Schedule 14

Part of Finance Bill – in a Public Bill Committee at 12:00 pm on 9th June 2009.

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Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury) 12:00 pm, 9th June 2009

Amendment 50 deals with new section 930Q, which allows a company to make an election that a particular distribution that would otherwise be exempt should instead be taxable. The explanatory notes state that the two reasons why a company might wish to make such an exemption are that

“dividends can only be taken into account for the purposes of the CFC acceptable distribution policy (ADP) exemption if they are subject to tax” and

“it is possible that exemption could lead to an increased rate of withholding tax.”

Paragraph 9 of schedule 14 amends the Income and Corporation Taxes Act 1988 to delete the onshore pooling rules and the rules that allow for relief in relation to eligible unrelieved foreign tax. The provisions are an integral part of the credit system of taxation and it is appropriate that they should no longer apply to dividends following the introduction of the exemption regime; there is logic in that.

However, a taxpayer may elect for dividends to fall outside the exemption regime. Therefore, a corporate taxpayer may elect for a dividend to be taxable in the UK if it is paid by a company resident in a territory with which the UK has a double tax treaty. The provisions that reduce or eliminate foreign withholding tax apply only if the dividend is subject to tax in the UK—the sort of scheme where one might want to have a taxable rather than an exempt dividend. The expectation is that where people take advantage of that election, they should also be able to take advantage of the existing rules on onshore pooling and the use of eligible unrelieved foreign tax. Amendment 50 would enable people who take the election under new section 930Q to take advantage of the rules on onshore pooling and the use of unrelieved foreign tax.