Finance Bill

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Session 2013 - 14
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Finance Bill

Finance Bill
Schedule 27 — Manufactured payments
Part 1 — Income tax
365

Schedule 27
Section 75

Manufactured payments
Part 1
Income tax
1
Before Part 11A of ITA 2007 insert—
5
“Part 11ZA
Manufactured payments
614ZA
  Overview of Part

This Part deals with the application of the Income Tax Acts to
manufactured payment relationships and payments representative
10
of dividends or interest.
614ZB
  Key definitions
(1)
For the purposes of the Income Tax Acts a person has a
manufactured payment relationship if conditions A to C are met.
(2)
Condition A is that under any arrangements—
15
(a)
an amount is payable by or to the person, or
(b)
any other benefit is given by or to the person (including the
release of the whole or part of any liability to pay an amount).
(3)
Condition B is that the arrangements relate to the transfer of
securities.
20
(4)
Condition C is that the amount or value of the other benefit—
(a)
is representative of a dividend or interest on the securities, or
(b)
will fall to be treated as representative of such a dividend or
interest when it is paid or given.
(5)
In subsection (2) the reference to an amount being payable, or other
25
benefit being given, by the person includes a reference to an amount
being payable, or other benefit being given, by another person on
behalf of the person in question.
(6)
In this Part—
“manufactured payment”, in relation to a manufactured
30
payment relationship, means an amount, or the value of a
benefit, within subsection (2), and
“securities” means—
(a)
shares in a company, and
(b)
loan stock or any similar security (whether the
35
security is of the government of the United Kingdom,
any other government, any public or local authority
in the United Kingdom or elsewhere, or any other
company or body).

Finance Bill
Schedule 27 — Manufactured payments
Part 1 — Income tax
366

614ZC
  Treatment of payer of manufactured payment
(1)
This section applies where a person has a manufactured payment
relationship under which a manufactured payment is paid by or on
behalf of the person.
(2)
No deduction is allowed in respect of the manufactured payment in
5
calculating any profits or other income of the person for income tax
purposes (subject to subsection (3)).
(3)
Subsection (2) does not apply in relation to the person so far as the
manufactured payment is brought into account under Part 2 of
ITTOIA 2005 in calculating the profits of a trade carried on by the
10
person.
(4)
But nothing in subsection (3) affects the question whether (apart
from that provision) a deduction in calculating the profits of a trade
carried on by the person is allowed.
614ZD
  Treatment of recipient of manufactured payment
15
(1)
Subsection (2) applies if a person has a manufactured payment
relationship under which a manufactured payment is payable to the
person.
(2)
For the purposes of the charge to income tax on the person’s income,
the Income Tax Acts apply to the person as if the manufactured
20
payment were a dividend or interest on the securities (as the case
may require).
(3)
Subsection (2) is subject to subsections (4) to (6).
(4)
Subsection (2) does not apply in relation to the person so far as the
manufactured payment is brought into account under Part 2 of
25
ITTOIA 2005 in calculating the profits of a trade carried on by the
person.
(5)
Subsection (2) does not apply in relation to the person for the
purposes of determining entitlement to double taxation relief in
respect of any dividend or interest.
30
(6)
In a case in which the manufactured payment is treated as a dividend
by virtue of subsection (2), the person is not entitled to a tax credit
under Chapter 3 of Part 4 of ITTOIA 2005 (tax credits for certain
recipients of distributions) in respect of the dividend.
(7)
For the purposes of this section “double taxation relief” means any
35
relief given under or as a result of Part 2 of TIOPA 2010.”

Finance Bill
Schedule 27 — Manufactured payments
Part 2 — Corporation tax
367

Part 2
Corporation tax
2
Before Part 18 of CTA 2010 insert—
“Part 17A
Manufactured dividends
5
814A
  Overview of Part

This Part deals with the application of the Corporation Tax Acts to
manufactured dividend relationships and payments representative
of dividends.
814B
  Key definitions
10
(1)
For the purposes of the Corporation Tax Acts a company has a
manufactured dividend relationship if conditions A to C are met.
(2)
Condition A is that under any arrangements—
(a)
an amount is payable by or to the company, or
(b)
any other benefit is given by or to the company (including the
15
release of the whole or part of any liability to pay an amount).
(3)
Condition B is that the arrangements relate to the transfer of shares
in a company.
(4)
Condition C is that the amount or value of the other benefit—
(a)
is representative of a dividend on the shares, or
20
(b)
will fall to be treated as representative of such a dividend
when it is paid or given.
(5)
In subsection (2) the reference to an amount being payable, or other
benefit being given, by the company includes a reference to an
amount being payable, or other benefit being given, by another
25
person on behalf of the company.
(6)
In this Part—
“manufactured dividend”, in relation to a manufactured
dividend relationship, means an amount, or the value of a
benefit, within subsection (2), and
30
“the real dividend” means the dividend mentioned in
subsection (4)(a).
814C
  Treatment of payer of manufactured dividend
(1)
This section applies where a company has a manufactured dividend
relationship under which a manufactured dividend is paid by or on
35
behalf of the company.
(2)
No deduction in calculating income for corporation tax purposes is
allowed in respect of the manufactured dividend (subject to
subsections (3) to (7)).

Finance Bill
Schedule 27 — Manufactured payments
Part 2 — Corporation tax
368

(3)
Subsection (2) does not apply in relation to the company so far as the
manufactured dividend is brought into account under Part 3 of CTA
2009 in calculating the profits of a trade carried on by the company.
(4)
Subsection (5) applies if—
(a)
the manufactured dividend relates to investment business
5
which the company has,
(b)
the company received the real dividend in the accounting
period, and
(c)
the real dividend is taxed by virtue of section 548(5)
(recipients of distributions from REITs).
10
(5)
The manufactured dividend is to be treated as expenses of
management of the company’s investment business for the
accounting period for the purposes of Chapter 2 of Part 16 of CTA
2009.
(6)
Subsection (7) applies if—
15
(a)
the manufactured dividend is referable to basic life assurance
and general annuity business which the company has,
(b)
the company received the real dividend in the accounting
period, and
(c)
the real dividend is taxed by virtue of section 548(5)
20
(recipients of distributions from REITs).
(7)
So far as the manufactured dividend is referable as mentioned in
subsection (6)(a), the manufactured dividend is to be treated for the
purposes of section 76 of FA 2012 as a deemed BLAGAB
management expense for the accounting period.
25
(8)
Nothing in subsection (3) affects the question whether (apart from
that provision) a deduction in calculating the profits of a trade
carried on by the company is allowed.
(9)
The references in subsections (4) and (6) to the real dividend include
references to a manufactured dividend which is treated as a real
30
dividend by virtue of section 814D(2).
(10)
For the purposes of subsections (6) and (7), the manufactured
dividend is treated as referable to basic life assurance and general
annuity business so far as the real dividend is received by the
company and is so referable in accordance with Chapter 4 of Part 2
35
of FA 2012 (apportionment rules for I-E charge).
814D
  Treatment of recipient of manufactured dividend
(1)
Subsection (2) applies if a company has a manufactured dividend
relationship under which a manufactured dividend is payable to it.
(2)
For the purposes of the charge to corporation tax on the income of the
40
company, the Corporation Tax Acts apply to the company, and any
company claiming title through or under the company, as if the
manufactured dividend were a dividend on the shares.
(3)
Subsection (2) is subject to subsections (4) to (8).

Finance Bill
Schedule 27 — Manufactured payments
Part 3 — Consequential etc amendments
369

(4)
Subsection (2) does not apply in relation to a company so far as the
manufactured dividend is brought into account under Part 3 of CTA
2009 in calculating the profits of a trade carried on by the company.
(5)
Subsection (2) does not apply in relation to a company for the
purposes of determining entitlement to double taxation relief in
5
respect of any dividend.
(6)
Part 9A of CTA 2009 (company distributions), in its application in
relation to a manufactured dividend as a result of subsection (2), has
effect with the modification in subsection (7).
(7)
The modification is that—
10
(a)
references in that Part to the payer are to be treated as
references to the company that pays the real dividend, and
(b)
the definition of “the payer” in section 931T is to be treated as
omitted.
(8)
The company to which the manufactured dividend is payable is not
15
entitled to a tax credit under section 1109 (tax credits for certain
recipients of exempt qualifying distributions) in respect of the
dividend.
(9)
For the purposes of subsection (5) “double taxation relief” means any
relief given under or as a result of Part 2 of TIOPA 2010.
20
(10)
This section has effect regardless of section 358 of CTA 2009
(exclusion of credits on release of connected companies debts) or any
other provision of Part 5 of that Act (loan relationships) which
prevents a credit from being brought into account.”
Part 3
25
Consequential etc amendments
Introductory
3
The following amendments are in consequence of, or otherwise connected
with, the amendments made by Parts 1 and 2.
TCGA 1992
30
4
TCGA 1992 is amended as follows.
5
In section 263B (stock lending arrangements), for subsection (7) substitute—
“(7)
In this section “securities” has the meaning given by section 263AA.”
6
Omit section 263D (gains accruing to persons paying manufactured
dividends).
35
7
In section 263F (power to modify repo provisions: non-standard repo
cases)—
(a)
in subsection (1)—
(i)
at the end of paragraph (c) insert “or”, and
(ii)
omit paragraph (d) (and the word “or” at the end of it), and
40
(b)
in subsection (2), omit “or 263D”.

Finance Bill
Schedule 27 — Manufactured payments
Part 3 — Consequential etc amendments
370

8
In section 263G (power to modify repo provisions: redemption
arrangements)—
(a)
in subsection (1), omit paragraph (d) (but not the word “or” at the
end of it), and
(b)
in subsection (2), omit “or 263D”.
5
9
In section 263H (sections 263F and 263G: supplementary provisions), in
subsection (3)(b) omit “or 263D”.
10    (1)
Section 263I (powers about manufactured overseas dividend) is amended as
follows.
      (2)
In subsection (1), for paragraphs (a) and (b) substitute—
10
“(a)
pays or receives an amount (a “manufactured overseas
dividend”) which is representative of an overseas dividend
on overseas securities where the payment or receipt is
required to be made under an arrangement for the transfer of
the securities, or
15
(b)
is treated as doing so for any purposes of the Tax Acts.”
      (3)
For subsection (6) substitute—
“(6)
In this section—
(a)
“overseas securities” means shares, stock or other securities
issued by—
20
(i)
a government, local authority or other public
authority of a territory outside the United Kingdom,
or
(ii)
another body of persons not resident in the United
Kingdom,
25
(b)
“overseas securities” includes shares in a company which is
not resident in the United Kingdom,
(c)
“overseas dividend” means any interest, dividend or other
annual payment payable in respect of overseas securities,
and
30
(d)
“securities” includes loan stock or any similar security.”
FA 2004
11
In Schedule 24 to FA 2004 (manufactured dividends), omit paragraph 3(1)
and (3).
ITTOIA 2005
35
12
ITTOIA 2005 is amended as follows.
13
In section 397(6) (list of provisions to which the section is subject), for the
words from “section 592” to “owner under repo),” substitute—
“section 614ZD(6) of ITA 2007,”.
14
In section 397A (tax credit for distributions of non-UK resident
40
companies)—
(a)
in subsection (6), for the words from “section 592” to the end
substitute—
“section 614ZD(6) of ITA 2007.”, and

Finance Bill
Schedule 27 — Manufactured payments
Part 3 — Consequential etc amendments
371

(b)
omit subsection (8).
15
Omit section 397B (tax credits under section 397A: manufactured overseas
dividends).
ITA 2007
16
ITA 2007 is amended as follows.
5
17
In section 2 (overview of Act)—
(a)
omit subsection (11), and
(b)
before subsection (11A) insert—
“(11ZA)
Part 11ZA is about manufactured payments.”
18
Omit the following provisions (which deal with manufactured payments
10
and repos)—
(a)
sections 565 to 595,
(b)
section 596(1) to (4), and
(c)
section 606(8).
19
In section 647 (makers of manufactured payments), for subsection (6)
15
substitute—
“(6)
In this section “manufactured payments contract” means a contract
under which—
(a)
the seller is required to pay another person an amount which
is representative of a periodical payment of interest on UK
20
securities under an arrangement between them for the
transfer of the securities, or
(b)
the seller is required to pay another person an amount which
is representative of an overseas dividend on overseas
securities under an arrangement between them for the
25
transfer of the securities.
(7)
In this section—
(a)
“overseas securities” means shares, stock or other securities
issued by—
(i)
a government, local authority or other public
30
authority of a territory outside the United Kingdom,
or
(ii)
another non-UK resident body of persons,

and includes shares in a non-UK resident company,
(b)
“overseas dividend” means any interest, dividend or other
35
annual payment payable in respect of overseas securities,
and
(c)
“UK securities” means securities of—
(i)
the government of the United Kingdom,
(ii)
a local authority in the United Kingdom,
40
(iii)
another public authority in the United Kingdom, or
(iv)
a UK resident company or other UK resident body,

but does not include shares in a UK resident company.”
20
In section 658 (powers to modify: supplementary), for subsection (5)