Manufactured overseas dividends regime did not breach EU law

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

HMRC refused the claims. The First-tier Tribunal dismissed the trustees’ appeal but the Upper Tribunal overturned that decision. The Court of Appeal upheld the Upper Tribunal’s decision so HMRC appealed.

In essence the case concerned whether on a true economic analysis the MODs regime was a disincentive to the acquisition of overseas shares by a UK tax-exempt investor.

Lord Briggs and Lord Sales give a joint judgment in the Supreme Court. Lord Reed Lord Hodge and Lord Hamblen agreed.

They said the regime did not discourage overseas investment because their purpose was to create an income stream for the lender that was equivalent to dividends had the shares continued to be held in-house. The payment of MODs was ‘specifically crafted...