Under the credit system in place before 2009, non-resident dividend income from the EU/EEA is not to be regarded as exempt but as taxable with credit, in addition to withholding tax, for the higher of the tax actually paid on the profits or the nominal (statutory) rate of the jurisdiction of the dividend paying company. The same outcome applies where the investment is below a controlling interest for dividends from all jurisdictions outside the EU/EEA as well. Where possible, tax returns must be amended to claim the enhanced credit, rather than to show the non-resident income as exempt. The claimants are entitled to compound interest on overpaid tax. HMRC’s ‘change of position’ defence is contrary to EU law.
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