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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: 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This section was repealed by FA 2009 s 36 and Sch 16 para 2 in relation to accounting periods of controlled foreign companies beginning on or after 1 July 2009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:

Use this link to view example to show how ICTA88/S801C works

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.

  1. 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.
  2. 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.
  3. 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