Allowable expenses

In its corporation tax self-assessment for the relevant accounting period the taxpayer bank included a deduction for management expenses in respect of the payment of manufactured dividends paid to ABN AMRO under a stock lending agreement. HMRC did not allow the deduction.

The taxpayer appealed to the First-tier Tribunal. The main issues were whether each of two distributions made by B Ltd a Cayman Island company to Anglo Irish Bank was a dividend for the purposes of TA 1988 Sch 23A ‘manufactured dividends and interest’.

If they were the corresponding payments i.e. the manufactured dividends made by the taxpayer bank to ABN AMRO were deductible as a management expense.

The tribunal held that each of the distributions was a dividend and an overseas dividend. It also decided that buying...