Income Tax Bill

House of Commons

Session 2006 - 07
Internet Publications
Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Part 11 — Manufactured payments and repos
Chapter 2 — Manufactured payments
303

Manufactured overseas dividends
581
Manufactured overseas dividends
(1)
This section applies if—
(a)
a person (“the payer”) pays another person an amount (a
“manufactured overseas dividend”) which is representative of an
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overseas dividend on overseas securities,
(b)
the payer does so under a requirement of an arrangement between
them for the transfer of the securities, and
(c)
the condition in subsection (2) is met.
(2)
The condition is that—
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(a)
in a case within section 855(1) (manufactured overseas dividends:
payments by UK residents etc), the amount required to be deducted as
a result of that section has been deducted, or
(b)
in a case within section 856(1) (foreign payers of manufactured
overseas dividends: the reverse charge), the amount of income tax
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required to be accounted for and paid as a result of that section has been
accounted for and paid.
(3)
Subsections (4) and (5) apply in relation to the recipient, and all persons
claiming title through or under the recipient, for all relevant income tax
purposes.
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(4)
The manufactured overseas dividend is treated as if it were—
(a)
an overseas dividend of an amount equal to the gross amount of the
manufactured overseas dividend, but
(b)
paid after the withholding from it, on account of overseas tax, of the
amount deducted as a result of section 855 or (as the case may be)
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accounted for and paid as a result of section 856.
(5)
The amount deducted or accounted for and paid is accordingly to be treated as
an amount withheld on account of overseas tax instead of as an amount on
account of income tax.
(6)
In this section “relevant income tax purposes” means the purposes of the
30
Income Tax Acts as they apply in relation to—
(a)
UK residents, and
(b)
persons carrying on business through a branch or agency in the United
Kingdom.
582
Powers about manufactured overseas dividends
35
(1)
The Treasury may by regulations make provision as mentioned in subsections
(2) and (3) about prescribed cases where a person—
(a)
pays or receives a manufactured overseas dividend as mentioned in
section 581(1), or
(b)
is treated as doing so for any purposes of this Chapter or regulations
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made under it.
(2)
The regulations may provide for removing or reducing any right of the person
to claim relief under Part 18 of ICTA (double taxation relief).

Income Tax Bill
Part 11 — Manufactured payments and repos
Chapter 2 — Manufactured payments
304

(3)
The regulations may provide for adjusting a relevant amount by reference to a
provision which has effect under the law of a territory outside the United
Kingdom.
(4)
A “relevant amount” is an amount which is treated for prescribed income tax
purposes as the amount paid or payable to a person in respect of a relevant
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transaction.
(5)
A “relevant transaction” is a sale, repurchase or other transfer of the overseas
securities to which the manufactured overseas dividend relates.
Special cases
583
Manufactured payments exceeding underlying payments
10
(1)
This section applies if—
(a)
an amount paid by way of manufactured dividend would otherwise
exceed the amount of the dividend of which it is representative, or
(b)
the sum of—
(i)
an amount paid by way of manufactured interest or
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manufactured overseas dividend, and
(ii)
the income tax required to be accounted for and paid in
connection with the making of the payment,

would otherwise exceed the gross amount of the interest or overseas
dividend of which it is representative.
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(2)
The payment, to the extent of an amount equal to the excess, is treated for the
purposes of this Chapter and Chapter 9 of Part 14 as not made under the
requirement mentioned in section 573(1)(b), 578(1)(b) or 581(1)(b) (criteria for
application of provisions about manufactured payments).
(3)
Instead it is treated, to that extent, for income tax purposes as a separate fee for
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entering into the arrangement under which it was made.
(4)
Subsection (3) applies despite anything in—
(a)
sections 572 to 582 (main rules about manufactured payments), or
(b)
Chapter 9 of Part 14 (deduction of income tax at source: manufactured
payments).
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584
Manufactured payments less than underlying payments
(1)
This section applies if the sum of—
(a)
an amount paid by way of manufactured interest or manufactured
overseas dividend, and
(b)
the income tax required to be accounted for and paid in connection
35
with the making of the payment,

is less than the gross amount of the interest or overseas dividend of which it is
representative.
(2)
For the purpose of giving relief under the Income Tax Acts in a case to which
section 578 or 581 applies (manufactured interest and manufactured overseas
40
dividends), the gross amount of the manufactured interest or manufactured
overseas dividend is treated as being an amount equal to the sum of the
amounts mentioned in paragraphs (a) and (b) of subsection (1).

Income Tax Bill
Part 11 — Manufactured payments and repos
Chapter 2 — Manufactured payments
305

(3)
Subsection (2) applies despite anything in—
(a)
sections 578 to 582 (main rules about manufactured interest and
manufactured overseas dividends), and
(b)
section 589(3) (meaning of “gross amount” of manufactured overseas
dividend).
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(4)
In this section “relief” means relief by way of—
(a)
deduction in calculating profits or gains, or
(b)
deduction or set off against income.
585
Power to deal with other special cases
(1)
The Treasury may by regulations make provision about—
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(a)
such manufactured dividends, manufactured interest or manufactured
overseas dividends as may be prescribed,
(b)
such persons who receive, or become entitled to receive, manufactured
dividends, manufactured interest or manufactured overseas dividends
as may be prescribed, or
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(c)
such payers of manufactured dividends, manufactured interest or
manufactured overseas dividends as may be prescribed.
(2)
The provision which may be made is for any prescribed manufactured
dividend, manufactured interest, manufactured overseas dividend or person
to be treated, in prescribed circumstances, otherwise than as mentioned in—
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(a)
sections 572 to 582 (main rules about manufactured payments), or
(b)
Chapter 9 of Part 14 (deduction of income tax at source: manufactured
payments),

for any prescribed income tax purposes.
General regulation-making powers
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586
Powers about administrative provisions
(1)
The Treasury may by regulations make provision about—
(a)
the accounts and other records which are to be kept,
(b)
the vouchers which are to be issued or produced,
(c)
the returns which are to be made, and
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(d)
the manner in which amounts required to be deducted, or accounted
for and paid, on account of income tax as a result of this Chapter or
Chapter 9 of Part 14 are to be accounted for and paid,

by payers or recipients of manufactured dividends, manufactured interest or
manufactured overseas dividends.
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(2)
Regulations under this Chapter or Chapter 9 of Part 14 about any liability to
account for income tax may contain any of the following—
(a)
provision for calculating the amounts to be accounted for,
(b)
provision, in relation to deciding the amount to be paid on any
occasion, for setting other amounts against the amounts to be
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accounted for,
(c)
provision as to the liabilities against which amounts accounted for are,
or are not, to be set for income tax purposes or corporation tax
purposes,

Income Tax Bill
Part 11 — Manufactured payments and repos
Chapter 2 — Manufactured payments
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(d)
provision modifying, or applying (with or without modifications), any
enactments contained in the Tax Acts.
(3)
The Treasury may by regulations provide for prescribed provisions of TMA
1970 to apply for income tax purposes in relation to—
(a)
manufactured dividends,
5
(b)
manufactured interest, or
(c)
manufactured overseas dividends,

with such modifications, specified in the regulations, as the Treasury consider
appropriate.
(4)
The Treasury may by regulations make further provision about the
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administration, assessment, collection and recovery of amounts required to be
deducted, or accounted for and paid, on account of income tax as a result of—
(a)
this Chapter, or
(b)
Chapter 9 of Part 14.
587
Power for manufactured payments to be eligible for relief
15
(1)
The Treasury may by regulations provide for any—
(a)
manufactured dividend,
(b)
manufactured interest, or
(c)
manufactured overseas dividend,

paid to any person to be treated, in such circumstances and to such extent as
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may be prescribed in the regulations, as exempt pension income of the
recipient.
(2)
“Exempt pension income” means income which is eligible for relief from
income tax as a result of section 613(4) or 614(2), (3) or (4) of ICTA or section
186 of FA 2004 (exemptions about pensions and annuities).
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588
Regulation-making powers: general
Regulations under this Chapter may make different provision for different
cases.
Interpretation
589
Meaning of “gross amount”: interest and manufactured overseas dividends
30
(1)
This section applies for the purposes of this Chapter.
(2)
The gross amount of any interest or payment is the amount of the interest or
payment before the making of any deduction of income tax that is required to
be deducted from it on its being paid or made.
(3)
The gross amount of a manufactured overseas dividend is an amount equal to
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the gross amount of the overseas dividend of which the manufactured
overseas dividend is representative.
(4)
The gross amount of an overseas dividend is the sum of—
(a)
so much of the overseas dividend as remains after the deduction of any
overseas tax chargeable on it,
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(b)
the amount of any overseas tax so deducted, and

Income Tax Bill
Part 11 — Manufactured payments and repos
Chapter 2 — Manufactured payments
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(c)
the amount of any overseas tax credit in respect of the overseas
dividend.
590
Meaning of “relevant withholding tax”
(1)
This section applies for the purposes of this Chapter.
(2)
“Relevant withholding tax”, in relation to the gross amount of a manufactured
5
overseas dividend, means an amount of income tax representative of the sum
of—
(a)
any amount that would have been deducted by way of overseas tax
from an overseas dividend on the overseas securities of the same gross
amount as the manufactured overseas dividend, and
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(b)
the amount of any overseas tax credit in respect of such an overseas
dividend.
(3)
The Treasury may by regulations make provision about the rates of relevant
withholding tax which are to apply in relation to manufactured overseas
dividends in relation to different overseas territories.
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(4)
The Treasury must, in prescribing these rates, have regard to—
(a)
the rates at which overseas tax would have fallen to be deducted, and
(b)
the rates of overseas tax credits,

in overseas territories, or in the particular overseas territory, in respect of
payments of overseas dividends on overseas securities.
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591
Interpretation of other terms used in Chapter
(1)
In this Chapter—
“C (tax-exempt)” has the meaning given by section 105(3) of FA 2006,
“G (property rental business)” has the meaning given by paragraph 2 of
Schedule 17 to FA 2006,
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“group” and “principal company” have the meanings given by section 134
of FA 2006,
“overseas tax” means tax under the law of a territory outside the United
Kingdom,
“overseas tax credit” means any credit under the law of a territory outside
30
the United Kingdom in respect of overseas tax which corresponds to a
tax credit,
“prescribed” means prescribed in regulations under this Chapter, and
“transfer” includes a sale or other disposal.
(2)
References in this Chapter to a trade carried on through a branch or agency are
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to be read, in relation to a company, as references to a trade carried on through
a permanent establishment.

Income Tax Bill
Part 11 — Manufactured payments and repos
Chapter 3 — Tax credits: stock lending arrangements and repos
308

Chapter 3
Tax credits: stock lending arrangements and repos
Stock lending arrangements
592
No tax credits for borrower under stock lending arrangement
(1)
This section applies if—
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(a)
there is a stock lending arrangement in respect of UK shares,
(b)
a qualifying distribution is made to the person who is the borrower
under the arrangement,
(c)
the qualifying distribution is, or is a payment representative of, a
dividend in respect of the UK shares, and
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(d)
a manufactured dividend representative of the dividend is paid by the
borrower in respect of any UK shares in respect of which the
arrangement is made.
(2)
The borrower is not entitled to a tax credit under section 397(1) of ITTOIA 2005
(tax credits for qualifying distributions) in respect of the distribution.
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(3)
If the borrower is UK resident, section 399(2) of ITTOIA 2005 (recipients of
qualifying distributions treated as having paid income tax at dividend
ordinary rate on them) does not apply in respect of the distribution.
Repos
593
No tax credits for interim holder under repo
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(1)
This section applies if—
(a)
there is a repo in respect of UK shares,
(b)
under the repo, the original owner has transferred the UK shares to the
interim holder,
(c)
a qualifying distribution is made to the interim holder,
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(d)
the qualifying distribution is, or is a payment representative of, a
dividend in respect of the UK shares, and
(e)
a manufactured dividend representative of the dividend is paid by the
interim holder in respect of any UK shares in respect of which the repo
is made.
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(2)
The interim holder is not entitled to a tax credit under section 397(1) of ITTOIA
2005 (tax credits for qualifying distributions) in respect of the distribution.
(3)
If the interim holder is UK resident, section 399(2) of ITTOIA 2005 (recipients
of qualifying distributions treated as having paid income tax at dividend
ordinary rate on them) does not apply in respect of the distribution.
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594
No tax credits for original owner under repo
(1)
This section applies if—
(a)
there is a repo in respect of UK shares,
(b)
under the repo, the original owner has transferred the UK shares to the
interim holder,
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Income Tax Bill
Part 11 — Manufactured payments and repos
Chapter 4 — Deemed manufactured payments
309

(c)
a qualifying distribution is made,
(d)
the qualifying distribution is a manufactured dividend paid under the
repo in respect of the UK shares by the interim holder to the original
owner, and
(e)
the repo is not such that the actual dividend which the manufactured
5
dividend represents is receivable by a person other than the original
owner.
(2)
The original owner is not entitled to a tax credit under section 397(1) of ITTOIA
2005 (tax credits for qualifying distributions) in respect of the distribution.
(3)
If the original owner is UK resident, section 399(2) of ITTOIA 2005 (recipients
10
of qualifying distributions treated as having paid income tax at dividend
ordinary rate on them) does not apply in respect of the distribution.
Interpretation
595
Meaning of “manufactured dividend”
In this Chapter “manufactured dividend” has the same meaning as in Chapter
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2 (see section 573(1)(a)).
Chapter 4
Deemed manufactured payments
Stock lending arrangements
596
Deemed manufactured payments: stock lending arrangements
20
(1)
This section applies if—
(a)
there is a stock lending arrangement in respect of securities,
(b)
a dividend or interest on the securities is paid, as a result of the
arrangement, to a person other than the person who is the lender under
the arrangement, and
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(c)
no provision is made for securing that the lender receives payments
representative of the dividend or interest.
(2)
The rules about manufactured payments apply as if the person who is the
borrower under the arrangement—
(a)
were required, under the arrangement, to pay the lender an amount
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representative of the dividend or interest, and
(b)
discharged the requirement when the dividend or interest was paid.
(3)
But the borrower is not entitled (whether as a result of the rules about
manufactured payments or otherwise) to an income deduction in respect of the
deemed requirement to pay or the deemed payment.
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(4)
“Income deduction” means—
(a)
a deduction in calculating profits or gains for income tax purposes, or
(b)
a deduction in calculating net income.
(5)
For the purposes of this section, a quasi-stock lending arrangement is treated
as if it were a stock lending arrangement.
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