Corporation Tax Bill

House of Commons

Session 2009 - 10
Internet Publications
Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 17 — Manufactured payments and repos
Chapter 1 — Introduction
391

(4)
For the purposes of this section a company transfers income if it surrenders,
waives or forgoes it.
(5)
Subsection (6) applies for the purposes of this section if—
(a)
credit is given for the purchase price of property, and
(b)
the rights attaching to the property are such that the buyer’s rights to
5
income from the property are suspended or restricted during the life of
the debt.
(6)
The buyer must be treated as surrendering income of an amount equal to the
income the buyer in effect forgoes by obtaining the credit.
(7)
For the purposes of this section an amount of income payable subject to
10
deduction of income tax must be taken as the amount before deduction of tax.
Part 17
Manufactured payments and repos
Chapter 1
Introduction
15
780
Overview of Part
(1)
This Part is about the corporation tax treatment of some arrangements for the
transfer of securities.
(2)
Chapters 2 to 4 deal with arrangements for the transfer of securities under
which provision is made for the payment of amounts representative of
20
dividends or interest in respect of the securities.
(3)
In Chapter 5—
(a)
sections 808 to 810 prevent parties to stock lending arrangements and
certain other arrangements from being entitled to tax credits in some
circumstances, and
25
(b)
section 812 deals with some stock lending arrangements under which
the dividends or interest in respect of the transferred securities are paid
to a person other than the lender.
(4)
Chapter 6 contains definitions that apply for the purposes of this Part.
(5)
For the meaning of “stock lending arrangements” see section 805.
30
781
Key definitions
(1)
In this Part “manufactured dividend” has the meaning given by section 782.
(2)
In this Part “manufactured overseas dividend” has the meaning given by
section 790.

Corporation Tax Bill
Part 17 — Manufactured payments and repos
Chapter 2 — Manufactured dividends
392

Chapter 2
Manufactured dividends
782
Meaning of “manufactured dividend”
“Manufactured dividend” means an amount which—
(a)
is representative of a dividend on UK shares, and
5
(b)
is required to be paid by one person to another under an arrangement
between them for the transfer of the shares.
783
Treatment of payer of manufactured dividend
(1)
This section applies if—
(a)
a company (“the payer”) pays a manufactured dividend, and
10
(b)
the dividend of which the manufactured dividend is representative is
taxable.
(2)
For this purpose a dividend is taxable if—
(a)
it is received by the payer and the charge to corporation tax on income
applies to it, or
15
(b)
it is received by a person other than the payer and the charge to
corporation tax on income would have applied to it if it had been
received by the payer.
(3)
If the payer carries on a trade to which the manufactured dividend relates, the
manufactured dividend is treated as an expense of the trade.
20
(4)
But subsection (3) does not apply so far as the manufactured dividend is
treated as mentioned in subsection (5) or (6).
(5)
If the payer has investment business to which the manufactured dividend
relates the manufactured dividend is treated as expenses of management of the
business for the purposes of Part 16 of CTA 2009.
25
(6)
If the payer carries on life assurance business to which the manufactured
dividend relates, then so far as the manufactured dividend is referable to basic
life assurance and general annuity business it is treated as if it were an expense
payable falling to be brought into account at Step 3 in section 76(7) of ICTA
(amount of expenses deduction).
30
(7)
For the purposes of subsection (6), the manufactured dividend is treated as
referable to basic life assurance and general annuity business so far as the
dividend of which it is representative—
(a)
is received by the payer and is so referable under section 432A of ICTA
(apportionment of income and gains), or
35
(b)
is received by another person and would have been so referable under
section 432A of ICTA if it had been received by the payer.
(8)
This section is subject to—
(a)
section 796 (manufactured dividends: amounts exceeding underlying
payments), and
40
(b)
section 803 (power to deal with special cases).

Corporation Tax Bill
Part 17 — Manufactured payments and repos
Chapter 2 — Manufactured dividends
393

784
Treatment of recipient of manufactured dividend
(1)
If a person pays a manufactured dividend to another person, the Corporation
Tax Acts apply in relation to—
(a)
the recipient of the manufactured dividend, and
(b)
companies claiming title through or under the recipient,
5

as if the manufactured dividend were a dividend on the shares.
(2)
Subsection (1) is subject to—
(a)
section 786 (treatment of recipient: Real Estate Investment Trusts),
(b)
section 796 (manufactured dividends: amounts exceeding underlying
payments), and
10
(c)
section 803 (power to deal with special cases).
785
Treatment of payer: Real Estate Investment Trusts
(1)
If a company (“the payer”) pays a manufactured dividend, subsections (2) to
(4) apply so far as the manufactured dividend is representative of a dividend
which—
15
(a)
is paid by a company UK REIT in respect of profits or gains (or both) of
the company’s property rental business, or
(b)
is paid by the principal company of a group UK REIT in respect of
profits or gains (or both) of members of the group as shown in the
financial statement under section 532(2)(b) (statement of group’s
20
property rental business in UK).
(2)
If the manufactured dividend is paid in the course of a trade carried on in the
United Kingdom, the manufactured dividend is treated as an expense of the
trade.
(3)
If the manufactured dividend is paid in connection with investment business,
25
the manufactured dividend is treated as expenses of management for the
purposes of Part 16 of CTA 2009 (companies with investment business).
(4)
If the payer carries on life assurance business, so far as the manufactured
dividend meets one of the conditions in subsection (5) it is treated as if it were
an expense payable falling to be brought into account at Step 3 in section 76(7)
30
of ICTA (amount of expenses deduction).
(5)
The conditions are that the manufactured dividend—
(a)
is referable to basic life assurance and general annuity business,
(b)
is treated under section 432A of ICTA (apportionment of income and
gains) as so referable, or
35
(c)
would be so treated if received by the payer.
(6)
In this section—
“company UK REIT” has the same meaning as in Part 12 (Real Estate
Investment Trusts) (see section 524(5)),
“group UK REIT” has the same meaning as in that Part (see section
40
523(5)),
“principal company” has the same meaning as in that Part (see section
606), and
“property rental business” has the same meaning as in that Part (see
section 519).
45

Corporation Tax Bill
Part 17 — Manufactured payments and repos
Chapter 2 — Manufactured dividends
394

(7)
This section is subject to—
(a)
section 796 (manufactured dividends: amounts exceeding underlying
payments), and
(b)
section 803 (power to deal with special cases).
786
Treatment of recipient: Real Estate Investment Trusts
5
(1)
If a person (“the payer”) pays a manufactured dividend, subsection (2) applies
(instead of section 784(1)), so far as the manufactured dividend is
representative of a dividend that falls within section 785(1)(a) or (b).
(2)
The Corporation Tax Acts apply in relation to the recipient, and companies
claiming title through or under the recipient, as if the manufactured dividend
10
were a dividend to which section 548 applied (distributions: liability to tax).
(3)
This section is subject to—
(a)
section 796 (manufactured dividends: amounts exceeding underlying
payments), and
(b)
section 803 (power to deal with special cases).
15
787
Exemption of manufactured dividends
(1)
Part 9A of CTA 2009 (company distributions), in its application in relation to a
manufactured dividend as a result of section 784, has effect with the following
modification.
(2)
The modification is that—
20
(a)
references in that Part to the payer are to be treated as references to the
company that pays the dividend of which the manufactured dividend
is representative, and
(b)
the definition of “the payer” in section 931T is to be treated as omitted.
788
Statements about manufactured dividends
25
(1)
Subsections (3) to (7) apply to a non-UK resident company within the charge to
corporation tax if it pays a manufactured dividend.
(2)
But those subsections do not apply so far as the manufactured dividend is
representative of a dividend that falls within section 785(1)(a) or (b).
(3)
The company must, at the same time as paying the manufactured dividend,
30
give the recipient a statement.
(4)
The statement must set out—
(a)
the amount of the manufactured dividend paid,
(b)
the date of the payment, and
(c)
the amount of associated tax credit.
35
(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—
(a)
is entitled in respect of the manufactured dividend as a result of section
784(1) of this Act or section 573(2) of ITA 2007, or
40

Corporation Tax Bill
Part 17 — Manufactured payments and repos
Chapter 3 — Manufactured overseas dividends
395

(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.
(7)
The duty under subsection (3) to give a statement is enforceable by the
recipient.
789
Powers about administrative provisions
5
The Treasury may by regulations make provision about—
(a)
the accounts and other records which are to be kept, and
(b)
the vouchers which are to be issued or produced,
by payers of manufactured dividends.
Chapter 3
10
Manufactured overseas dividends
790
Meaning of “manufactured overseas dividend”
“Manufactured overseas dividend” means an amount which—
(a)
is representative of an overseas dividend on overseas securities, and
(b)
is required to be paid by one person to another under an arrangement
15
between them for the transfer of the overseas securities.
791
Treatment of payer of manufactured overseas dividend
(1)
This section applies if—
(a)
a company (“the payer”) pays a manufactured overseas dividend, and
(b)
the overseas dividend of which the manufactured overseas dividend is
20
representative is taxable.
(2)
For this purpose an overseas dividend is taxable if—
(a)
it is received by the payer and the charge to corporation tax on income
applies to it, or
(b)
it is received by a person other than the payer and the charge to
25
corporation tax on income would have applied to it if it had been
received by the payer.
(3)
If—
(a)
the payer carries on a trade to which the manufactured overseas
dividend relates, and
30
(b)
neither subsection (4) nor subsection (6) applies,

the manufactured overseas dividend is treated as an expense of the trade.
(4)
If the payer has investment business to which the manufactured overseas
dividend relates, the manufactured overseas dividend is treated as expenses of
management of the business for the purposes of Part 16 of CTA 2009.
35
(5)
Subsection (6) applies if the payer carries on life assurance business to which
the manufactured overseas dividend relates.
(6)
So far as the manufactured overseas dividend is referable to basic life
assurance and general annuity business, the manufactured overseas dividend

Corporation Tax Bill
Part 17 — Manufactured payments and repos
Chapter 3 — Manufactured overseas dividends
396

is treated as if it were an expense payable falling to be brought into account at
Step 3 in section 76(7) of ICTA (amount of expenses deduction).
(7)
For the purposes of subsection (6), the manufactured overseas dividend is
treated as referable to basic life assurance and general annuity business so far
as the overseas dividend of which it is representative—
5
(a)
is received by the payer and is so referable under section 432A of ICTA
(apportionment of income and gains), or
(b)
is received by another person and would have been so referable under
section 432A of ICTA if it had been received by the payer.
792
Company receiving manufactured overseas dividend from UK resident etc
10
(1)
This section applies if—
(a)
a person pays a manufactured overseas dividend,
(b)
section 922(1) of ITA 2007 (manufactured overseas dividends:
payments by UK residents etc) applies, and
(c)
the amount required to be deducted as a result of that section has been
15
deducted.
(2)
Subsections (3) and (4) apply in relation to the recipient, and companies
claiming title through or under the recipient, for all purposes of the
Corporation Tax Acts except Part 5 of CTA 2009 (loan relationships).
(3)
The manufactured overseas dividend is treated as if it were—
20
(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 specified in section 793.
(4)
The amount mentioned in subsection (3)(b) is accordingly to be treated as an
25
amount withheld on account of overseas tax instead of as an amount on
account of income tax.
(5)
Subsections (3) and (4) are subject to—
(a)
section 797 (manufactured overseas dividends: amounts exceeding
underlying payments), and
30
(b)
section 798 (manufactured overseas dividends less than underlying
payments).
793
Section 792: amount treated as withheld
(1)
Except where subsection (3) applies, the amount mentioned in section 792(3)(b)
is the amount deducted under section 922(2) of ITA 2007.
35
(2)
Subsection (3) applies if the deduction under section 922(2) of ITA 2007 is made
in respect of a manufactured overseas dividend that is treated as paid under
section 925A of ITA 2007 (creditor repos).
(3)
The amount mentioned in section 792(3)(b) is—
(a)
if subsection (4) applies, the amount deducted under section 922(2) of
40
ITA 2007,
(b)
if subsection (5) applies—
(i)
the amount deducted under section 922(2) of ITA 2007, less
(ii)
the excess mentioned in subsection (5)(b), and

Corporation Tax Bill
Part 17 — Manufactured payments and repos
Chapter 3 — Manufactured overseas dividends
397

(c)
in any other case, nil.
(4)
This subsection applies if—
(a)
an amount is actually paid by way of manufactured overseas dividend,
(b)
the amount so paid equals the relevant net amount, and
(c)
it is reasonable to assume that, in deciding the repurchase price of the
5
securities, no account was taken of the fact that the amount would be
so paid.
(5)
This subsection applies if—
(a)
an amount is actually paid by way of manufactured overseas dividend,
(b)
the amount so paid exceeds the relevant net amount, and
10
(c)
it is reasonable to assume that, in deciding the repurchase price of the
securities, no account was taken of the fact that the amount would be
so paid.
(6)
In subsections (4)(b) and (5)(b) “the relevant net amount” means—
(a)
the gross amount of the overseas dividend of which the manufactured
15
overseas dividend is representative, less
(b)
the amount deducted under section 922(2) of ITA 2007.
(7)
In subsections (4)(c) and (5)(c)—
(a)
“the securities” refers to the securities in respect of which the overseas
dividend of which the manufactured overseas dividend is
20
representative is paid, and
(b)
the references to the repurchase price of those securities are to the price
at which the payer of the manufactured overseas dividend is entitled or
obliged to sell the securities, or similar securities, to the recipient of the
manufactured overseas dividend.
25
794
Company receiving manufactured overseas dividend from foreign payer
(1)
This section applies if—
(a)
a person pays a manufactured overseas dividend,
(b)
section 923(1) of ITA 2007 (foreign payers of manufactured overseas
dividends: the reverse charge) applies, and
30
(c)
the amount of income tax required to be accounted for and paid under
that section has been accounted for and paid.
(2)
Subsections (3) and (4) apply in relation to the recipient, and companies
claiming title through or under the recipient, for all purposes of the
Corporation Tax Acts except Part 5 of CTA 2009 (loan relationships).
35
(3)
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 accounted for and paid as a result of section 923 of ITA 2007.
40
(4)
The amount mentioned in subsection (3)(b) is accordingly to be treated as an
amount withheld on account of overseas tax instead of as an amount on
account of income tax.
(5)
Subsections (3) and (4) are subject to—