Commentary

D4.926 Acceptable distribution policy dividends paid by controlled foreign companies

Corporate tax
Corporate tax | Commentary

D4.926 Acceptable distribution policy dividends paid by controlled foreign companies

Corporate tax | Commentary

D4.926 Acceptable distribution policy dividends paid by controlled foreign companies

These provisions were repealed by FA 2009 for accounting periods of controlled foreign companies beginning on or after 1 July 2009. See Division D4.3.

Mixer cap

In the case of acceptable distribution policy (ADP) dividends paid by a controlled foreign company on or after 2 December 2004, a modified version of the mixer cap (D4.915) will also apply to dividends paid to the CFC by companies resident in the same territory, where the latter dividends are included in the relevant profits of the CFC out of which it pays an ADP1.

In this case, the relievable underlying tax in respect of any dividend paid up to the CFC is restricted by the following formula—

where:

  1.  

         X is the UK corporation tax rate applicable to the profits of the company for the accounting period in which the dividend is received (or where there is more than one rate, the average rate over the whole accounting period), expressed as a decimal fraction;

  2.  

         D is the amount of the dividend.

The aim of this modified mixer cap restriction is to restrict relief for underlying tax on dividends paid to the CFC and is intended to block the use of planning strategies whereby very high tax uncapped same country dividends were paid to CFCs to enhance the underlying tax rate on their relevant profits. In many cases, the CFC was then able to pay an ADP carrying an underlying tax rate equal to the current rate

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