franked investment income
When a company receives a dividend from another company it will also receive the appropriate tax credit which can then be offset against ACT on its own distributions in the same period or carried forward to the next accounting period. Tax losses can also be set against franked investment income. With the abolition of ACT from 1 April 1999, franked investment income no longer applies. Group dividends are governed by Group Income Elections. ACT on dividends paid out of foreign income which cannot be set against the company's corporation tax liability is repaid. With the exception of international holding companies the rules for payment of foreign income dividends ceased to apply from 6 April 1999.

Easyform Glossary of Law Terms. — UK law terms.


franked investment income
(FII)
Prior to 6 April 1999 where two UK resident companies were not part of the same group and one made a distribution to the other it usually paid advance corporation tax (ACT). However, the recipient company did not have to pay corporation tax on the distribution (which, in its hands, was called FII), and when it made a distribution to its own shareholders out of the FII it did not have to pay ACT. Special rules, however, applied to foreign income dividends and international headquarters companies.
The concept of FII continues to exist despite the abolition of ACT in order to reduce the amount of shadow ACT which a company is treated as paying and speeds the recovery of surplus ACT after this date.
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Practical Law Dictionary. Glossary of UK, US and international legal terms. . 2010.

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