Income Tax (Trading and Other Income) Act 2005

[F1 397A Tax credits for distributions of non-UK resident companies: UK residents and eligible non-UK residents U.K.

[F2 (1) A UK resident or eligible non-UK resident receiving a relevant distribution made by a non-UK resident company is entitled to a tax credit equal to one-ninth of the amount or value of the grossed up distribution (but see subsections (3) and (6) and section 397AA).]

(3) Subsection [F3 (1)] only applies so far as the distribution is brought into charge to tax, and accordingly if the person's total income is reduced by any deductions which fall to be made from the distribution, the tax credit for the distribution is reduced in the same proportion as the distribution.

(4) The person may claim to deduct the tax credit from the income tax charged on the person's total income for the tax year in which the distribution (or the part of the distribution to which the tax credit relates) is brought into charge to tax.

(5) If a distribution is, or is treated under any provision of the Tax Acts as, the income of a person (“P”) other than the recipient (“R”), P (not R) is treated as receiving it for the purposes of this section (and so P (not R) is entitled to a tax credit if P falls within subsection (1)).

(6) This section is subject to the following provisions—

• section 171(2B) of FA 1993 (no tax credit for distributions in respect of assets in Lloyd's member's premium trust fund),

• section 504(4) of ITA 2007 (disapplication of certain provisions for income of unauthorised unit trusts),

• section 592 of ITA 2007 (no tax credits for borrower under stock lending arrangement),

• section 593 of ITA 2007 (no tax credits for interim holder under repo), and

• section 594 of ITA 2007 (no tax credits for original owner under repo).

(7) In this section—

• “eligible non-UK resident”, in relation to a distribution, means an individual who, at any time in the tax year in which the distribution (or the part of the distribution to which the tax credit relates) is brought into charge to tax, is a non-UK resident who meets the condition in section 56(3) of ITA 2007 (residence etc of claimants),

• “grossed up distribution” means the distribution increased by the amount of any tax chargeable in respect of the distribution directly or by deduction under the laws of the territory in which the company is resident, including special withholding tax,

• F4 ...

• “relevant distribution”, in relation to a person, means—

  (a)

  a qualifying distribution arising in a relevant tax year,

  (b)

  a cash dividend paid over to the person under paragraph 68(4) of Schedule 2 of ITEPA 2003 (cash dividend paid over if not reinvested etc) in a relevant tax year, and

  (c)

  a dividend treated under section 407 as paid to the person in a relevant tax year,

• “relevant tax year” means the tax year 2008-09 or a subsequent tax year, and

• “special withholding tax” has the meaning given in section 107(3) of FA 2004.

(8) Section 397B makes provision about the application of this section in the case of overseas dividends arising from manufactured overseas dividends (within the meaning of Chapter 2 of Part 11 of ITA 2007).]

Textual Amendments

F1 Ss. 397A-397C inserted (with effect in accordance with s. 34(2) of the amending Act) by Finance Act 2008 (c. 9), Sch. 12 para. 4

F2 S. 397A(1) substituted for s. 397A(1)(2) (with effect in accordance with Sch. 19 para. 14 of the amending Act) by Finance Act 2009 (c. 10), Sch. 19 para. 2(2)

F3 Word in s. 397A(3) substituted (with effect in accordance with Sch. 19 para. 14 of the amending Act) by Finance Act 2009 (c. 10), Sch. 19 para. 2(3)

F4 Words in s. 397A(7) omitted (with effect in accordance with Sch. 19 para. 14 of the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 19 para. 2(4)