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HMRC internal manual

Guidance on Real Estate Investment Trusts

HM Revenue & Customs
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Miscellaneous: manufactured payments: deduction of tax

Payment of MPID representing a PID from the tax exempt business

As GREIT09155 explains, any withholding tax obligations imposed by SI2006/2867 inrespect of a real PID is deemed to have been deducted in respect of the deemed MPID.Likewise where the MPID is representative of a dividend in respect of profits of thetax-exempt business of a company then the rate of withholding tax in relation to themanufactured PID will be exactly the same as if the real PID of which the MPID isrepresentative were paid directly by the UK- REIT to the recipient of the MPID. Where thatrate is nil (e.g. because the MPID is paid to a UK company and the rate between a UK-REITand a UK company would normally be nil) then the MPID will also be paid under deduction ofnil tax.

Obligation to deduct income tax on payment of MPID

Regulations made under section 122 FA 2006 (SI 2006/2867)) require a company that paysa distribution out of tax-exempt profits to deduct income tax and account for it to HMRC.The same regulations apply to payment of an MPID by the manufacturer, and apply regardlessof whether or not the manufacturer is a company.

There will only be an obligation to deduct income tax from the MPID where the recipientwould normally receive a real PID under deduction of tax.

The only exception to this obligation is where the MPID is paid other than in connectionwith an activity that is subject to UK tax. There are however powers to make regulationsrequiring the UK recipient of the MPID to account for tax equal in amount to that whichthe manufacturer would have otherwise deducted.

PIDs received by manufacturer

Under regulation 7(7) SI 2006/2867, PID are always paid under deduction of basic ratetax where the rights to the distribution have been transferred or sold, without sellingthe underlying shares. This is regardless of the nature of the person beneficiallyentitled to the PID.