What does section 69 of the Taxation (International and Other Provisions) Act 2010 do?

Section 69 ensures that when profits are transferred between overseas companies by means other than a dividend, the foreign tax originally paid by the transferring company is still recognised for underlying tax relief purposes. This prevents foreign tax credits from being lost during multinational group reorganisations or non-dividend profit transfers.

How is Company B treated under section 69 when it receives transferred profits from Company A?

Under section 69, Company B is treated as though it had itself paid the foreign tax that Company A originally paid on the transferred profits. This deemed payment is recognised when calculating underlying tax in relation to any dividend Company B subsequently pays to a UK-resident company or through a chain of overseas companies.

Is there a cap on the underlying tax relief available under section 69?

Yes, the relief available to a UK-resident company is capped at the amount it would have received had the profits been passed from Company A to Company B by way of a dividend. This prevents the non-dividend transfer route from producing a more generous double taxation relief outcome than the normal dividend route would have provided.

Can you give an example of how section 69 applies in practice?

If Company A pays £200,000 foreign tax on £1,000,000 profits and those profits are transferred to Company B through a group reorganisation without a dividend, Company B is treated as having paid the £200,000 tax. When Company B pays a dividend to a UK company, the underlying tax credit reflects Company A's original tax, subject to the statutory cap.

Taxation (International and Other Provisions) Act 2010 section 69

Dividends paid out of transferred profits

Section 69 deals with how underlying tax relief works when the profits of one overseas company are transferred to another overseas company by means other than a dividend, and a dividend is then paid onward to a UK company.

Where an overseas company (company A) has paid foreign tax on its profits, and those profits are transferred to another overseas company (company B) by a route other than a dividend payment, special rules apply.
When company B then pays a dividend out of those transferred profits to any other company, the rules treat company B as though it had itself paid the foreign tax that company A originally paid on those profits.
This treatment applies for the purpose of calculating underlying tax in relation to any dividend eventually paid by an overseas company to a UK-resident company.
However, the amount of relief available to the UK company is capped at the amount that would have been available had the profits simply been paid as a dividend from company A to company B in the first place.

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