My thinking is that 1200/1.5 is 800, which is divided 400 for each of the husband and the wife. The husband is a 40% taxpayer and so pays 40% of 400 = 160 on his share. The witholding tax of 400 can be reclaimed. this is 400/1.5 = £266, which means half of that goes as a reclaim for the husband (=£133)
I understand what you are saying. I was trying to map this to the acted problem mentioned in this chapter though. That was about the Japanese subsidiary paying dividends to the parent company. I was trying to compare the basic principles.
In that problem, the parent company pays tax on the dividends received of 2 million net of witholding tax of 0.2 million retained by the Japanese subsidiary.
Then the double taxation agreement meant that they would take credit for the tax paid on this slice of earnings abroad. We can ignore this aspect here, I suppose.
And finally, the witholding tax deduction is allowed for.
So, my question is whether Examiner's should have deducted the income tax on the actual amount received net of witholding tax and then taken credit for the witholding tax?
Also, have they considered 40% since the interest rates are 10%, 20% and 40% (as given on page 3 of the chapter)? Had these been overseas dividends, these should these be assumed as net (i.e 90% of gross)?
Regards,
Last edited by a moderator: Sep 13, 2014