Settling statutory FII and portfolio dividend claims

Settling statutory FII and portfolio dividend claims

HMRC have released guidance which offers an opportunity for taxpayers to settle statutory FII and portfolio dividend claims.


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HMRC have begun circulating guidance to affected companies in respect of statutory claims made for relief against taxable foreign dividend income following the Franked Investment Income (FII) and CFC & Dividend Group Litigation Orders (GLOs). This guidance follows the decision of the Supreme Court in Prudential Assurance Company Limited v HMRC [2018] UKSC 29 (the test case for the CFC & Dividend GLO) and the Supreme Court’s decision on which issues it would hear in connection with the FII GLO. In summary, for affected dividends, HMRC will close open enquiries into corporation tax returns which include a valid double taxation relief (DTR) claim for the foreign tax borne on the underlying profits out of which a dividend was paid (ULT) by adjusting the amount of the claim to the applicable foreign nominal rate (FNR), with a similar approach for claims outside of returns.

HMRC have confirmed that the mechanism they will use to close enquiries into affected returns will be to amend the returns to give effect to the conclusions stated in the closure notices (which in such a case would include increasing the amount of credit claimed). HMRC will adopt a similar approach, albeit using different statutory mechanisms, for open enquiries into valid claims for ULT made outside of a return within the time limits in section 806(1) of the Income and Corporation Taxes Act 1988 (ICTA) and periods prior to corporation tax self-assessment (CTSA) where there is an open appeal.

HMRC now also accept that their guidance on the extended time limits for making a claim for credit in section 806(2) ICTA 1988 - that a credit could only be rendered insufficient if a claim had already been made for relief for foreign tax by credit - was previously too restrictive. For CTSA accounting periods where foreign dividends paid out of profits and subject to creditable tax were not returned as taxable, pending the outcome of the GLOs, HMRC may accept that a claim can be made within the relevant time limit after the enquiry is closed and the dividends brought into charge for UK tax purposes. The same applies to assessments for pre-CTSA periods.

HMRC do not, however, accept that it is possible to treat a claim for withholding tax (WHT) as a claim for credit in respect of ULT computed at the FNR. The Brief also outlines some circumstances in which HMRC may consider it to be premature to settle claims. It is also noted that claims are fact sensitive and may not fall squarely within the examples given.

HMRC indicate that where they do not have all the necessary information to close their enquiries on this basis, they will seek it before doing so. Importantly, the guidance does not detail the evidence that HMRC are likely to require. In view of the large number of claims involved, companies may wish to take this opportunity to review their claims now in order to approach HMRC proactively with the information required to settle them, including where the claims do not, at first glance, fall squarely within the terms of the guidance or on which the guidance is silent.

Consideration of the validity of claims in line with the guidance and a quantification exercise will likely be required. This is particularly so in order that these EU law based claims can ideally be resolved within the Brexit transition, due to end on 31 December 2020, set out by the EU (Withdrawal) Act 2018 (as amended).

Please contact the team should you require any assistance with reviewing statutory claims, evidence gathering or quantification.

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