UK residents with foreign income or gains: dividends: Dividends received by UK companies on or after 31 March 2001 - ADP dividends - example
This section was repealed by FA 2009 s 36 and Sch 16 para 2 in relation to accounting periods of controlled foreign companies beginning on or after 1 July 2009
Example to show how ICTA88/S801C works
UK has a subsidiary A in country A that in turn holds three subsidiaries:
B pays a dividend to A of 85 in respect of which it has paid underlying tax of 15;
C pays a dividend to A of 100 in respect of which there is nil underlying tax but 10 with-holding tax is payable;
D pays a dividend to A of 60 in respect of which it has suffered underlying tax of 40.
A then pays a dividend of 235 up to the UK.
- For B to satisfy an ADP, A will have to specify that 85 of the subsequent dividend of 235 is paid wholly out of the initial dividend received from B. Only the foreign tax paid in relation to that initial dividend can be set off against any UK tax payable on that part of the subsequent dividend of 235 paid by A to the UK.
- The remaining 150 (90 + 60) will be the ‘residual dividend’ and only the foreign tax paid on that can be set off against any UK tax payable on that part of the dividend of 235 paid by A to the UK.
- The mixer cap will also restrict the underlying tax creditable on the residual dividend as that paid by D exceeds 30%. The ‘residual dividend’ will count as a ‘qualifying foreign dividend’ so the capped tax can be pooled as EUFT - but not set against the UK tax on the ADP dividend or the residual dividend.
Case V Computation:
|ADP dividend||85||Residual dividend||150|
|Underlying tax||15||Underlying tax (10+ 40)||50|
|Gross dividend||100||Gross dividend||200|
|CT||30||CT @ 30%||60|
|DTR||(15)||DTR (10 + 30)||(40)|
|Net UK tax||15||Net UK tax||20|
|EUFT = 10|