Government announces new
legislation to block tax avoidance involving Manufactured Overseas Dividends
News Release issued by
the COI News Distribution Service on 15 September 2011
The Government has
today announced that it is introducing new legislation, effective
from today, to block a tax avoidance scheme involving Manufactured
Overseas Dividends (MODs). The scheme could have resulted in
companies, particularly in the financial sector, offsetting or
claiming repayment of UK income tax that had in fact never been
paid. This could have led to a significant loss of tax receipts,
had the Government not taken action.
The new legislation clarifies the corporation tax treatment of
MODs. It has been drawn up to counter the newly disclosed
avoidance scheme, in which the recipient of a MOD claims to have
received it under deduction of UK income tax and seeks to set this
off against a corporation tax liability or have it repaid, despite
no UK income tax having been paid. The draft legislation,
published today by HMRC, will put beyond doubt that no set-off or
repayment of income tax can be made in such cases.
David Gauke, Exchequer Secretary to the Treasury, said:
“It is essential that everyone pays the right amount of tax at
the right time, in order to both provide funding for public
services and maintain fairness for the taxpayer, and the
Government is determined to reduce tax avoidance. We have acted
quickly to prevent the use of this particular scheme and we will
not hesitate to close down other schemes representing a
significant risk to the Exchequer as we become aware of them.”
As this is an area where there is repeated avoidance, in addition
to the new legislation, the Government will conduct a wider review
of the tax rules on MODs, following Budget 2012, to simplify the
rules and reduce further opportunities for avoidance.
Any changes made following the consultation would not come into
effect before 1 April 2013.
Notes for Editors
1. MODs are payments made under an arrangement for the transfer
of overseas shares. Where dividends are paid on the shares, one
party is required to pay to the other an amount that is
representative of those dividends.
2. The legislation will be
in the 2012 Finance Bill. The draft provision, together with an
Explanatory Note and Tax Information and Impact Note, can be found
on the HMRC website, at www.hmrc.gov.uk/news/index.htm.
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