Liability for tax where the interest manufacturer receives the interest of which the manufactured interest is representative2
1
This regulation applies if conditions A and B are met.
2
Condition A is that, under a contract or other arrangements for the transfer of UK securities, one of the parties (the “interest manufacturer”) is required to pay to the other (the “recipient”) an amount (the “manufactured interest”) which is representative of a periodical payment of interest on the securities.
3
Condition B is that the payment of manufactured interest is made in circumstances where the recipient shows that the interest manufacturer was entitled to payment of the interest of which the manufactured interest is representative—
a
as the holder of the securities concerned, or
b
directly or indirectly from a person from whom he acquired those securities, or to whom he transferred them, and who was so entitled as the holder of those securities.
4
The income tax borne by deduction and available for offset by the recipient shall be the lower of—
a
an amount equal to the excess of the gross amount of the interest over the amount of the manufactured interest paid by the interest manufacturer which represents that interest, and
b
the amount of tax actually withheld.
5
In paragraph (4)(a) the reference to manufactured interest paid by the interest manufacturer does not include any payment of manufactured interest treated as made under—
a
section 736B of the Income and Corporation Taxes Act 19883 (deemed manufactured payments in the case of stock lending arrangements), or
b
section 737A of the Income and Corporation Taxes Act 19884 (sale and repurchase of securities: deemed manufactured payments).
6
In paragraph (4)(b) “the amount of tax actually withheld” means the amount withheld on payment of the interest less an amount equal to the amount (if any) of relief from United Kingdom tax to which, assuming the interest manufacturer to have made a claim under arrangements having effect by virtue of section 788 of the Income and Corporation Taxes Act 19885 (relief by agreement with other territories), the interest manufacturer is entitled in respect of the payment received by him.
7
The recipient of a payment of manufactured interest to which this regulation applies or, as the case may be, any person claiming title through or under the recipient, shall be treated for the purposes of the Tax Acts as if the payment had borne income tax by deduction.