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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Other tax rules on corporate finance: manufactured payments: manufactured overseas dividends: matching and offsetting overseas tax

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 9 and 10: the offsetting and matching of overseas tax

Regulation 9 allows AUKIs to offset overseas tax suffered (and UK withholding tax treated under the regulations as overseas tax) on overseas dividends against liabilities under ITA07/S922 Paragraphs (4A) to (4C) of regulation 9 then stop tax used for offset from being claimed as DTR underTIOPA10/PT2.

The effect of regulation 9 is to allow an AUKI to pool together overseas dividends and MODs received (including MODs on overseas debt securities), and use them to frank liabilities on MODs they pay, with tax credit relief available for any excess of tax suffered in accordance with the normal rules.

Without more, regulation 9 would allow overseas tax on receipts that are part of a conduit arrangement where the corresponding MOD is paid gross under regulation 5 to spill against other withholding tax liabilities or give rise to tax credit relief. So regulation 10 requires the AUKI to match these conduit positions in a particular order.

In these circumstances, offsetting is limited by regulation 9(3) and 9(4) to cases where specific net receipts are matched in accordance with regulation 10 with the corresponding net payments. Where a matched payment is made gross in accordance with regulation 5 relief for tax suffered on the corresponding receipt is limited to relief under TIOPA10/S112.

Regulation 9A applies a similar rule for non-AUKIs who receive the real dividend of which the MOD is representative. In that case they are able to offset the tax suffered against the ITA07/S922 tax they would otherwise be required to pay. Where a non-AUKI pays gross under regulation 5, then it is not entitled to tax credit relief on the real dividend received but only relief under TIOPA10/S112.