Finance Act 1946

31 Relief from tax on dividends from companies resident abroad.

(1) Where, on a claim made under this section, a person satisfies the Commissioners of Inland Revenue as respects ah ordinary dividend paid to him and in respect of which he is chargeable to income tax by deduction or otherwise for the year 1945-46 or any subsequent year of assessment, that—

(a) it is a dividend paid by a body corporate not resident in the United Kingdom ; and

(b) the relevant profits of that body corporate included profits on which United Kingdom income tax has been paid by that body corporate, by deduction or otherwise,

he shall be entitled to relief from the tax so chargeable on him in respect of the appropriate fraction of the dividend.

(2) In this section, the expression " the appropriate fraction " means, in relation to a dividend paid by a body corporate, the fraction having, as numerator, the gross amount of the relevant profits of that body corporate on which United Kingdom income tax has been paid by it, by deduction or otherwise, and, as denominator, the said gross amount plus the gross amount of the relevant profits of the body corporate on which United Kingdom income tax has not been paid by it.

Provided that the said gross amounts shall be subject to the following adjustments in respect of rents paid by the body corporate, in respect of interest, annuities or other annual payments paid by the body corporate, not being payments of dividends or distributions of profits and in respect of royalties paid by the body corporate, that is to say—

(a) where by reason of the payment or charge of the said United Kingdom income tax, the body corporate has become entitled to deduct and retain tax on the whole or any part of the rent, payment or royalty, the first mentioned gross amount shall be deemed for the purposes of this subsection to be reduced by an amount equal to the whole, or, as the case may be, that part, of that rent, payment or royalty ;

(b) where none of the provisions of the Income Tax Acts providing for the deduction and retention of tax apply to the rent, payment or royalty, and the rent, payment or royalty is paid out of the relevant profits, the last mentioned gross amount shall be deemed for the purposes of this subsection to be reduced by the amount of the .rent, payment or royalty in so far as that rent, payment or royalty has not been deducted in computing that gross amount.

(3) Subject to the provisions of subsection (4) of this section, the expression " the relevant profits " means in relation to any dividend paid by a body corporate—

(a) if the dividend is paid for a specified period, the profits of tlje body corporate of that period ;

(b) if the dividend is not paid for a specified period but is paid out of specified profits of the body corporate, those profits ;

(c) if the dividend is paid neither for a specified period nor out of specified profits, the profits of the body corporate of the, last period for which the accounts thereof were made up which ended before the dividend became payable.

(4) If, in a case falling under paragraph (a) or paragraph (c) of the last preceding subsection, the total dividend exceeds the profits of the body corporate of the period mentioned in the said paragraph (a) or the said paragraph (c), as the case may be,—

(a) the relevant profits shall be the profits of that period plus so much of the profits of preceding periods (other than profits previously distributed or previously treated as relevant for the purposes of this section) as is equal to the excess (the profits of the most recent preceding period being first taken into account, then the profits of the next most recent preceding period, and so on); and

(b) where only part of the profits of any period are taken into account, that part shall be treated as consisting of profits on which United Kingdom income tax has been paid by the body corporate of an amount which bears to the total profits of that period on which United Kingdom income tax has been so paid the same proportion as the part of the profits taken into account as aforesaid bears to the whole of the profits of the period.

(5) Where a body corporate not resident in the United Kingdom controls, directly or indirectly, not less than one half of the voting power in any other body corporate not resident in the United Kingdom, and receives an ordinary dividend paid by that other body corporate, then, if the relevant profits of that other body corporate include profits on which United Kingdom income tax has been paid by that other body corporate, by deduction or otherwise, the first mentioned body corporate shall be treated for the purposes of this section as having paid United Kingdom income tax on an amount equal to the appropriate fraction of that dividend.

(6) In this section, the expression " ordinary dividend" means a dividend on a share which is not a preferred share and so much of any dividend on a preferred share as is not paid at a fixed gross rate per cent., and, for the purposes of this definition, the expression " preferred share " means a share which carries the right to dividends at a fixed gross rate per cent. payable in priority to all the dividends on some other class of share, whether or not it also carries the right to some further participation in profits.

In this subsection, the expression " share " includes stock.

(7) Any reference in this section to the gross amount of any profits is a reference to the gross amount of those profits without any deduction of or in respect of United Kingdom income tax or any similar tax leviable outside the United Kingdom.

(8) A claim under this section must be made to the Commissioners of Inland Revenue not later than six years after the end of the year of assessment for which the dividend is chargeable to tax, and section nineteen of the Finance Act, 1925 (which relates to the making and allowing of claims for certain reliefs and rights of appeal) shall apply in relation to claims under this section as it applies in relation to the claims mentioned in that section. .

(9) Any relief granted under this section—

(a) may be given by way of repayment of tax or otherwise ; and

(b) shall, for the purposes of paragraph 2 of the Seventh Schedule to the Finance (No. 2) Act, 1945 (which delimits the relief allowable under double taxation -agreements), be deemed to reduce the amount of United Kingdom income tax chargeable in respect of the dividend in question ; and

(c) shall, for the purposes of subsection (1) of section twenty-seven of the Finance Act, 1920 (which relates to Dominion income tax relief) (but not for the purposes of the definition of " appropriate rate of United Kingdom income tax " set out in Part II of the Fifth Schedule to the Finance Act, 1927), be deemed to reduce the amount of tax paid or payable by the person to whom the relief is granted ; and

(d) shall, for the purposes of subsection (3) of section forty of the [17 & 18 Geo. 5. c. 10.] Finance Act, 1927 (which limits the amount of personal or other reliefs in certain cases), be treated as if it were a relief in respect of a reduction of an assessment,

but the granting of relief under this section shall not operate to reduce the total income of any person for any of the purposes of the Income Tax Acts, and, in considering for the purposes of Rule 19 or Rule 21 of the General Rules whether any payment has been made wholly or partly out of profits or gains brought into charge to fax, so much of any dividend as is the subject of relief given under this section shall be treated as not having been brought into charge to tax.