UK residents with foreign income or gains: dividends: Determination of rates of foreign underlying tax - Foreign Income - tax spared - example
Where credit is to be given for tax `spared’ (see INTM161270) two underlying rates are calculated
i) the actual rate, taking into account any tax paid for the purpose of calculating the gross dividend (TIOPA10/S31(4) & S32(5) ) and,
ii) the deemed rate, taking also into account the tax which would have been taken into account had it been payable but for the `sparing’ provisions.
The starting point for the foreign income computation is the dividend received by the shareholder.
The overseas country makes taxable profits of 157,894. These are subject to tax of 5%. If they had not qualified under the specific provision for tax spared in the double taxation agreement they would have been taxed at 25%.
|Agreed underlying rates Actual 5% Deemed 25% (including the actual tax rate of 5%)|
|Foreign income computation|
|Gross at actual underlying rate (5%)||7,894|
|Corporation Tax at 30%||47,362|
|Less deemed underlying tax (including actual tax) (£157,894 at 25%)||39,474|
|Net Corporation Tax payable||7,888|