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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: corporation tax: Dividends: control: related companies

A company is related to another company if it controls directly or indirectly, or is a subsidiary of a company which controls directly or indirectly, not less than 10 per cent of the voting power in the other company.

The following examples illustrate the meaning of `direct’ and `indirect’ control for the purposes of giving relief for underlying tax. In each example company A is a UK company claiming relief for underlying tax. Companies B, C etc. are foreign companies. The percentage figures shown are the percentages of the voting power controlled by each company in the chain. Dividends are passed up through the chain to the UK company.

Direct control

Example 1

A has direct control of the voting power in B and gets relief for the underlying tax attributable to B’s dividends.

Use this link to view example 1 diagram

Example 2

A gets relief for the underlying tax attributable to B and C’s dividends but not for the underlying tax attributable to D’s dividends.

Use this link to view example 2 diagram

Indirect control

Example 3

Although A has indirect voting control of 4 per cent of C, it gets no relief for the underlying tax attributable to C’s dividends, since its indirect control is less than 10 per cent.

Use this link to view example 3 diagram

Example 4

A does not have indirect control of C (since the other 80 per cent shareholders have effective control). Nevertheless there is more than 10 per cent control at each stage in the chain so that A will get relief for the underlying tax attributable to C’s dividend.

Use this link to view example 4 diagram

Example 5

B’s direct control of D is 8 per cent. B’s indirect control of D is Nil (because B does not have effective control of C, nor C of D). B’s direct and indirect control of D is 8 per cent. A will get relief for the underlying tax attributable to D’s dividends passing via C and B (because there is 10 per cent control at each stage) but not for the dividends passing via B only (only 8 per cent control).

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Example 6

B’s direct control of D is 8 per cent. B’s indirect control of D is 4 per cent (through C). B’s direct and indirect control of D is 12 per cent. A will therefore get relief for the underlying tax attributable to D’s dividends passing direct to B and those passing to B through C.

Use this link to view example 6 diagram