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A 鈥渄irect investor鈥� may be defined as a company that controls 10% or more of the voting shares of the UK company that is paying the dividend. Many Double Taxation Agreements (DTAs) that provide for payment of tax credits specifically exclude companies that either alone or together with associated companies control 10% or more of the voting power in the company that is paying the dividend. The claim forms contain a question that will allow you to identify these cases.

However, some DTAs contain provisions that specifically allow for payment of part of the tax credit to direct investors. The amount of relief that may be claimed by the non-resident shareholder is one half of the tax credit a UK resident would be entitled to minus 5% or 10% of the aggregate of the dividend plus half the tax credit.

The treaties that contain these special provisions that allow a direct investor to claim payment of part of the tax credit are

• Belgium, see example 1.
• Italy, see example 1.
• Luxembourg, see example 1.
• Netherlands, see example 1, but no amount is payable for dividends paid on or after 6 April 2011.
• Sweden, see example 1.
• Switzerland, see example 1 but no amount is payable for dividends paid on or after 6 April 2009.

Example 1 Rate of tax credit is one ninth of the dividend.

Dividend 拢1,000,000

Tax credit 拢111,111.11

Dividend plus half tax credit 拢1,055,555.55

5% of dividend plus half tax credit 拢52,777.77

Payment is calculated as half tax credit (拢55,555.55) less 5% of dividend plus half tax credit (拢52,777.77) equals 拢2,777.78.

Example 2 (Direct investor company resident in Canada.) Dividend paid on or after 6 April 1999, rate of tax credit is one ninth of the dividend.

Dividend 拢1,000,000

Tax credit 拢111,111.11

Dividend plus half tax credit 拢1,055,555.55

10% of dividend plus half tax credit 拢105,555.55

Because the amount to be retained in the UK is greater than the original tax credit, there is nothing to pay. 拢55,555.55 less 拢105,555.55 equals nothing (see F(No2)A1997/S30(10).