Taxation (International and Other Provisions) Act 2010 section 58

Calculation if dividend paid by non-resident company to resident company

Section 58 sets out how to calculate the amount of underlying tax that can be taken into account for double taxation relief when a UK-resident company receives a dividend from a non-resident company.

• The calculation begins by identifying the foreign tax borne on the paying company's relevant profits and determining how much of that tax is attributable to the proportion of profits represented by the dividend.
• A cap is then computed using the formula (D + PA) × M, where D is the dividend, PA is the attributable foreign tax, and M is the UK corporation tax rate applicable to the recipient for the relevant accounting period.
• The underlying tax allowable is the lower of the attributable foreign tax and the computed cap, reduced by any amount by which the dividend has been grossed up under the foreign territory's law for the purpose of giving the recipient a tax offset or refund.
• This mechanism ensures the underlying tax credit does not exceed what would be proportionate under UK corporation tax rates, while also preventing double relief where the foreign jurisdiction already provides a credit or refund linked to the grossed-up dividend.