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HMRC internal manual

Corporate Finance Manual

From
HM Revenue & Customs
Updated
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Deemed loan relationships: repos: tax rules: debtor quasi-repo: first tax consequence: exception

Debtor repos and debtor quasi-repos: exception to first tax consequence

An exception to the rule that the borrower is taxed as if it held the securities during the period of the arrangement is where the securities that are sold are overseas equities. In those cases, the borrower’s entitlement to double taxation relief (‘DTR’) in respect of any dividend arising on the securities during the period of the arrangement is determined as if it had received a manufactured overseas dividend (‘MOD’) representing that dividend, on the same date that the real dividend is paid.

This rule (which means that the previous rules relating to entitlement to DTR on manufactured payments continue to apply) is needed because a MOD recipient may not be in exactly the same position as it would have been if it had received the real dividend. For instance, the rate of ‘relevant withholding tax’ that a MOD recipient may suffer under regulation 3(1) of SI 1993/2004 may not always be the rate that the recipient would have suffered if it had received the real dividend.