Chapter 4: Further provision about manufactured payments
Overview
2390.This Chapter makes further provision about manufactured payments. The detailed structure of the Chapter is as follows:
Sections 796 to 798 – manufactured payments exceeding, or less than, underlying payments;
Sections 799 to 801 – manufactured payments under arrangements with unallowable purpose;
Sections 802 to 804 – miscellaneous.
Sections 796 and 797: Manufactured dividends and manufactured overseas dividends: amounts exceeding underlying payments
2391.These sections deal with cases in which an amount paid by way of manufactured dividend or MOD would otherwise exceed the amount of the payment of which it is representative. They are based on paragraph 7 of Schedule 23A to ICTA.
2392.If either of these sections applies, the excess is taken out of the scope of the rules about manufactured payments and is treated as a fee. This may affect (a) relief for the payer, (b) taxability for the recipient (or, if different, the owner) or (c) both, if the person concerned is a corporation tax payer.
2393.In paragraph 7(1) of Schedule 23A to ICTA, the words “notwithstanding anything in paragraph 2 above or anything in paragraph 4 other than in sub-paragraph (1A)” signal that the treatment of the excess element of manufactured dividend or MOD as a fee does not prevent it from being eligible for relief as (for example) a trading expense (even though it does not qualify for such relief under paragraph 4(1A) of that Schedule). These words are not rewritten, as they add nothing except emphasis.
Section 798: Manufactured overseas dividends less than underlying payments
2394.This section overrides section 813(2) of this Act (the general rule quantifying the gross amount of a MOD). It is based on paragraph 7 of Schedule 23A to ICTA.
Section 799: Manufactured payments under arrangements with unallowable purpose
2395.This section denies tax relief for manufactured payments made under arrangements having an unallowable purpose. It is based on paragraph 7A of Schedule 23A to ICTA.
2396.Subsection (1) states when the section applies.
2397.Subsection (2) sets out the consequences of the section applying.
2398.Subsection (3) defines “relevant tax relief”.
2399.Subsections (4) and (5) state when a company is subject to another relevant tax relief restriction for the purposes of this section. See the priority rule in subsection (1)(d).
2400.Subsection (6) requires the manufactured payment to be justly and reasonably apportioned in order to determine the part which is attributable to the unallowable purpose.
2401.Subsection (7) is a signpost to the definition of “arrangements” in section 801 of this Act.
Section 800: Arrangements with an unallowable purpose
2402.This section states when arrangements have an unallowable purpose for the purposes of section 799 of this Act. It is based on paragraph 7A of Schedule 23A to ICTA.
2403.Subsections (2) and (3) define arrangements having an unallowable purpose.
2404.Subsection (5) restricts the business and other commercial purposes of a company to the purposes of activities in respect of which it is within the charge to corporation tax.
2405.Subsections (6) and (7) limit the extent to which a tax avoidance purpose can be a business or other commercial purpose of the company.
Section 801: Sections 799 and 800: supplementary
2406.This supplementary section is based on paragraph 7A of Schedule 23A to ICTA.
2407.Subsection (1) adopts the corporation tax definition of “manufactured interest” used in Chapter 9 of Part 6 of CTA 2009 (relationships treated as loan relationships etc: manufactured interest). This is a minor change in the law. See Change 51 in Annex 1.
Section 802: Powers about amounts representative of overseas dividends
2408.This section is concerned with double taxation relief. It is based on paragraph 8 of Schedule 23A to ICTA.
Section 803: Power to deal with special cases
2409.This section is a general power to modify the rules about manufactured payments contained in sections 783 to 788, 791, 792, 794 and 795. It is based on paragraph 8 of Schedule 23A to ICTA.
2410.Subsection (2) does not refer to section 793, which is based on paragraph 4A of Schedule 23A to ICTA, because paragraph 8(1) of that Schedule does not refer to that paragraph. Section 793 merely specifies an amount for the purposes of section 792, which is within the scope of this section.
Section 804: Regulation-making powers: general
2411.This section is a general provision about powers to make regulations. It is based on paragraph 8 of Schedule 23A to ICTA.
