Government announces new legislation to block tax avoidance involving Manufactured Overseas Dividend
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Issued on 15 September 2011 - Treasury
The Government has today announced
that it is introducing new legislation, effective from today, to block
a tax avoidance scheme involving Manufactured Overseas Dividends
The scheme could have resulted in
companies, particularly in the financial sector, offsetting or claiming
repayment of UK income tax that had in fact never been paid.
This could have led to a significant loss of tax receipts, had the
Government not taken action.
The new legislation clarifies the
corporation tax treatment of MODs. It has been drawn up to
counter the newly disclosed avoidance scheme, in which the recipient of
a MOD claims to have received it under deduction of UK income tax and
seeks to set this off against a corporation tax liability or have it
repaid, despite no UK income tax having been paid.
The draft legislation, published today
by HMRC, will put beyond doubt that no set-off or repayment of income
tax can be made in such cases.
David Gauke, Exchequer Secretary to
the Treasury, said:
“It is essential that everyone
pays the right amount of tax at the right time, in order to both
provide funding for public services and maintain fairness for the
taxpayer, and the Government is determined to reduce tax
We have acted quickly to
prevent the use of this particular scheme and we will not hesitate to
close down other schemes representing a significant risk to the
Exchequer as we become aware of them.”
As this is an area where there is
repeated avoidance, in addition to the new legislation, the Government
will conduct a wider review of the tax rules on MODs, following Budget
2012, to simplify the rules and reduce further opportunities for
Any changes made following the
consultation would not come into effect before 1 April 2013.
1. MODs are
payments made under an arrangement for the transfer of overseas
shares. Where p are paid on the shares, one party is
required to pay to the other an amount that is representative of those
legislation will be in the 2012 Finance Bill. The draft provision,
together with an Explanatory Note and Tax Information and Impact Note,
can be found on the HMRC website,.
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Article Published/Sorted/Amended on Scopulus 2011-09-21 18:01:01 in Tax Articles