Part III. Administrative, Procedural, and Miscellaneous

dents a foreign tax credit for an appropriate amount of income tax paid to the United Kingdom, subject to the limitations of, and in accordance with, the laws of the United States. Paragraph (1) of Article 23 provides that, in the case of a U.S. corporation owning at least 10 per cent of the voting stock of a U.K. corporation from which it receives dividends in any taxable year, the United States shall allow credit for the appropriate amount of tax paid to the United Kingdom by that corporation with respect to the profits out of which such dividends are paid. Paragraph (1)(b) of Article 23 provides that the United States shall treat the amount withheld under paragraphs (2)(a)(i) and (ii) of Article 10 as an income tax imposed on the recipient of the dividend. Paragraph (1)(c) of Article 23 provides that the United States shall treat the one-half of the tax credit to which an individual shareholder resident in the United Kingdom would have been entitled, but which is not paid to a U.S. direct investor, as an income tax imposed on the U.K. corporation.

.03 Repeal of ACT and Reduction of Shareholder Tax Credit . Effective April 6, 1999, the United Kingdom repealed the ACT. Thus, a U.K. corporation is no longer required to pay ACT in respect of a dividend or other qualifying distribution to its shareholders. Notwithstanding the repeal of ACT, the integrated system of taxation under U.K. law remains in force. A U.K. shareholder is generally still entitled to a tax credit upon the receipt of a qualifying distribution to the extent of the shareholder’s tax liability, but any excess is no longer payable in cash. The amount of the shareholder tax credit is no longer determined by reference to the ACT rate, but by reference to the “tax credit fraction” in force on the date of the distribution. The current tax credit fraction is one-ninth. Thus, the U.K. shareholder tax credit has been reduced from one-fourth to one-ninth of the amount of the dividend.

Under the literal language of the Convention, paragraph (2) of Article 10 of the Convention continues to apply after the repeal of ACT because individuals resident in the United Kingdom continue to be entitled under U.K. law to a tax credit

26 CFR 601.701: Publicity of information. (Also Part I, Sections 901, 902, 905, 960, 986; 1.901–2, 1.905–3T; Part II, United States-United Kingdom Income Tax Convention.)

Rev. Proc. 2000–13