Commentary

D4.923 Eligible unrelieved foreign tax—overview

Corporate tax
Corporate tax | Commentary

D4.923 Eligible unrelieved foreign tax—overview

Corporate tax | Commentary

D4.923 Eligible unrelieved foreign tax—overview

The provisions in this article were repealed for distributions paid on or after 1 July 2009 following the introduction of the exempt distribution regime (see Division D5.1).

Eligible unrelieved foreign tax can be described as unrelieved foreign tax arising on certain foreign dividends that can be used to credit the residual UK tax liability on qualifying foreign dividends. It is important to bear in mind that not all excess foreign taxes qualify as eligible unrelieved foreign tax and not all high tax dividends generate eligible unrelieved foreign tax. In particular, the following types of dividends do not generate eligible unrelieved foreign tax1:

  1.  

    (a)     dividends which are taxed as trading income;

  2.  

    (b)     dividends falling within the anti-avoidance provision designed to prevent companies from buying high tax dividend streams as part of a scheme of tax avoidance (see D4.940);

  3.  

    (c)     dividends falling within ICTA 1988, s 803 (this is a specific restriction which broadly applies to financial institutions and limits underlying tax relief to the extent that the underlying tax represents lower level withholding tax suffered on interest income); and

  4.  

    (d)     any dividend in respect of which foreign tax has been expensed.

Unrelieved foreign tax, where foreign tax paid exceeds the tax credited, can arise in the following two circumstances for the purposes of the onshore pooling regime:

  1.  

    (i)     The UK tax payable on a dividend is lower than the creditable foreign taxes. This refers back to the general limitation in that credit relief is restricted to the lower

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