CFM74410 - Other tax rules on corporate finance: manufactured payments: manufactured overseas dividends: MODs from overseas equities

This guidance applies to manufactured payments made before 1 January 2014, when the tax rules were simplified. For manufactured payments made on or after 1 January 2014, see CFM74430.

Tax treatment of a MOD on an overseas equity

Companies: payments

Where a manufactured overseas dividend is payable in the course of a trade carried on by the UK manufacturer, then it will be treated as a trading expense. This position was formalised by paragraph 4(1A) of Schedule 23A (now CTA10/S791(3)) for accounting periods starting on or after 1 April 2004, but in practice most financial traders are likely to have submitted, and to have had accepted, computations based on this approach prior to the change.

Where a company has investment business to which the payment relates, then for accounting periods starting on or after 1 April 2004 it is treated for the purposes of CTA09/PT16/CH2 as management expenses (CTA10/S791(4)). Prior to this relief for a MOD on equities was normally available either as a management expense or charge, provided the payment could properly be characterised as such an amount.

For accounting periods starting on or after 1 April 2004, relief for payment of a MOD cannot be given unless the payment relates to the company바카라 사이트™s trade or investment business.

The treatment of MODs paid in the course of repos is explained at CFM46260.

Individuals: payments

Deductibility will depend on the whether the payment is legitimate business expense in connection with the individual바카라 사이트™s trade, profession or vocation. No relief for the payment will be available if it is not deductible on ordinary trading income principles (ITTOIA05/PT2).

Companies and individuals: receipts

The payment will normally be treated as a trading receipt (taxed under CTA09/PT3 or ITTOIA05/PT2 for income tax payers) equal to the gross amount of the real overseas dividend if received in the course of a trade carried on the recipient. Otherwise it will be charged as a dividend from a non-UK company for income tax payers (ITTOIA05/S402) or corporation tax payers will be taxable or exempt in accordance with CTA09/PT9A from 1 July 2009 onwards.

MODs received by income tax payers in 2008/09 and subsequent years of assessment carry an entitlement to a tax credit under ITTOIA05/S397B. See the Savings and Investment Income Manual SAIM5104.

The treatment of MODs received by companies in the course of repos is explained at CFM46380 and CFM46390.