InNext Brand Ltd v HMRC[2015] UKFTT 175 (23 April 2015), the FTT found that double tax treaty relief was not available in respect of dividends which represented loan repayments.
The issue was whether Next was entitled to double taxation relief (DTR). This depended on whether dividends paid by its UK subsidiary Next Near East Ltd (NNEL) were ‘dividends’ for the purposes of the relevant provisions (ICTA 1988 ss 788–812); and, if so, whether ‘underlying tax’ paid by NNEL in respect of its own Hong Kong subsidiaries could be taken into account. HMRC claimed that Next had artificially inflated its entitlement to DTR, as some of the dividends were actually loan repayments.
The FTT observed that the relevant provisions refer to income, gains and profits and therefore cover ‘dividends representing the payment of profit not dividends with some other purpose’. The FTT also noted that the accounting entries showed that the greater part of the dividend represented the repayment of a loan and that this could not be ignored simply because the payment had the form of a dividend.
Why it matters: In the view of the FTT, ‘the question was not whether the payment took the form of a dividend or had the character of income but whether the payment was of profits which had borne tax’.
InNext Brand Ltd v HMRC[2015] UKFTT 175 (23 April 2015), the FTT found that double tax treaty relief was not available in respect of dividends which represented loan repayments.
The issue was whether Next was entitled to double taxation relief (DTR). This depended on whether dividends paid by its UK subsidiary Next Near East Ltd (NNEL) were ‘dividends’ for the purposes of the relevant provisions (ICTA 1988 ss 788–812); and, if so, whether ‘underlying tax’ paid by NNEL in respect of its own Hong Kong subsidiaries could be taken into account. HMRC claimed that Next had artificially inflated its entitlement to DTR, as some of the dividends were actually loan repayments.
The FTT observed that the relevant provisions refer to income, gains and profits and therefore cover ‘dividends representing the payment of profit not dividends with some other purpose’. The FTT also noted that the accounting entries showed that the greater part of the dividend represented the repayment of a loan and that this could not be ignored simply because the payment had the form of a dividend.
Why it matters: In the view of the FTT, ‘the question was not whether the payment took the form of a dividend or had the character of income but whether the payment was of profits which had borne tax’.
