Pre-Budget statement: New calculation for DTR

An Inland Revenue statement said: ‘Eligible unrelieved foreign tax, up to 45%, will be calculated taking into account tax above 30% at each level as profits are paid up through a chain of companies as dividends – not just at the highest level where the mixer cap applies.

‘Companies would be able to set this against UK tax payable on dividends of the permitted type in respect of which credit relief is claimed, as provided in Finance Act 2000.’

Also, the government has proposed that the calculation be based on adding together the actual foreign underlying tax paid and the actual dividend received, taking a straight percentage of the total.

Original proposals announced in the last Budget caused a storm of protests among multinational companies.

Experts said the main effect of the change would mean UK companies would be able to utilise an increased amount of foreign tax to offset their UK tax liabilities under changes due to come in next March.

However, Alistair Munroe of KPMG warned that further clarification would be required.

He said: ‘The changes will only rectify one of the many anomalies in the new system.’


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