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HMRC internal manual

International Manual

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Distribution exemption: Anti-avoidance legislation: deductions schemes

CTA09/S931N: Schemes involving distributions for which deductions are given

It is a condition for distribution exemption that no deduction is allowed to any foreign resident in accordance with any foreign tax law in respect of the distribution (INTM652030).

CTA09/S931N extends the scope of this rule in a case where there is a tax advantage scheme (INTM651040) so that it includes any case where a deduction is given for any amount determined by reference to the distribution.

There are a number of reasons why a foreign tax deduction may be given for an amount determined by reference to a distribution in circumstances that are not related to any avoidance scheme, including a case where a foreign company is obliged to make a manufactured payment representative of the dividend. That in itself does not cause S931N to apply because the dividend is not paid as part of a tax advantage scheme.

Where it applies, S931N prevents a distribution from falling into any exempt class and so it becomes taxable income.