power).
- £500,000 from companies resident in country B.
- The “relevant fractions” are
- Country A 1/4
- Country B 1/10
Dividends from companies in country A
Limit on amount of dividends available for relief under Section 802
Relevant fraction of total investment income (¼ × £4,000,000) = £1,000,000
Less dividends qualifying for underlying tax relief apart from Section 802 = £600,000
Limit on dividends available for relief under Section 802 is therefore £400,000
As this exceeds £300,000 (£900,000 less £600,000) there is no limitation.
Dividends from companies in country B
Limit on amount of dividends available for relief under Section 802:
Relevant fraction of total investment income (1/10 × £4,000,000) = £400,000
As this is less than the amount of £500,000, the relief is limited to dividends totalling £400,000.