INTM343540 - DT applications and claims: Types of income: Dividends: direct investors

A “direct investor” may be defined as a company that controls 10% or more of the voting shares of the UK company that is paying the dividend. Many Double Taxation Agreements (DTAs) that provide for payment of tax credits specifically exclude companies that either alone or together with associated companies control 10% or more of the voting power in the company that is paying the dividend. The claim forms contain a question that will allow you to identify these cases.

However, some DTAs contain provisions that specifically allow for payment of part of the tax credit to direct investors. The amount of relief that may be claimed by the non-resident shareholder is one half of the tax credit a UK resident would be entitled to minus 5% or 10% of the aggregate of the dividend plus half the tax credit.

The treaties that contain these special provisions that allow a direct investor to claim payment of part of the tax credit are

  • Belgium, see example 1.
  • Italy, see example 1.
  • Luxembourg, see example 1.
  • Netherlands, see example 1, but no amount is payable for dividends paid on or after 6 April 2011.
  • Sweden, see example 1.
  • Switzerland, see example 1 but no amount is payable for dividends paid on or after 6 April 2009.

Example 1 Rate of tax credit is one ninth of the dividend.

Dividend £1,000,000

Tax credit £111,111.11

Dividend plus half tax credit £1,055,555.55

5% of dividend plus half tax credit £52,777.77

Payment is calculated as half tax credit (£55,555.55) less 5% of dividend plus half tax credit (£52,777.77) equals £2,777.78.

Example 2 (Direct investor company resident in Canada.) Dividend paid on or after 6 April 1999, rate of tax credit is one ninth of the dividend.

Dividend £1,000,000

Tax credit £111,111.11

Dividend plus half tax credit £1,055,555.55

10% of dividend plus half tax credit £105,555.55

Because the amount to be retained in the UK is greater than the original tax credit, there is nothing to pay. £55,555.55 less £105,555.55 equals nothing (see F(No2)A1997/S30(10).