Taxation (International and Other Provisions) Act 2010 section 16

Rule 8: credit for underlying tax on dividend paid by exchanged associate

Section 16 provides a route to claim credit for underlying overseas tax on a dividend, even where the recipient holds less than 10% of the voting power in the paying company, provided the shortfall arose from a share exchange that was both unforeseeable and unavoidable.

• The dividend recipient must be a UK-resident company or have a UK permanent establishment whose profits include the dividend.
• The recipient (or its parent) must hold less than 10% of the voting power in the dividend-paying company — so the normal 10% threshold rule in section 14 does not apply.
• The sub-10% holding must have resulted from an exchange of voting power in another company ("X"), where at least 10% was held before the exchange, and the exchange and any subsequent reduction were unforeseeable and unavoidable despite all reasonable efforts.
• The recipient must also show that no reasonable steps could have restored its holding to at least 10% after the exchange.