• Service: Tax, Global Indirect Tax, Global Mobility Services, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 11/8/2013

United Kingdom - Taxation of portfolio dividends 

November 8: A decision of the UK High Court concerns the taxation of portfolio dividends (holdings of less than 10%) under former tax law that provided double tax relief for foreign withholding taxes paid on the dividends, but not relief for any underlying tax. Prudential Assurance Company Ltd. v. HM Revenue and Customs (2013) EWHC 3249 (Ch) (October 2013).

Implications from the High Court's decision include the following:

  • The decision confirms that taxpayers may apply a credit for the nominal rate of tax that applies in the country of dividend source—taxpayers are not required to obtain evidence on the actual underlying tax paid. Alternatively, taxpayers may apply a credit for the actual underlying tax paid if greater, when this can be shown.
  • The nominal rate to be applied is the rate in the distributing company—i.e., it is not necessary to trace to lower tier subsidiaries.
  • Generally, it is the normal statutory or nominal rate of an overseas country that applies, although if the profits came from a source with a different rate (e.g., special enterprise zone) that rate is to be used. It is unclear what rate is to be used in countries that apply a local trade tax as well as a corporation or federal tax (such as Germany). The High Court's reasoning indicates the rate of trade tax also is to be taken into account.
  • Dividends received from companies based in third countries (i.e., outside the EU) are to be treated in the same way as EU dividends.
  • Until 1999, Advance Corporation Tax (ACT) was deducted when dividends from foreign sources were distributed. The High Court held this was only justified to the extent that the ACT made up for a lower nominal rate of tax that these dividends had been subject to compared with the UK nominal rate of tax of the UK resident company.

Read a November 2013 report [PDF 883 KB] prepared by the KPMG member firm in the United Kingdom: Weekly Tax Matters (8 November 2013)

Also included in the KPMG report are discussions of the following topics:

  • Central register of company beneficial ownership
  • UK concludes tax information sharing agreement with the Cayman Islands
  • Reverse matching and banks/building societies
  • Judgment date confirmed - Dixons Retail Plc (C-494/12)
  • Government consults on charge cap for defined contribution pension plans
  • Employment taxes “round up”
  • Supreme Court judgment re amended tax return and timing of payment of tax
  • Inheritance tax changes - deductibility of debts

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