UK: Weekly Tax Briefing - Hot Topics

Last Updated: 25 July 2000
Double tax relief: Finance Bill changes

Following changes made this week at the Report Stage of the Finance Bill, from 31 March 2001 the amount of underlying tax (ie, tax on the profits out of which dividends are paid) which can be taken into account in respect of any foreign dividend is, as originally proposed, limited to the UK rate of 30% - whether the dividend is paid directly to the UK or from one lower-tier subsidiary to another. In general, this ‘mixer cap’ will not apply to dividends paid between companies resident in the same territory.

‘Eligible unrelieved foreign tax’ (ie, the difference between the amount allowed under these rules and the amount which would have been allowed if the UK rate had been 45%) may be set against the tax liability on ‘qualifying foreign dividends’. Where dividends have been paid up a chain of more than one overseas company only unrelieved tax arising at the highest level at which the mixer cap operates can be used in this way.

‘Qualifying foreign dividends’ do not include dividends (or parts thereof) which are paid in order to satisfy an ‘acceptable distribution policy’ (ADP) of a controlled foreign company (CFC); ie, to prevent the CFC’s profits being apportioned to the controlling UK companies. (Such dividends are traced through intermediate companies where necessary.) Neither do they include dividends on which relief for underlying tax has been restricted at any level.

The remaining dividends must be divided into two pools, consisting of dividends from related and unrelated companies, respectively. (‘Related’ companies are, broadly, those in which the company has a holding of 10% or more.)

To the extent that the eligible unrelieved foreign tax consists of withholding tax, it can be set against the tax liability which would otherwise arise on dividends in either pool. To the extent that it consists of underlying tax it can only be set against the tax liability on the related-company pool. In either case, it may be carried back for up to three years, on a LIFO basis, or carried forward indefinitely. Current year and brought-forward amounts must be used before any carried-back amount. Regulations will allow the surrender of eligible unrelieved foreign tax between group companies.

These rules will apply to UK branches of overseas companies in the same way as to UK companies.

Where, in a period ending on or after 1 April 2000, there is an amount of unrelieved foreign tax in respect of ‘qualifying income’ from an overseas branch of a UK company (ie, broadly, Case I income) this can be carried forward indefinitely or back for three years against tax on profits from the same branch (without any 45% restriction).

Many complex planning issues will arise. This highlights the need to discuss the impact of the changes with your usual KPMG contact, who will be pleased to put you in touch with one of our international tax specialists where appropriate.

Press releases
- w/e 14.7.00


10 July 2000 - Inland Revenue - Extending tax relief for employee shareholders in co-operatives

The new all-employee share ownership plan included in the Finance Bill is to be extended to allow the use of redeemable shares in any co-operative. Currently the provisions cover shares in workers’ co-operatives, but not in retail or other consumer co-operatives.

10 July 2000 - Inland Revenue - Companies sign up for employee share ownership plan

Over 60 companies have signed up, under the fast-track approval process, to the new all-employee share ownership plan included in the Finance Bill. Changes are to be made to the Bill extending to 31 December 2002 the phase-out date for approved profit-sharing schemes and correcting a technical error.

11 July 2000 - Adjudicator’s Office - Dame Barbara Mills publishes her annual report

The Adjudicator has published her annual report into complaints made against the Inland Revenue and Customs & Excise.

11 July 2000 - Customs & Excise - Customs & Excise welcomes the Adjudicator’s annual report.

Self explanatory

11 July 2000 - Inland Revenue - Inland Revenue respond to Adjudicator’s seventh annual report


Self-explanatory

11 July 2000 - HM Treasury - Individual Pension Accounts: helping more people save for the future


The Treasury and DSS have published a joint paper outlining the key features of the proposed Individual Pension Accounts.

11 July 2000 - Working Families’ Tax Credit and Family Credit Quarterly Tables

Statistical tables have been published giving details of WFTC payments (and payments under the old Family Credit system) for the quarter to 29 February 2000.

11 July 2000 - Inland Revenue - Customer service results and key work targets published


The Inland Revenue has published customer service results for the tax year 1999/00 and key work targets for 2000/01.

12 July 2000 - Inland Revenue - Capital gains tax cuts to boost joint ventures

An amendment to the Finance Bill extends the taper relief for business assets to cover shares held by employees in certain cases where the employer company takes part in joint ventures, and as a result would not meet the current test to qualify as a trading company. In addition, employees of joint venture companies who own shares in the participating companies will have wider access to relief.

12 July 2000 - Inland Revenue - Corporation tax on chargeable gains

A table of figures to be used in calculating indexation allowance for capital gains disposals made by companies in June 2000.

13 July 2000 - Inland Revenue - Tonnage tax: Report Stage amendment


An amendment to the Finance Bill provides that foreign dividends may only come into tonnage tax if they are paid out of profits which themselves are subject to tax.

14 July 2000 - Inland Revenue - Finance Bill: amendments to double taxation relief legislation

See article above.

14 July 2000 - Inland Revenue - Finance Bill: stamp duty and stamp duty reserve tax

Changes are to be made to two of the stamp duty anti-avoidance measures in the Finance Bill, in response to representations. In addition, reliefs for transfers of shares in depositaries and clearance services, and for settling trades of non-UK shares, are to be made more comprehensive.

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