Overseas dividends are dividends received from companies that are not resident in the UK. Dividends can also encompass other distributions and non-cash payments, but exclude capital payments.
When deciding if a payment from a foreign company is taxable as a dividend, it is first necessary to confirm that it is not a capital payment. This is determined using the law in the company’s country of residence.
Whilst this sounds simple, the interpretation of this has been bouncing up the courts and recently the Court of Appeal dismissed the taxpayer’s right of appeal in Beard V HRMC.
In this case the taxpayer was a shareholder of Glencore plc, a Jersey resident company. The taxpayer received distributions from the share premium account, and argued these were capital in natural and as such not taxable as foreign dividends.
However, as the payments were made under the Jersey mechanism for the distribution of general trading profits, the result is that the distribution is treated as a dividend. Whether the amount is a dividend or capital is determined by the method of distribution not the underlying source of the distribution.
When distributing share capital from foreign companies, it is important that taxpayers look at the method of distribution to ensure they get the treatment they expect.
