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HMRC internal manual

International Manual

From
HM Revenue & Customs
Updated
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UK residents with foreign income or gains: dividends: Dividends received by UK companies on or after 31 March 2001 - background and overview

A company that receives a dividend from an overseas company in which it owns more than 10% of the voting rights may claim a credit for tax paid on the profits of the overseas company and its subsidiaries: ‘underlying tax’. Before Finance Act 2000, if the tax exceeded the UK tax payable on the dividend, the UK recipient could not get relief for all the foreign tax. Off- shore mixing companies were therefore set up to mix dividends with high tax and dividends with low tax so that they came into the UK at an averaged rate. We could only look at the combined source and combined tax paid when limiting relief for foreign tax under what was then ICTA88/S797.

As part of a very wide overhaul of the double taxation regime, Finance Acts 2000 and 2001 introduced provisions to nullify the effects of offshore mixing for UK tax purposes. It also introduced a regime of on-shore pooling and of allowing some relief for excess tax against other foreign dividends received by the company or elsewhere in the group. Some refinements to the legislation were made in FA 2001.

The provisions are extensive and guidance on the various aspects can be found as follows:

The Mixer Cap (INTM164220): credit for tax paid on each component dividend making up a mixed dividend is limited to the amount that would have been allowable if that component dividend had been paid direct into the UK;

Eligible Unrelieved Foreign Tax (INTM164240 et seq.): some foreign tax that cannot be relieved against the dividend on which it arises may be eligible for relief against other foreign dividends (The legislation relating to EUFT was repealed for distributions paid on or after 1 July 2009);

On-shore pooling (INTM164270): certain dividends that have a low rate of tax can be pooled and absorb unrelieved foreign tax arising elsewhere;

Using EUFT and Group Surrender (INTM164310 and INTM164330): excess unrelieved tax may be used in other periods or surrendered within a group (The legislation relating to EUFT was repealed for distributions paid on or after 1 July 2009);

ADP dividends (INTM164280 and INTM164290) dividends paid by a Controlled Foreign Company to satisfy an Acceptable Distribution Policy are completely ringfenced;

Partial Claims: (INTM164300) credit for foreign tax need not be claimed in full;

(This content has been withheld because of exemptions in the Freedom of Information Act 2000) INTM164110(This content has been withheld because of exemptions in the Freedom of Information Act 2000)