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HMRC internal manual

International Manual

Reliefs against Controlled Foreign Companies' tax: Application of double taxation rules


The effect of treating “gross attributed tax” as underlying tax qualifying for tax credit relief is to apply the normal double taxation rules to relief under ICTA88/SCH26/PARA4(2). Three of the normal double taxation rules require particular mention:

  1. The profits of a controlled foreign company out of which a dividend is paid are identified in accordance with TIOPA10/S59 and TIOPA10/S62 (formerly ICTA88/S799(3) and (4)) . It is, therefore, necessary to establish what are the “relevant profits” for the purposes of TIOPA10/S59, S62 before it can be determined whether the controlled foreign company has paid a dividend out of profits from which chargeable profits are derived within the terms of ICTA88/SCH26/PARA4(1)(c).
  2. The limit on credit rule in TIOPA10/S427 applies. So, for example, if a United Kingdom company self assesses under Chapter IV for an accounting period in which the rate of Corporation Tax is 28% and later when that rate is 27% receives a dividend representing the whole of the chargeable profits in respect of which it has been assessed, the excess Chapter IV tax which cannot be relieved against the liability on the dividend cannot be relieved in any other way.
  3. The provisions of TIOPA10/S63 to S65 apply. The effect is to allow relief for ‘gross attributed tax’ where dividends paid out of the profits of the controlled foreign company reach the United Kingdom through one or more intermediate foreign companies. Relief ICTA88/SCH26/PARA4(2) does not therefore depend on a controlled foreign company paying a dividend directly to a person resident in the United Kingdom through one or more intermediate foreign companies. Since, however, double taxation relief can only be claimed by United Kingdom residents, relief will only be given when the controlled foreign company’s profits are finally received by way of indirect dividend in the United Kingdom. (In the case of a controlled foreign company receiving a dividend from another controlled foreign company, Chapter IV tax in respect of the latter can be included as underlying tax in the computation of the former’s creditable tax in accordance with INTM255830 because the former is assumed to be resident in the United Kingdom, see INTM255630.)

Examples of the working of the relief are found at INTM256320.