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Legislation to be included in the 2012 Finance Bill will block a tax avoidance scheme involving manufactured overseas dividends (MODs), which are payments made under an arrangement for the transfer of overseas shares.
Where dividends are paid on the shares, one party is required to pay to the other an amount that is representative of the dividends.
The new rules, effective from 15 September 2011, clarify the corporation tax treatment of MODs. The legislation been drawn up to counter the newly disclosed avoidance scheme in which the recipient of an MOD claims to have received it under deduction of UK income tax and seeks to set this off against a corporation tax liability or have it repaid, despite no UK income tax having been paid.
The government plans to conduct a wider review of the tax rules on MODs following Budget 2012, to simplify the rules and reduce further opportunities for avoidance. Changes made following theconsultation would not come into effect before 1 April 2013.
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