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HMRC internal manual

International Manual

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DT Agreements: Iceland - Income from a UK source paid to a resident of Iceland

UK dividends paid to a resident of Iceland - portfolio investor (Article 10)

The double taxation convention provides for payment of the excess of UK tax creditafter retention of 15% of the aggregate of UK dividend plus taxcredit.But for dividends paid since 6 April 1999 there is no tax credit to pay. See INTM343520.

Under the terms of Article 10(1)(d)(i) an Iceland company is not entitledto relief, unless either

  • its shares are officially quoted on the Iceland stock exchange, or
  • it is not controlled by a person or two or more associated or connected persons together, who or any of whom would not have been entitled to a tax credit if they had been the beneficial owner of the dividends. See INTM353190 for definition of control.

The X/Company/Credit does not include questions that will determine whether theconditions of Article 10(1)(d)(i) are fulfilled. You will therefore need to write to anycompany that makes a claim or application for treaty benefits in order to establish ifthis condition for relief is met. You will also need to consider if a formal enquiry underthe terms of the Self Assessment regulations is necessary.

The anti-dividend stripping provisions (see Article 10(7)) apply where an Icelandiccompany owns 10% or more of the class of shares from which the dividend is paid. However,the article does not allow payment of tax credit to a company that controls 10% or more ofthe voting power in the UK company. This means that you will only have to make dividendstripping enquiries in exceptional cases where the following conditions are met

  • the claim is for dividends on non-voting shares where the claimant holds more than 10% of them
  • the claimant does not control 10% or more of the voting shares.

See INTM343550 for an explanation of dividend stripping.