A dividend of $15 million paid before April 6 will generate a tax credit refund in the United Kingdom of over $1 million. The same dividend paid April 6 or later will generate a refund of less than $42,000. This is due to interaction between the US-UK tax treaty and the “advance corporations tax,” or ACT, in the United King-dom. The ACT has been repealed effective April 6.
However, before paying dividends, US multinationals should consider whether the benefits outweigh possible detriments. For example, a US multinational that is not in a position to use foreign tax credits in the US may find the US taxes it must pay on the dividend exceed any tax savings in the UK.
