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HMRC internal manual

Corporate Finance Manual

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Other tax rules on corporate finance: manufactured payments: manufactured overseas dividends: deduction of tax: regulations

This guidance applies to manufactured payments made before 1 January 2014, when the tax rules were simplified. For manufactured payments made on or after 1 January 2014, see CFM74430.

Regulations for deduction of tax from MODs

The regulations modifying the basic approach of ITA07/S581 and S582 and ITA07/S922 - S925 are in SI1993 No 2004. Regulation 2B excludes MODs on overseas debt securities constituting loan relationships from the tax deduction regime. Such payments are not treated as annual payments unless paid by a non-trader (or by a trader who is not a company if paid otherwise than in the course of that trade). In the few cases where they are treated as annual payments, no deduction of tax is required.

Regulation 4 aims to put tax deduction requirements mostly onto financial traders or intermediaries known as Authorised UK Intermediaries (AUKIs) or Authorised UK Collecting Agents (AUKCAs). It does this by disapplying paragraph ITA07/S922 when a MOD is paid by a non-AUKI to an AUKI or AUKCA and imposing a charge on the recipient analogous to the charge imposed by ITA07/S923 when a UK person receives a MOD from abroad.

The ITA07/S923 and regulation 4(3) charges are both known as ‘reverse charges’. The disapplication of ITA/S922 paragraph 4(2) does not apply where the non-AUKI/AUKCA payer receives the real dividend, that is, it applies only if the payer receives either a MOD or no dividend.

The regulation 4(3) reverse charge is disapplied where an AUKI/AUKCA that has received a gross MOD from a non-AUKI pays an equivalent MOD gross by virtue of regulation 5.

MOD paid to overseas recipient without deduction of tax

Regulation 5 provides a number of circumstances when AUKI/AUKCAs can pay without deducting tax under ITA07/S922. The purpose is to allow gross payment where a MOD is paid to or for the benefit of a person beneficially entitled to it who is not a UK recipient. The rule covers payments by a dividend manufacturer direct to overseas recipients and payments along a chain of AUKI/AUKCAs where the initial payment is by an AUKI and the final payment goes abroad.

Regulation 8 and the disapplication of ITA07/S922

Regulation 8 deals with the receipt by AUKIs/AUKCAs of MODs in relation to which ITA07/S922 has been disapplied by regulation 4 or 5. It also applies to the receipt of MODs by both AUKIs and non-AUKIs where the ITA07/S923 reverse charge is disapplied by virtue of regulation 7(2)(a) to (d) (CFM74390).

In such cases the recipient is treated as receiving an overseas dividend of the actual amount of the MOD, or a grossed up amount if a ITA07/S923 reverse charge is paid.