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HMRC internal manual

International Manual

UK residents with foreign income or gains: dividends: Underlying tax - computation of relevant profits

For dividends paid to the UK on or after 21 March 2000 TIOPA10/S59(8) (previously ICTA88/S799(5) to (7)) defines the distributable profits for the purposes of calculating the underlying tax rate. In particular the accounts must be drawn up in accordance with the law of the foreign State and no provisions can be made for reserves, etc., other than those required under that law. These are then the basis for the “relevant profits” defined by TIOPA10/S59.

For dividends paid to the UK before 31 March 2001 it was possible for a company to specify that the dividend was paid out of specified profits, or for a specified period. For dividends paid to the UK on or after that date TIOPA10/S59 (4) & (5) (previously ICTA88\S799(3)) has been amended so that it is only possible to specify a period.

Relevant profits are calculated by CTIAA Underlying Tax Group, Yorke House, Nottingham. But Specialists can assist in identifying cases where a limitation of relief should be made.

Where it appears that a group company, resident or not, has manipulated reserves, etc to distort the rate of underlying tax a brief note of the facts should be sent to CTIAA Business International, Outward Investment team. Alternatively this information should be provided when making a request for an underlying tax rate in respect of a foreign dividend received by a UK company from a non-resident group company (INTM164440).

Any enquiry from a company or from its advisers about how relevant profits or the rate of underlying tax should be calculated should be referred to the CTIAA Underlying Tax Group.