GIM12140 | Double taxation relief: underlying tax on dividends referable to an overseas branch: accounting periods beginning before 1 April 2000: restriction of credit under section 802 ICTA 1988: example

• A United Kingdom insurance company transacting general business carries on that business through branches in countries A and B. It is charged to tax under Case I of Schedule D in respect of its general insurance business. The total investment income referable to the company’s general business (including franked investment income and group income) is £4,000,000 which includes overseas dividends as follows:

• £900,000 from companies resident in country A (of which £600,000 comes from a company in which the United Kingdom company controls 25 per cent of the voting power).

• £500,000 from companies resident in country B.

• The “relevant fractions” are

• Country A 1/4

• Country B 1/10

Dividends from companies in country A

Limit on amount of dividends available for relief under Section 802

Relevant fraction of total investment income (¼ × £4,000,000) = £1,000,000

Less dividends qualifying for underlying tax relief apart from Section 802 = £600,000

Limit on dividends available for relief under Section 802 is therefore £400,000

As this exceeds £300,000 (£900,000 less £600,000) there is no limitation.

Dividends from companies in country B

Limit on amount of dividends available for relief under Section 802:

Relevant fraction of total investment income (1/10 × £4,000,000) = £400,000

As this is less than the amount of £500,000, the relief is limited to dividends totalling £400,000.