D4.924 Calculation of eligible unrelieved foreign tax in a dividend chain
The provisions in this article were repealed for distributions paid on or after 1 July 2009 following the introduction of the exempt distribution regime (see Division D5.1).
Since the mixer cap can potentially apply at any level in a dividend chain, Case B eligible unrelieved foreign tax can also arise at any level in the dividend chain where the mixer cap applies.
For dividends paid directly to the UK both Case A and Case B eligible unrelieved foreign tax can arise. However, only Case B eligible unrelieved foreign tax can arise in respect of dividends lower down the chain. It must be remembered here that the mixer cap and calculation of eligible unrelieved foreign tax are two entirely separate calculations.
Where a number of dividends are paid through a chain of companies, the Case B eligible unrelieved foreign tax arising on the overseas dividend income is established by calculating the aggregate of the upper limit amounts at each level in the dividend chain and deducting from this the restricted tax which is creditable against the UK tax liability on the overseas dividend1. It is therefore necessary to consider the dividend included at each level including all lower level dividends unless the mixer cap applies.
There are certain restrictions to prevent the generation of eligible unrelieved foreign taxes in excess of 45%. Specifically, it is necessary to calculate the upper limit amount at each level in the dividend chain. The upper limit amount on