INTM164515 | UK residents with foreign income or gains: dividends: Determination of rates of foreign underlying tax - Foreign Income - tax spared - example
From HM Revenue & Customs · International Manual
Tax `spared’
Where credit is to be given for tax `spared’ (see INTM161270) two underlying rates are calculated
i) the actual rate, taking into account any tax paid for the purpose of calculating the gross dividend (TIOPA10/S31(4) & S32(5) ) and,
ii) the deemed rate, taking also into account the tax which would have been taken into account had it been payable but for the `sparing’ provisions.
The starting point for the foreign income computation is the dividend received by the shareholder.
Example
The overseas country makes taxable profits of 157,894. These are subject to tax of 5%. If they had not qualified under the specific provision for tax spared in the double taxation agreement they would have been taxed at 25%.
| Dividend received | 150,000 |
|---|---|
| Agreed underlying rates Actual 5% Deemed 25% (including the actual tax rate of 5%) | |
| Foreign income computation | |
| Dividend | 150,000 |
| Gross at actual underlying rate (5%) | 7,894 |
| Foreign income | 157,894 |
| Corporation Tax at 30% | 47,362 |
| Less deemed underlying tax (including actual tax) (£157,894 at 25%) | 39,474 |
| Net Corporation Tax payable | 7,888 |