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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: subsidiaries entitled to underlying tax relief

TIOPA10/S14 also provides that a company is entitled to tax credit relief for underlying tax if it is a subsidiary of a company controlling not less than 10 per cent of the voting power in the company paying the dividend. TIOPA10/S63 (6) defines a subsidiary as a company in which not less than 50 per cent of the voting power is controlled by the other company.

The following examples illustrate the effect of this definition on claims to relief for underlying tax. Companies X and Y are UK companies and company A is the foreign company paying the dividend.

Example 1

Y is a subsidiary of X. Since X controls 10 per cent of the voting power in A, Y is also treated as having 10 per cent control of the voting power in A, plus its direct 1 per cent control. Both X and Y will get relief for the underlying tax attributable to A’s dividends.

Use this link to view example 1 diagram

Example 2

Y is a subsidiary of X. X controls directly 6 per cent of the voting power in A, and indirectly a further 6 per cent through Y. X has therefore direct and indirect control of 12 per cent of the voting power in A and Y is also treated as having 12 per cent of the voting power in A. Both X and Y will get relief for the underlying tax attributable to A’s dividends.

Use this link to view example 2 diagram