What does paragraph 16 of Schedule 9 TIOPA 2010 do?

Paragraph 16 provides a transitional rule for distributions paid before 1 July 2009. It requires that any relievable underlying tax already re-allocated to a different dividend under the old ICTA mixer cap rules (sections 806A to 806J) must be excluded from the grossing-up calculation under TIOPA 2010 section 31, preventing double-counting of the same underlying tax.

Why is paragraph 16 of Schedule 9 TIOPA 2010 necessary?

Without this transitional rule, underlying tax that was re-allocated under the old ICTA mixer cap rules could also be included in the TIOPA 2010 grossing-up calculation. This would effectively count the same tax twice — once on the re-allocated dividend and again when grossing up income on the original dividend — creating an unintended double benefit.

What is relievable underlying tax under the old ICTA mixer cap rules?

Relievable underlying tax refers to foreign corporate tax on profits from which a dividend was paid that was re-allocated from one dividend to another under ICTA sections 806A to 806J. These mixer cap rules allowed companies to blend high-taxed and low-taxed foreign profits to maximise their double taxation credit relief claims.

How does the grossing-up calculation change under paragraph 16 of Schedule 9?

Under section 31, income is normally grossed up by adding back all underlying tax. Paragraph 16 modifies this for pre-1 July 2009 distributions by excluding any underlying tax already treated as relievable underlying tax on another dividend. For example, if £5 of £20 underlying tax was re-allocated, only £15 is added back in the grossing-up calculation.

Taxation (International and Other Provisions) Act 2010 Schedule 9 paragraph 16

Taking account of underlying tax

Paragraph 16 of Schedule 9 provides a transitional rule limiting how underlying tax is calculated when grossing up income from distributions paid before 1 July 2009.

This rule applies only to distributions paid before 1 July 2009.
When calculating the gross amount of income for double taxation relief purposes, certain underlying tax must be excluded from the grossing-up calculation.
The excluded amount is any "relievable underlying tax" that relates to a different dividend and has been treated as underlying tax under the former ICTA provisions (sections 806A to 806J).
This prevents the same underlying tax from being counted twice — once under the old ICTA mixer cap rules and again under the TIOPA 2010 grossing-up provisions.

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