Dividends from overseas subsidiaries
Draft regulations have been laid before Parliament to amend the meaning of ‘qualifying territory’ for the purposes of the small company distribution exemption. A qualifying territory is a territory that includes a non-discrimination provision within its double tax treaty with the UK.
Finance Bill 2009 introduced new legislation in respect of exemptions from UK corporation tax for dividends. The new rules came into force on 1 July 2009 and apply to dividends from both overseas and UK subsidiaries. Dividends will be exempt if they satisfy certain conditions but will be taxable if they do not. One of the exemptions applies if the company paying the dividend is resident in the UK or in a ‘qualifying territory’.
The purpose of the new regulations is to modify the effect of section 931C CTA 2009 which defines a ‘qualifying territory’. The regulations are similar to the draft published previously. They confirm that, even where a dividend is paid from a company resident in a ‘qualifying territory’, that dividend will not be exempt from UK tax where the provisions of a double taxation treaty deny treaty benefits to the paying company.
In many cases, the small company distribution exemption ends the need for small companies to undertake potentially complex double taxation relief calculations in respect of the great majority of foreign dividends they receive.