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HMRC internal manual

International Manual

Reliefs against Controlled Foreign Companies' tax: Relief for dividends paid by a Controlled Foreign Company: main conditions

ICTA88/SCH26/PARA4(1) to (3)

The main conditions for obtaining relief for Chapter IV tax against liability on a dividend paid by a controlled foreign company are that-

  1. the chargeable profits of the company for that period have been apportioned; and
  2. the company pays a dividend in whole or in part out of the total profits from which those chargeable profits are derived.

Where the company can show that profits included in the total profits of the accounting period to which apportionment relates were distributed out of the profits of a different period relief may be given for Chapter IV tax paid as if the distribution were out of the total profits of the apportionment period. This is provided that the distribution is not used to satisfy the acceptable distribution policy for another accounting period under ICTA88/SCH25/PARA2A(2) (see INTM254660).

It is not necessary for the dividend to be paid after a Chapter IV assessment. Where a dividend is paid prior to the apportionment of chargeable profits, relief against the liability on the dividend is available subject to the same conditions as in the case where the dividend is paid later. It is not however possible to set Corporation Tax charged on the dividend against the tax due under Chapter IV in respect of the apportioned chargeable profits.

Relief under these provisions will be due where dividends paid to the United Kingdom have not satisfied the acceptable distribution policy (either because they are insufficient in amount or because they were paid outside the time-limit) and an apportionment is due.