Clause 22 - Treatment of the receipt of manufactured overseas dividends

Part of Finance Bill – in a Public Bill Committee at 4:45 pm on 12 June 2012.

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Photo of David Gauke David Gauke The Exchequer Secretary 4:45, 12 June 2012

It is a great pleasure to serve under your chairmanship this afternoon, Mr Bone, just as it was this morning.

Clause 22 will ensure that manufactured overseas dividends cannot be used to claim repayment or to set off income tax that the Exchequer does not receive. The changes were announced in a written ministerial statement on 15 September 2011 and take effect from that date.

We introduced the clause to block an aggressive avoidance scheme that HMRC had been notified of under the rules requiring disclosure of avoidance schemes. The scheme involved the receipt of a manufactured overseas dividend that, it was claimed, entitled the recipient to repayment of income tax that had been notionally deducted from the dividend but that had not, in fact, been paid.

Clause 22 ensures that, with effect from 15 September 2011, companies cannot use MODs to obtain repayment of income tax that has never been paid. The changes affect only companies engaged in tax avoidance schemes involving MODs. The changes are expected to increase receipts by approximately £40 million per annum and also to protect against future revenue losses.

The Government launched a consultation on 27 March aimed at simplifying the tax rules on MODs and manufactured payments generally, with a view to making  avoidance more difficult in future. Any changes following the consultation will not take effect before the Finance Act 2013. The hon. Lady asked when this particular arrangement was disclosed. It was disclosed in June 2011 and the statement was made on 15 September. The clause ensures that the MODs legislation works in the way that businesses not engaged in tax avoidance understand it to work. By blocking the disclosed avoidance scheme, it promotes fairness for all taxpayers.