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
300

dividend to which section 121 of FA 2006 applied (distributions treated as UK
property business profits).
(4)
This section is subject to—
(a)
section 583 (manufactured payments exceeding underlying payments),
and
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(b)
section 585 (power to deal with other special cases).
577
Statements about manufactured dividends
(1)
Subsections (3) to (7) apply to a person who—
(a)
pays a manufactured dividend as mentioned in section 573(1), and
(b)
is not within the charge to corporation tax.
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(2)
But those subsections do not apply so far as the manufactured dividend is
representative of a dividend which is—
(a)
paid by a company to which Part 4 of FA 2006 applies (Real Estate
Investment Trusts) in respect of profits of C (tax-exempt), or
(b)
paid by the principal company of a group to which that Part applies in
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respect of profits of G (property rental business).
(3)
The person must, at the same time as paying the manufactured dividend, give
the recipient a statement.
(4)
The statement must set out—
(a)
the amount of the manufactured dividend,
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(b)
the date of its payment, and
(c)
the amount of associated tax credit.
(5)
The statement must be in writing.
(6)
The amount of associated tax credit is the amount of tax credit to which the
recipient, or a person claiming title through or under the recipient—
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(a)
is entitled in respect of the manufactured dividend as a result of section
573(2) of this Act or paragraph 2(3)(b) of Schedule 23A to ICTA
(manufactured dividend treated as dividend), or
(b)
would be so entitled if all the conditions for a tax credit had been met
in the case of the deemed dividend and the recipient or that person.
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(7)
The duty under subsection (3) to give a statement is enforceable by the
recipient.
(8)
For provisions corresponding to subsections (3) to (7) which apply if the payer
of a manufactured dividend is within the charge to corporation tax see—
(a)
section 234A of ICTA (by virtue of paragraph 2(2)(b) of Schedule 23A
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to ICTA), if the payer is a UK resident company, and
(b)
paragraph 2(6) to (8) of Schedule 23A to ICTA, if the payer is a non-UK
resident company within the charge to corporation tax.
(9)
For a power for regulations to make provision corresponding to subsections (3)
to (7) for a case within subsection (2), see section 973 as applied by section
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918(3) (and in particular section 974(1)(k)).

Income Tax Bill
Part 11 — Manufactured payments and repos
Chapter 2 — Manufactured payments
301

Manufactured interest on UK securities
578
Manufactured interest on UK securities
(1)
This section applies if a person—
(a)
pays another person an amount (“manufactured interest”) which is
representative of a periodical payment of interest on UK securities, and
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(b)
does so under a requirement of an arrangement between them for the
transfer of the securities.
(2)
The Income Tax Acts apply in relation to the recipient, and persons claiming
title through or under the recipient, as if—
(a)
the manufactured interest were a periodical payment of interest on the
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securities, and
(b)
the gross amount of the deemed interest payment were equal to the
gross amount of the interest of which the manufactured interest is
representative.
(3)
If the payer is UK resident, or a person acting in the course of a trade carried
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on in the United Kingdom through a branch or agency, the Income Tax Acts
apply in relation to the payer subject to sections 579 and 580 (allowable
deductions).
(4)
See also—
section 919 (manufactured interest payments by UK residents etc:
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deduction of income tax at source), and
section 920 (foreign payers of manufactured interest: the reverse charge).
(5)
This section is subject to—
section 583 (manufactured payments exceeding underlying payments),
section 584 (manufactured payments less than underlying payments), and
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section 585 (power to deal with other special cases).
579
Allowable deductions: matching
(1)
This section applies to a person who pays manufactured interest as mentioned
in section 578(1).
(2)
The gross amount of the manufactured interest is allowable for income tax
30
purposes as a deduction in calculating the net income of the payer (see Step 2
of the calculation in section 23).

This is subject to subsection (3).
(3)
It is allowable only so far as—
(a)
it is not otherwise deductible, and
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(b)
it falls within subsection (4), (6) or (7).
(4)
An amount falls within this subsection so far as the payer—
(a)
receives either the periodical payment of interest which is represented
by the manufactured interest or a payment which is representative of
the periodical payment of interest, and
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(b)
is chargeable to income tax on the payment received.
(5)
See section 679 (interest on securities involving accrued income losses: general)
for the amount chargeable to income tax in a case where that section applies.

Income Tax Bill
Part 11 — Manufactured payments and repos
Chapter 2 — Manufactured payments
302

(6)
An amount falls within this subsection so far as—
(a)
the payer is, by virtue of Chapter 2 of Part 12 (accrued income profits),
chargeable to income tax on qualifying accrued income profits in
respect of transfers of securities, and
(b)
the transfers are subject to the arrangement giving rise to the payment
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of manufactured interest.
(7)
An amount falls within this subsection so far as the payer—
(a)
is treated under section 607 (treatment of price differences under repos)
as receiving a payment of interest in respect of the securities, and
(b)
is chargeable to income tax on the payment.
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(8)
See section 580 for a further qualification to the rule in subsection (2).
(9)
For the purposes of subsection (3)(a) an amount is deductible if it is—
(a)
deductible in calculating any of the payer’s profits or gains for income
tax purposes, or
(b)
deductible for those purposes in calculating the net income of the
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payer.
(10)
In this section “qualifying accrued income profits” means accrued income
profits which are treated as made—
(a)
under section 628(5), or
(b)
under section 630(2) in respect of a transfer of variable rate securities.
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580
Allowable deductions: restriction on double counting
(1)
This section applies if an amount has been allowed as a deduction under
section 579(2) by reference to the whole or part of—
(a)
the periodical payment of interest, or other payment, mentioned in
section 579(4)(a),
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(b)
the sum mentioned in section 579(6)(a), or
(c)
the deemed payment of interest mentioned in section 579(7)(a).
(2)
No further deduction is allowable by reference to all or part of the matched
portion of the payment, sum or deemed payment.
(3)
The “matched portion” of the payment, sum or deemed payment means—
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(a)
the whole of it, if the amount has been allowed as a deduction by
reference to the whole of it, or
(b)
the part of it by reference to which the amount has been allowed as a
deduction, in any other case.
Manufactured overseas dividends
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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
overseas dividend on overseas securities,
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(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.

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

(2)
The condition is that—
(a)
in a case within section 922(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 923(1) (foreign payers of manufactured
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overseas dividends: the reverse charge), the amount of income tax
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
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purposes.
(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
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amount deducted as a result of section 922 or (as the case may be)
accounted for and paid as a result of section 923.
(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.
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(6)
In this section “relevant income tax purposes” means the purposes of the
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.
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582
Powers about manufactured overseas dividends
(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
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(b)
is treated as doing so for any purposes of this Chapter or regulations
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).
(3)
The regulations may provide for adjusting a relevant amount by reference to a
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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
transaction.
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(5)
A “relevant transaction” is a sale, repurchase or other transfer of the overseas
securities to which the manufactured overseas dividend relates.