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Background

The software handles foreign income with a variety of schedules, each for a different type of foreign income. The data from these schedules is used to calculate appropriate double tax relief on the DTR calculations schedule.

The Foreign dividends schedules are used to analyse foreign dividend income and identify the appropriate double tax treatment.

From the 2004 release and onwards, the Foreign dividends schedule has been split into three separate schedules.

• Foreign dividends - deals with the foreign income and UK corporation tax ;
• Foreign dividend EUFT - deals with the allocation of losses to that income and, where appropriate, the calculation of EUFT; and,
• Foreign dividend movements - deals with foreign dividend movements for deferred tax purposes. The third schedule will not display unless the Tax accounting schedules have been developed.

The schedules analyse foreign withholding tax on dividends. If the recipient has a 10% or greater holding in the foreign company paying the dividend, the schedules will also analyse underlying tax suffered by the foreign company. In these circumstances, the dividend is treated as Related.

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Developing the schedule

The schedules are developed from any D schedule by selecting Develop > Income > Foreign Dividends. They will then be stored within the 'A' group of schedules.

The Onshore pooling schedule is developed automatically when the Foreign dividends schedules are created.

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Completing the schedule

EUFT calculations

From 2009 onwards, where either the Date paid is on or after 1 July 2009 and the dividend is shown as Taxable, no EUFT calculations will be carried out. Instead, the software will revert to calculating DTR under standard rules.

Foreign dividends schedule

Complete the data entry cells with the information relating to each foreign dividend source of income where:

• the dividends are from a non-related company; or
• only withholding tax has been deducted from the dividend stream;

Enter information for each dividend on a separate row, clearly identifying the taxable amount in the column marked Taxable in order for the A schedule to recognise the amount to tax.

The Analysis of distributable profits sub-schedule can be developed from the Foreign dividends schedule to provide information on the company that is surrendering the dividend where the dividend is being grossed up for underlying tax i.e. it is a related dividend, or a dividend from a CFC in accordance with an Acceptable Distribution Policy (ADP).

A separate Analysis of distributable profits schedule (a sub-schedule of the Foreign dividends schedule) should be developed each time the company receives an overseas dividend from a company where the dividend must be grossed up for underlying tax. This schedule will then support and populate the calculation of the underlying tax and EUFT on the Foreign dividends schedules.

Although it is possible to deal with dividends using the Foreign dividends schedule alone, we advise using this schedule and the Analysis of distributable profits schedules together to provide full details.

For example, consider the following scenario: Company A (a UK company) receives a dividend from Company B (a US company) and Company B (the US company) receives a dividend from Company C (a French company).

When entering data into the computation for Company A, you should go through the following steps:

1. Develop the Foreign dividends schedules to support the total foreign dividends appearing in the D schedule for the year. Complete the Foreign dividends schedule with the following information for each dividend received:

• Company
• Date paid
• Year
• (Taxable) (enter as a negative figure)
• Withholding tax (amount)

2. Develop an Analysis of distributable profits schedule for each dividend listed on the Foreign dividends schedule. Complete the Relevant Profits section on that schedule with details of the payer company (Company B in this example). If the payer itself has also received a dividend (i.e. from Company C in this example), set the Show dividends received section? flag on the schedule and complete the dividend details section that is revealed. Information will then flow up automatically from the Analysis of distributable profits schedule to the Foreign dividends schedules.

3. Develop a further Analysis of distributable profits schedule from the Analysis of distributable profits schedule for Company B. Complete the Relevant profits section of this schedule with details of Company C from which Company B received their dividend.

The cells and features of the Foreign dividends schedules are described in more detail below. Remember that if you use the Foreign dividends schedules together with the Analysis of distributable profits schedule, you will enter some information on the analysis schedule, which will then flow up automatically to the main Foreign dividends schedules.

Company/Date paid/Year

Enter the name of the company paying the dividend, the date the dividend was paid and the year. The software uses the date entered to determine whether to use the EUFT or standard DTR rules.

Qualifying before EUFT

As part of the Finance Act 2000 provisions, the Qualifying before EUFT selector flag (set by default to Yes), determines whether unrelieved foreign tax may be set against the dividend income before any eligible unrelieved foreign tax (EUFT) calculation is dealt with. Those dividends qualifying for relief do not include:

• those dividends upon which EUFT arises; or
• dividend income derived directly or indirectly from controlled foreign companies as part of their acceptable distribution policy (ADP); or
• a loss situation where a claim is made for the deduction of tax.

Dividends received directly or indirectly from Controlled Foreign Companies as part of their ADP, should be identified on a separate row for which the Qualifying before EUFT selector flag is set to No. In compliance with ICTA 1988 s 801c , which provides for the separate streaming of an ADP dividend from a Controlled Foreign Company passing through an intermediate mixer company, you should split the dividend received by the UK company between the amount derived from the ADP dividend and the remainder, the 'residual dividend'.

Distributable profits and Tax payable

Values in the Distributable profits and Tax payable columns should be entered in the currency in which they were paid. The cells can be formatted in the respective currency using the currencies bar. (See Working with Foreign Currencies).

If the Analysis of distributable profits schedule is developed, figures from the Retained Earnings section of that schedule will flow automatically into the Distributable profits and Tax payable cells here.

It should be noted that when the Relevant profits schedule is developed from the Analysis of distributable profits schedule, the row that is ultimately supported on this schedule (i.e. the Foreign dividends schedule) will display the distributed profits and tax actually relating to those profits rather than the pool of profits available to be distributed together with the tax thereon.

Tax rate Override

From FY 2005 on there is a new Tax rate override column on this schedule. If the Analysis of Distributable Profits schedule is developed the cell will also appear there. Both cells are data entry so the tax rate on any foreign dividend can be overridden on either the Foreign Dividends schedule, or the Analysis of Distributable Profits schedule. If you want the software to calculate the rate based on profits available for distribution and tax paid then delete the entry from this column.

Credited to the P/L and Taxable

You should enter the amount of the dividend Credited to the P/L and the amount deemed to be Taxable. The software will automatically calculate the Underlying tax rate and the Underlying tax on a dividend (derived if appropriate from the Analysis of distributable profits schedule), the Net dividend received and the Balance c/f at the end of the period. In addition, the system will derive the Total taxable amount and the attributable UK tax, together with the allowable Foreign tax credit and reliefs to be allocated.

If the Analysis of distributable profits schedule is developed, figures from the Relevant Profits section of that schedule will flow automatically into the Credited to the P/L cells here. The Taxable amount should always be completed on the Foreign dividends schedules.

Exempt dividends

From 2009 there is an additional column for exempt foreign dividends. You should use separate rows for exempt and taxable foreign dividends; the software will give an error if you mix these on a single row. If you have a brought forward balance that is mixed you will need to split this on to two rows.

If you are using the Tax accounting schedules the software will automatically treat brought and carried forward accrued amounts as either exempt or taxable depending on whether the dividend received is exempt or taxable. If there is no received amount in the period you will need to specify the treatment manually on the Foreign dividends movements schedule.

Withholding tax

You should enter the amount of withholding tax in this cell. The software will automatically grant relief for this tax or the UK tax arising on the income (if lower) on a credit basis.

Taxable as

This selector flag at the foot of the schedule is set by default to Foreign Income. It can be changed where necessary to Trading Income. See also the Foreign income taxed as trading income schedule.

Deduct foreign tax

To claim the foreign tax as an expense, set the selector flag at the foot of the Foreign dividends schedule to Yes.

Foreign Dividend EUFT schedule

Where there are reliefs in excess of UK income these will be automatically allocated against foreign dividend income by the software. If the reliefs are Expenses of management then this relief allocation can not be turned off but can be overwritten with an alternative allocation. Where the reliefs are other losses a current year claim can in many circumstances be switched off on the losses schedule. Where the user disagrees with the software's allocation of reliefs these can be over typed in the Allocation of (reliefs) override column.

The software will then calculate the case A EUFT arising.

'Related dividends' occur where the UK recipient company has at least 10% voting power in the company making the payment. Related and unrelated dividends are segregated in accordance with onshore pooling arrangements defined under ICTA 1988 s 806C. Eligible unrelieved underlying tax cannot be set against unrelated dividends.

Foreign Dividend Movements schedule

If deferred tax schedules have been included, the user must also enter the amounts of withholding tax estimated to become due on year end balances. These in turn will feed through to the Short term timing differences schedule.

For 2009 onwards an additional column on the Foreign dividends schedule shows whether the software is treating brought and carried forward amounts as taxable or exempt based on the treatment of dividends received. If there is no current period amount received you will need to specify the treatment manually: the default is to treat these amounts as taxable.

Note: The Sheet properties and Row properties dialogs are enabled on this schedule and may be useful when entering data.

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Standard sub-schedules

This schedule has one standard sub-schedule - the Analysis of distributable profits. This sub-schedule provides a basis for calculating the Distributable profits and Tax payable, which will then flow through automatically to the relevant cells on the Foreign dividends schedule (see above).

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Carry forward

On building a new period, the Foreign dividends schedule will automatically carry forward any dividend balance.

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Related errors

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