Treatment of manufactured dividends

The taxpayers were the trustees of the British Coal Staff Superannuation Scheme. They claimed repayment of withholding tax on manufactured overseas dividends which were exempt from UK tax.

HMRC refused the claims.

The First-tier Tribunal dismissed the trustees’ appeal so the matter progressed to the Upper Tribunal. The issue was whether EU law permitted the UK to charge withholding tax on manufactured overseas dividends when it did not charge the equivalent on manufactured dividends from UK shares.

In an earlier decision the Upper Tribunal decided there was no need to refer to the Court of Justice of the EU (see here). This latest decision considers the substantive appeal.

The judges said the tax imposed by the UK on manufactured overseas dividends amounted to a cost because it was not recoverable. No such cost arose in the case of stock lending using UK shares. This difference was a restriction on...