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HMRC internal manual

International Manual

Distribution exemption: Interpretation: election that a distribution should not be exempt

CTA09/S931R: Election that a distribution should not be exempt

A company receiving a distribution that would otherwise be exempt may elect for it to be taxable. Two reasons why companies may wish to do this are:

  • to enable a dividend to be taken into account as part of a claim for acceptable distribution policy (“ADP”) exemption from CFC legislation (in accordance with ICTA88/SCH25/PARA1A, a dividend may only be included in an ADP exemption claim if it is taken into account in computing a company’s chargeable income)
  • to reduce the rate of dividend withholding tax that may be applied by a foreign jurisdiction in cases where the relevant treaty applies a reduced rate of withholding tax on condition that the dividend is subject to tax in the UK.

The election must be made within 2 years of the end of the accounting period in which the distribution is received. There are no other special requirements for the election in Part CTA09/9A, which therefore falls to be dealt with under FA98/SCH18/PARA57.

Once HMRC have issued a notice requiring a company to deliver a tax return for an accounting period, an election for that period can be made only on the tax return.

Before a notice is issued, the company may make an election otherwise than on the tax return in accordance with the rules given in TMA70/SCH1A.

There are no special requirements for the form of the election, but it should make clear the distributions that it applies to and the return together with accompanying computations should identify the distributions that are taxable as a consequence of the election.

Unlike a claim, there is no requirement that an election should be quantified at the time it is made, so any election that unambiguously identifies the dividends that it relates to is acceptable. For example, an election could specify that all dividends received from a named territory or territories should not be exempt. An election made under TMA70/SCH1A may therefore be made before the distribution is received.

An election may be made in respect of future accounting periods and so apply in perpetuity until revoked, provided that it identifies the distributions to which it applies unambiguously.