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
304

Special cases
583
Manufactured payments exceeding underlying payments
(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
5
(b)
the sum of—
(i)
an amount paid by way of manufactured interest or
manufactured overseas dividend, and
(ii)
the income tax required to be accounted for and paid in
connection with the making of the payment,
10

would otherwise exceed the gross amount of the interest or overseas
dividend of which it is representative.
(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 15 as not made under the
requirement mentioned in section 573(1)(b), 578(1)(b) or 581(1)(b) (criteria for
15
application of provisions about manufactured payments).
(3)
Instead it is treated, to that extent, for income tax purposes as a separate fee for
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
20
(b)
Chapter 9 of Part 15 (deduction of income tax at source: manufactured
payments).
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
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overseas dividend, and
(b)
the income tax required to be accounted for and paid in connection
with the making of the payment,

is less than the gross amount of the interest or overseas dividend of which it is
representative.
30
(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
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).
35
(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).
40
(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.

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

585
Power to deal with other special cases
(1)
The Treasury may by regulations make provision about—
(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
5
dividends, manufactured interest or manufactured overseas dividends
as may be prescribed, or
(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
10
dividend, manufactured interest, manufactured overseas dividend or person
to be treated, in prescribed circumstances, otherwise than as mentioned in—
(a)
sections 572 to 582 (main rules about manufactured payments), or
(b)
Chapter 9 of Part 15 (deduction of income tax at source: manufactured
payments),
15

for any prescribed income tax purposes.
General regulation-making powers
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,
20
(b)
the vouchers which are to be issued or produced,
(c)
the returns which are to be made, and
(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 15 are to be accounted for and paid,
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by payers or recipients of manufactured dividends, manufactured interest or
manufactured overseas dividends.
(2)
Regulations under this Chapter or Chapter 9 of Part 15 about any liability to
account for income tax may contain any of the following—
(a)
provision for calculating the amounts to be accounted for,
30
(b)
provision, in relation to deciding the amount to be paid on any
occasion, for setting other amounts against the amounts to be
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
35
purposes,
(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—
40
(a)
manufactured dividends,
(b)
manufactured interest, or
(c)
manufactured overseas dividends,

with such modifications, specified in the regulations, as the Treasury consider
appropriate.
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Income Tax Bill
Part 11 — Manufactured payments and repos
Chapter 2 — Manufactured payments
306

(4)
The Treasury may by regulations make further provision about the
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 15.
5
587
Power for manufactured payments to be eligible for relief
(1)
The Treasury may by regulations provide for any—
(a)
manufactured dividend,
(b)
manufactured interest, or
(c)
manufactured overseas dividend,
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paid to any person to be treated, in such circumstances and to such extent as
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
15
186 of FA 2004 (exemptions about pensions and annuities).
588
Regulation-making powers: general
Regulations under this Chapter may make different provision for different
cases.
Interpretation
20
589
Meaning of “gross amount”: interest and manufactured overseas dividends
(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.
25
(3)
The gross amount of a manufactured overseas dividend is an amount equal to
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
30
overseas tax chargeable on it,
(b)
the amount of any overseas tax so deducted, and
(c)
the amount of any overseas tax credit in respect of the overseas
dividend.
590
Meaning of “relevant withholding tax”
35
(1)
This section applies for the purposes of this Chapter.
(2)
“Relevant withholding tax”, in relation to the gross amount of a manufactured
overseas dividend, means an amount of income tax representative of the sum
of—

Income Tax Bill
Part 11 — Manufactured payments and repos
Chapter 3 — Tax credits: stock lending arrangements and repos
307

(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
(b)
the amount of any overseas tax credit in respect of such an overseas
dividend.
5
(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.
(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
10
(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.
591
Interpretation of other terms used in Chapter
(1)
In this Chapter—
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“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,
“group” and “principal company” have the meanings given by section 134
of FA 2006,
20
“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
the United Kingdom in respect of overseas tax which corresponds to a
tax credit,
25
“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
to be read, in relation to a company, as references to a trade carried on through
a permanent establishment.
30
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—
35
(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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Income Tax Bill
Part 11 — Manufactured payments and repos
Chapter 3 — Tax credits: stock lending arrangements and repos
308

(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.
5
(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
10
(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,
15
(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.
25
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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(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
35
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
40
of qualifying distributions treated as having paid income tax at dividend
ordinary rate on them) does not apply in respect of the distribution.