Proposed changes to tax rules on manufactured payments

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1.5 In addition <strong>to</strong> receiving written responses, HMRC held a number of meetings <strong>to</strong> discuss the proposals with representative bodies and a market practitioner. 1.6 The responses <strong>to</strong> the consultation are described in more detail in the following chapters in this document, along with the Government’s detailed proposals, but in summary the views expressed by those who replied on each of the <strong>to</strong>pics included in the consultation were broadly as follows. • There was clear support for the proposal <strong>to</strong> simplify the <strong>rules</strong> relating <strong>to</strong> <strong>tax</strong>ability and deductibility of manufactured payments. • Most respondents supported the proposals <strong>to</strong> abolish the requirement <strong>to</strong> deduct income <strong>tax</strong> when paying manufactured overseas dividends. 1.7 Chapters 2 & 3 of this document set out the Government’s proposals following the consultation. In summary these are <strong>to</strong> legislate in Finance Bill 2013 all the <strong>changes</strong> proposed in the Consultation Document, with a commencement date of 1 January 2014. Draft legislation has been published <strong>to</strong>day. 1.8 Chapter 4 of this document sets out the next steps relating <strong>to</strong> these proposals. 4
2. Simplification of <strong>tax</strong> <strong>rules</strong> 2.1 The consultation document sought views on our proposals on manufactured payments relating <strong>to</strong> equities as follows: • Where manufactured payments relating <strong>to</strong> dividends are paid or received as trading transactions, we proposed following the accounts treatment of the payments. The <strong>tax</strong> charge, and deductions, would follow the accounts. No special <strong>tax</strong> <strong>rules</strong> would be required <strong>to</strong> achieve this, and most of the current <strong>rules</strong> in Part 17 CTA 2010 could be repealed. • For other companies it was proposed that no charge will be made on receipt unless the dividend of which the manufactured payment is representative would have been <strong>tax</strong>ed; and that in most circumstances no deduction would be allowed for making manufactured payments payment. • For persons other than companies, we proposed that manufactured payments will remain <strong>tax</strong>able in the same circumstances as now but will be deductible only if incurred in the course of a financial trade 2.2 The great majority of responses <strong>to</strong> the consultation were supportive of all of these proposals, on the grounds that they would permit the repeal of significant amounts of complex legislation. Proposals 2.3 The Government proposes legislation in Finance Bill 2013 <strong>to</strong> insert a new Part 17A in<strong>to</strong> Corporation Tax Act 2010 (CTA 2010) and a new Part 11ZA in<strong>to</strong> Income Tax Act 2007 (ITA 2007). Draft legislation has been published <strong>to</strong>day. Corporation Tax 2.4 Under new Part 17A of CTA 2010 a company will be prevented from obtaining a <strong>tax</strong> deduction for any manufactured dividend unless either: • The company brings the payment in<strong>to</strong> account under Part 3 of Corporation Tax Act 2009 (trading profits) in calculating the profits of a trade that it carries on; or • The payment is paid by the company in the course of an investment business that it carries on and the payment represents a dividend received by the company that is <strong>tax</strong>able by virtue of section 548(5) of CTA 2010 (recipients of distributions from REITs). 2.5 Part 17A will provide that the Corporation Tax Acts will apply <strong>to</strong> the recipient of a manufactured dividend as if the payment were a dividend on the shares in question. This ensures that the <strong>tax</strong> treatment of the manufactured payment will follow that of the dividend that the payment represents. 5
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Proposed changes to tax rules on manufactured payments

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