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HMRC internal manual

International Manual

Double Taxation Relief: Anti avoidance legislation: Scope

Foreign taxes may be paid in the following ways:

  • Tax may be charged on profits earned in a foreign jurisdiction, for example by a permanent establishment in another country
  • Tax may be withheld from certain payments, including dividends, interest, royalties and rent
  • When a UK company receives a dividend from a foreign subsidiary, the subsidiary may have already paid tax on the profits included in the dividend. This is referred to as underlying tax.

The legislation may apply to all claims for credit in the first two categories. Existing legislation includes detailed rules for the calculation of relief for underlying tax which often involve treating one company as if it had paid the tax actually paid by a different company. The legislation is not concerned with the mechanics of this process. It applies to underlying tax credit only in circumstances where a foreign company is being interposed to avoid the application of the legislation to a UK company. Further detail is given in INTM170130.