Manufactured Overseas Dividends

The Government has taken immediate steps to clarify the tax treatment of Manufactured Overseas Dividends (MOD) by publishing draft legislation to be incorporated within the 2012 Finance Bill. The legislation will take effect for MOD paid on or after the date of the announcement, 15 September 2011, and is estimated to increase tax receipts by some £40million per year.

Manufactured Overseas Dividends are payments made by a temporary holder of securities to their original owner to reflect the fact that the original owner does not receive the real dividend. Transactions where securities are lent or temporarily transferred are routine within the financial markets. Where a MOD is paid, the payer has to withhold a sum representing income tax and the company receiving the MOD therefore treats the payment as an overseas dividend.

Normally the recipient can claim double taxation relief (DTR) in respect of the tax withheld, but there are some circumstances where full DTR is not available. In those circumstances, organisations had been claiming the difference between the withheld tax and the DTR as income tax payments which were then set off against tax due or used to claim tax refunds. The legislation has been designed to stop organisations claiming for this difference between tax withheld and allowed DTR.

In many instances full DTR will take effect and therefore this legislation is only designed to affect those special circumstances where DTR is not available. The announcement is careful to point out that “It is considered that the new legislation will not adversely affect any normal commercial transactions.”

As tax mitigation specialists Newshams are able to give advice on how double taxation tax may affect any private or business transaction and how to put in place an effective international taxation strategy.

Contact us now on 020 7470 8820 and ask to speak to a tax adviser about how we can reduce your international transaction tax costs or e-mail us at and we’ll get straight back to you.

21st September 2011

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