One of the more frustrating aspects of the UK system of double tax relief is the loss of any relief which cannot be utilised in the year in which the income, profits or gains are taxable. This problem would not occur under an exemption system where foreign income is not taxed again in the country of residence of the recipient if it has already been taxed in the country of origin or source, regardless of the rate of that foreign tax. This method applies in many countries, particularly for shareholdings greater than mere portfolio level. This is sometimes known as a ‘participation exemption’.

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