Income and Corporation Taxes Act 1988

737 Manufactured dividends: treatment of tax deducted. U.K.

[F1 (1) Subject to the provisions of this section and of Schedule 23A, where, under a contract or other arrangements for the transfer of securities, one of the parties (the “dividend manufacturer”) is required to pay to the other an amount representative of a periodical payment of interest on the securities, section 350(1) and Schedule 16 shall apply as if the payment by the dividend manufacturer (the “manufactured dividend”) were an annual payment made, after due deduction of tax, wholly out of a source other than profits or gains brought into charge to income tax.]

[F2 (1A) In the case of any payment which under Schedule 23A is such that, in relation to a recipient chargeable to income tax, it would be chargeable under Schedule F, the deduction of tax which (apart from this subsection) would be deemed by virtue of subsection (1) above to have been made at the basic rate shall be deemed to have been made—

(a) at a rate of 22.5 per cent., if the payment is made on or after 6th April 1993 and before 6th April 1994; and

(b) at the lower rate, if the payment is made on or after 6th April 1994;

and, accordingly, section 350(1) shall have effect by virtue of that subsection in relation to any such payment so as to make the dividend manufacturer assessable and chargeable with income tax on the gross amount of the payment at the rate specified in paragraph (a) or, as the case may be, paragraph (b) above, instead of at the basic rate.]

(2) Subsection (1) of this section shall not apply where F3 . . . the interest in question is payable without deduction of tax or where, under the rules of the stock exchange governing the transaction, the payment required to be made in respect of the interest is of the amount of the interest before deduction of tax.

[F4 (3) Subsection (1) above shall not apply in any case where—

(a) the dividend manufacturer is a company resident in the United Kingdom; or

(b) the manufactured dividend is a manufactured overseas dividend, within the meaning of Schedule 23A.]

F5 (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F6 (5) Where the dividend manufacturer in relation to the contract or other arrangements mentioned in subsection (1) above is not resident in the United Kingdom and the manufactured dividend is paid by him otherwise than in the course of a trade which he carries on through a branch or agency in the United Kingdom, that subsection shall not apply; but if the manufactured dividend is received by a person resident in the United Kingdom (the “United Kingdom recipient”), then unless the United Kingdom recipient shows either—

(a) that the dividend manufacturer was entitled to payment of the dividend as the registered holder of the securities, or

(b) that the dividend manufacturer was entitled to payment of the dividend directly or indirectly from a person from whom he acquired the securities, or to whom he transferred them, and who was so entitled to the payment,

the United Kingdom recipient shall be assessable and chargeable with an amount of income tax in respect of the manufactured dividend equal to that which the dividend manufacturer would have been required to account for and pay had he been resident in the United Kingdom.]

[F7 (5A) Where this section applies in relation to a manufactured dividend, relief shall not be given to any person under any provision of the Tax Acts in respect of any amount which he is required to deduct from the manufactured dividend on account of income tax; and in this subsection “relief” means relief by way of—

(a) deduction in computing profits or gains; or

(b) deduction or set off against income or total profits.]

(6) In this section—

• [F8 “dividend manufacturing regulations” means regulations made by the Treasury under Schedule 23A;

• “prescribed” means prescribed in dividend manufacturing regulations;

• “recognised investment exchange” means a recognised investment exchange within the meaning of the Financial Services Act 1986;]

• “securities” includes shares and stock;

• [F9 “transfer” includes any sale or other disposal;]

and references to a periodical payment of interest include references to a qualifying distribution and any dividend which is not a qualifying distribution.

(7) In the application of this section in a case where the references in subsection (1) above to a periodical payment of interest are construed as references to a qualifying distribution, subsection (2) above shall be omitted.

[F10 (7A) Where the dividend manufacturer—

(a) is not resident in the United Kingdom but carries on a trade through a branch or agency in the United Kingdom, or

(b) is a member, of a prescribed class or description, of a prescribed recognised investment exchange,

dividend manufacturing regulations may make provision for this section and such other provisions of the Tax Acts as may be prescribed to apply with prescribed modifications in connection with the manufactured dividend or any tax required to be deducted or accounted for in respect of it.

(7B) Without prejudice to the generality of subsection (7A) above, dividend manufacturing regulations made by virtue of that subsection may, in particular, include provision—

(a) entitling the dividend manufacturer to any prescribed relief to which he would not otherwise be entitled;

(b) denying the dividend manufacturer any prescribed relief to which he would otherwise be entitled;

(c) prescribing the manner in which amounts required to be deducted or accounted for on account of tax are to be accounted for and paid;

and, without prejudice to the generality of paragraph (c) above, any regulations made for the purpose specified in that paragraph may include provision, in a case falling within subsection (7A)(a) above, for the manufactured dividend to be a relevant payment for the purposes of Schedule 16 and for that Schedule to apply in relation to it with such modifications as may be prescribed.]

(8) Where it appears to the Board that by reason of any transaction or transactions a person may by virtue of this section have incurred any liability to tax, the Board may by notice served on him require him, within such time not less than 28 days as may be specified in the notice, to furnish information in his possession with respect to the transaction or any of the transactions, being information as to matters, specified in the notice, which are relevant to the question whether he has incurred any such liability.

Textual Amendments

F1 S. 737(1) substituted by Finance Act 1991 (c. 31, SIF 63:1), s. 58(2), Sch. 13 para. 3(2) (with effect as mentioned in s. 58(3) in relation to payments made on or after such day as may be specified: 26.2.1992 specified for certain purposes by S.I. 1992/173, reg. 2(b); 30.6.1992 specified for certain purposes by S.I. 1992/1346, regs. 2, 3, 4; 21.4.1993 specified for certain purposes by S.I. 1993/933, regs. 2, 3(c),4

F2 S. 737(1A) inserted (27.7.1993 with effect in relation to any payment of a manufactured dividend made on or after 6.4.1993) by 1993 c. 34, s. 79, Sch. 6 paras.14, 25(4)

F3 Words in s. 737(2) repealed (for the year 1991-92 and the subsequent years of assessment) by Finance Act 1991 (c. 31, SIF 63:1), s. 123, Sch. 19 Pt. V, Note 6

F4 S. 737(3) substituted by Finance Act 1991 (c. 31, SIF 63:1), s. 58(2), Sch. 13 para. 3(3) (with effect as mentioned in s. 58(3) in relation to payments made on or after such day as may be specified: 26.2.1992 specified for certain purposes by S.I. 1992/173, reg. 2(b); 30.6.1992 specified for certain purposes by S.I. 1992/1346, regs. 2, 3, 4; 21.4.1993 specified for certain purposes by S.I. 1993/933, regs. 2, 3(c), 4(1))

F5 S. 737(4) repealed by Finance Act 1991 (c. 31, SIF 63:1), ss. 58(2), 123, Sch. 13 para. 3(4), Sch. 19 Pt. V, Note 9 (with effect as mentioned in s. 58(3) in relation to payments made on or after such day as may be specified: 26.2.1992 specified for certain purposes by S.I. 1992/173, reg. 2(b); 30.6.1992 specified for certain purposes by S.I. 1992/1346, regs. 2, 3, 4; 21.4.1993 specified for certain purposes by S.I. 1993/933, regs. 2, 3(c), 4(1))

F6 S. 737(5) substituted by Finance Act 1991 (c. 31, SIF 63:1), s. 58(2), Sch. 13 para. 3(4) (with effect as mentioned in s. 58(3) in relation to payments made on or after such day as may be specified: 26.2.1992 specified for certain purposes by S.I. 1992/173, reg. 2(b); 30.6.1992 specified for certain purposes by S.I. 1992/1346, regs. 2, 3, 4; 21.4.1993 specified for certain purposes by S.I. 1993/933, regs. 2, 3(c), 4(1))

F7 S. 737(5A) inserted by Finance Act 1991 (c. 31, SIF 63:1), s. 58(2), Sch. 13 para. 3(5) (with effect as mentioned in s. 58(3) in relation to payments made on or after such day as may be specified: 26.2.1992 specified for certain purposes by S.I. 1992/173, reg. 2(b); 30.6.1992 specified for certain purposes by S.I. 1992/1346, regs. 2, 3, 4; 21.4.1993 specified for certain purposes by S.I. 1993/933, regs. 2, 3(c), 4(1))

F8 Definitions in s. 737(6) substituted for definitions of "broker" and "market maker" by Finance Act 1991 (c. 31, SIF 63:1), s. 58(2), Sch. 13 para. 3(6)(a) (with effect as mentioned in s. 58(3) in relation to payments made on or after such day as may be specified: 26.2.1992 specified for certain purposes by S.I. 1992/173, reg. 2(b); 30.6.1992 specified for certain purposes by S.I. 1992/1346, regs. 2, 3, 4; 21.4.1993 specified for certain purposes by S.I. 1993/933, regs. 2, 3(c), 4(1))

F9 Definition in s. 737(6) inserted by Finance Act 1991 (c. 31, SIF 63:1), s. 58(2), Sch. 13 para. 3(6)(b) (with effect as mentioned in s. 58(3) in relation to payments made on or after such day as may be specified: 26.2.1992 specified for certain purposes by S.I. 1992/173, reg. 2(b); 30.6.1992 specified for certain purposes by S.I. 1992/1346, regs. 2, 3, 4; 21.4.1993 specified for certain purposes by S.I. 1993/933, regs. 2, 3(c), 4(1))

F10 S. 737(7A)(7B) inserted by Finance Act 1991 (c. 31, SIF 63:1), s. 58(2), Sch. 13 para. 3(7) (with effect as mentioned in s. 58(3) in relation to payments made on or after such day as may be specified: 26.2.1992 specified for certain purposes by S.I. 1992/173, reg. 2(b); 30.6.1992 specified for certain purposes by S.I. 1992/1346, regs. 2, 3, 4; 21.4.1993 specified for certain purposes by S.I. 1993/933, regs. 2, 3(c), 4(1))

Modifications etc. (not altering text)

C1 S. 737 applied (with modifications) (24.9.1992) by S.I. 1992/2074, reg. 14(1)

C2 S. 737(1) modified (22.3.1992) by S.I. 1992/569, reg. 13(2)

C3 S. 737(5A) modified (22.3.1992) by S.I. 1992/569, reg. 14(1)(2)