Commentary

D4.928 Foreign taxation of a group as a single entity

Corporate tax
Corporate tax | Commentary

D4.928 Foreign taxation of a group as a single entity

Corporate tax | Commentary

D4.928 Foreign taxation of a group as a single entity

FA 2009 introduced the exempt distribution regime which broadly provides that most dividends received by a UK company on or after 1 July 2009 (from the UK or overseas) will be exempt from corporation tax (see Division D5.1). The provisions discussed in this article apply to overseas dividends received on or after 1 July 2009 that are not exempt and all other overseas dividends received before 1 July 2009.

In some countries, eg the US and the Netherlands, groups of companies may pay tax on a consolidated basis. Companies in a tax consolidation are treated as a single entity for double taxation relief purposes1. Prior to the repeal of the CFC acceptable distribution exemption, if a company in a group was a controlled foreign company which pursued an acceptable distribution policy it was treated as excluded from the group in relation to dividends paid on or after 16 March 20052.

In calculating relevant profits and underlying tax rates, all relevant profits and losses of the individual companies for the year are aggregated and taken as the relevant profits of the single entity. The taxes paid both at group and individual company levels are aggregated and taken as the tax paid on the single entity's profits. This results in a group underlying tax rate for an accounting period which applies to the relevant profits of each individual company in the group.

Example

A UK parent company owns an overseas holding company. This overseas holding company

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