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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Other tax rules on corporate finance: manufactured payments: manufactured overseas dividends: deduction of tax: disapplication or reduction of reverse charge

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.

Disapplying or reducing a ITA07/S923 reverse charge

Regulation 7 disapplies the ITA07/S923 reverse charge in a number of circumstances. In particular, ITA07/S923 will not apply where the recipient then pays on a corresponding MOD gross under regulation 5 (CFM74380). The rule includes chains of payments involving AUKI/AUKCAs where the final payment goes abroad. The rule is intended to prevent any reverse charge where the arrangements are essentially conduit ones where the MOD flows through the UK.

Regulation 6A provides that the ITA07/S923 reverse charge can be reduced if the MOD itself suffers overseas tax on payment. The reverse charge is limited to the amount required to reduce the net amount of the MOD to the amount the recipient would have received had it received the real dividend. It then limits the amount of tax that can be claimed as tax credit relief to the sum of the reverse charge and the actual overseas tax on the MOD. The aim is to ensure that a UK recipient of a MOD received under deduction of tax is not in a worse position than if it had received the real overseas dividend.