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15/09/2011
Gov Closes Dividend Loophole
The Government has today announced it is introducing new legislation, effective from Thursday, to block a potentially lucrative tax avoidance scheme for businesses.
The Department of the Treasury said the scheme could have resulted in companies, particularly in the financial sector, offsetting or claiming repayment of UK income tax that had in fact never been paid.
This could have led to a significant loss of tax receipts, a Treasury spokesman said.
The new legislation clarifies the corporation tax treatment of Manufactured Overseas Dividends (MODs), in which the recipient of a MOD claims to have received it under deduction of UK income tax then has it repaid, despite no payment to UK income tax.
The Treasury spokesman did not say how long the loophole has been available or how many repayments have already been made by company's exploiting it.
However, websites such as Global Investor have been offering advise on "The Dos, Don’ts And Maybes" of MODs for at least 11 years, while the instrument has been available since 1996.
The draft legislation, published today by HMRC, will "put beyond doubt that no set-off or repayment of income tax can be made in such cases", the Treasury claimed.
David Gauke, Exchequer Secretary to the Treasury, said: “It is essential that everyone pays the right amount of tax at the right time, in order to both provide funding for public services and maintain fairness for the taxpayer, and the Government is determined to reduce tax avoidance.
"We have acted quickly to prevent the use of this particular scheme and we will not hesitate to close down other schemes representing a significant risk to the Exchequer as we become aware of them.”
The treasury said it was an area where there had been repeated avoidance and that in addition to the new legislation, the Government would conduct a "wider review" of the tax rules on MODs after Budget 2012, to simplify the rules and reduce further opportunities for avoidance.
(DW/GK)
The Department of the Treasury said the scheme could have resulted in companies, particularly in the financial sector, offsetting or claiming repayment of UK income tax that had in fact never been paid.
This could have led to a significant loss of tax receipts, a Treasury spokesman said.
The new legislation clarifies the corporation tax treatment of Manufactured Overseas Dividends (MODs), in which the recipient of a MOD claims to have received it under deduction of UK income tax then has it repaid, despite no payment to UK income tax.
The Treasury spokesman did not say how long the loophole has been available or how many repayments have already been made by company's exploiting it.
However, websites such as Global Investor have been offering advise on "The Dos, Don’ts And Maybes" of MODs for at least 11 years, while the instrument has been available since 1996.
The draft legislation, published today by HMRC, will "put beyond doubt that no set-off or repayment of income tax can be made in such cases", the Treasury claimed.
David Gauke, Exchequer Secretary to the Treasury, said: “It is essential that everyone pays the right amount of tax at the right time, in order to both provide funding for public services and maintain fairness for the taxpayer, and the Government is determined to reduce tax avoidance.
"We have acted quickly to prevent the use of this particular scheme and we will not hesitate to close down other schemes representing a significant risk to the Exchequer as we become aware of them.”
The treasury said it was an area where there had been repeated avoidance and that in addition to the new legislation, the Government would conduct a "wider review" of the tax rules on MODs after Budget 2012, to simplify the rules and reduce further opportunities for avoidance.
(DW/GK)
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