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HMRC internal manual

International Manual

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HM Revenue & Customs
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UK residents with foreign income or gains: dividends: EC Directive

With effect from 1 January 1992 the EC Parent and Subsidiary Directive (90/435/EC) bars the imposition of withholding taxes on dividends paid by a company resident in one Member State of the Community to a company resident in another Member State, where the company receiving the dividend holds a minimum of 25 per cent of the capital of the company paying the dividend. The term `company’ is defined in the Directive. In the case of the UK it means a company incorporated under the law of, and subject to tax in, the UK.

This Directive overrides any provision made for withholding tax in the relevant bi-lateral treaty. Note that for states which joined the EU after 1992, the Directive applies from the relevant accession date.

Where, exceptionally, foreign tax is withheld on a dividend received by a UK company on or after 1 January 1992 from a company resident in another Member State in which the UK company holds at least 25 per cent of the capital, no relief should be allowed for that tax, whether by way of credit relief or by way of deduction, except in the following transitional cases:

  1. relief should be allowed for withholding tax in the case of dividends paid by a Greek company (see, however, DT8257);
  2. relief should be allowed for withholding tax up to a rate of 5% in the case of dividends paid by a German company up to 30 June 1996 - no relief should be given if withholding tax is nevertheless imposed after that date;
  3. relief should continue to be allowed for withholding tax in the case of dividends paid by a Portuguese company up to 31 December 1999 at the rate of 10%, which is the rate specified in the double taxation agreement between the UK and Portugal where a UK company holds directly at least 25 per cent of the capital of the Portuguese company paying the dividends.