Finance Act 2008

Section 63

SCHEDULE 23Manufactured payments: anti-avoidance

Introduction

1Chapter 2 of Part 11 of ITA 2007 (manufactured payments) is amended as follows.

Section 572A

2After section 572 insert—

“572AMeaning of “avoidance arrangements”

(1)In this Chapter “avoidance arrangements” means any arrangements the main purpose, or one of the main purposes, of which is to secure a deduction for the purposes of income tax, or any other income tax advantage, for any person.

(2)In subsection (1) “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).

(3)In subsection (1) “income tax advantage” means—

(a)a relief from income tax or increased relief from income tax,

(b)a repayment of income tax or increased repayment of income tax,

(c)the avoidance, reduction or delay of a charge to income tax or assessment to income tax, or

(d)the avoidance of a possible assessment to income tax.

(4)In subsection (3)(a) “relief from income tax” includes a tax credit.

(5)For the purposes of subsection (3)(c) or (d) it does not matter whether the avoidance or reduction is effected—

(a)by receipts accruing in such a way that the recipient does not pay or bear income tax on them, or

(b)by a deduction in calculating profits or gains.”

Section 573

3In section 573(4) (manufactured dividends on UK shares: Income Tax Acts to apply subject to sections 574 and 575 where payer is UK resident and not a company), for “sections 574 and 575” substitute “section 574”.

Section 574

4(1)Section 574 (allowable deductions for manufactured dividends on UK shares: matching) is amended as follows.

(2)In subsection (2), for the words after “allowable” substitute “for income tax purposes as a deduction in calculating the net income of the payer (see Step 2 of the calculation in section 23).

This is subject to subsection (3).”

(3)For subsections (3) to (9) substitute—

“(3)It is—

(a)deductible by virtue of subsection (2) only so far as it is not otherwise deductible and so far as section 263D of TCGA 1992 does not apply, and

(b)not deductible (whether by virtue of subsection (2) or otherwise) if it (or any part of it) is made directly or indirectly in consequence of, or otherwise in connection with, avoidance arrangements.”

(4)In subsection (10), for “deductible if” substitute “otherwise deductible if, apart from this section,”.

(5)In the heading, omit “: matching”.

Section 575

5Omit section 575 (allowable deductions for manufactured dividends on UK shares: restriction on double-counting).

Section 578

6In section 578(3) (manufactured interest on UK securities: Income Tax Acts to apply subject to sections 579 and 580 where payer is UK resident or acting in course of trade carried on through UK branch or agency), for “sections 579 and 580” substitute “section 579”.

Section 579

7(1)Section 579 (allowable deductions for manufactured interest on UK securities: matching) is amended as follows.

(2)For subsections (3) to (8) substitute—

“(3)It is—

(a)deductible by virtue of subsection (2) only so far as it is not otherwise deductible, and

(b)not deductible (whether by virtue of subsection (2) or otherwise) if it (or any part of it) is made directly or indirectly in consequence of, or otherwise in connection with, avoidance arrangements.”

(3)In subsection (9), for “deductible if” substitute “otherwise deductible if, apart from this section,”.

(4)Omit subsection (10).

(5)In the heading, omit “: matching”.

Section 580

8Omit section 580 (allowable deductions for manufactured interest on UK securities: restriction on double counting).

Section 581A

9After section 581 insert—

“581AAvoidance arrangements

(1)A manufactured overseas dividend is not deductible if it (or any part of it) is made directly or indirectly in consequence of, or otherwise in connection with, avoidance arrangements.

(2)For the purposes of subsection (1) an amount is deductible if it is—

(a)deductible in calculating any of the payer’s profits or gains for income tax purposes, or

(b)deductible for those purposes in calculating the net income of the payer.”

Section 583

10In section 583 (manufactured payments exceeding underlying payments), insert at the end—

“(5)Nothing in this section makes the excess deductible (whether by virtue of this Chapter or otherwise) if it (or any part of it) is made directly or indirectly in consequence of, or otherwise in connection with, avoidance arrangements.”

Capital gains

11(1)Section 263D of TCGA 1992 (gains accruing to persons paying manufactured dividends) is amended as follows.

(2)In subsection (6)(b), for “adjusted amount” substitute “amount specified in subsection (7) below”.

(3)For subsection (7) substitute—

“(7)The amount referred to in subsection (6) above is the lesser of—

(a)the amount of the manufactured dividend paid, and

(b)the amount of the dividend of which the manufactured dividend is representative.”

12In ITA 2007, omit paragraph 335(5) of Schedule 1 (which amended section 263D(7) of TCGA 1992).