The UT has overturned the FTT in the test case ruling in favour of the test claimant in relation to the recoverability of withholding tax suffered on MODs.
On 16 May 2018, the Upper Tribunal (UT) published its decision in Coal Staff Superannuation Scheme Trustees Limited (the Trustee) v HMRC, a test case seeking to recover withholding tax suffered on manufactured overseas dividends (MODs), following an appeal from the First-tier Tribunal (FTT). The UT reconsidered whether the UK tax treatment of MODs was compatible with EU law (in particular Article 63 TFEU regarding the free movement of capital), given that the UK tax treatment did not charge any tax or equivalent tax on manufactured dividends in relation to UK shares. In June 2016, the FTT had decided that the Trustee’s claim to recover the UK withholding tax on MODs should not succeed. The UT concluded that the FTT in its initial decision had erred in law and that the Trustee’s claim to recover withholding tax on MODs should succeed, thereby overturning the previous decision from the FTT.
A number of the key highlights from the decision are as follows:
Whilst the judgment is clearly positive news for the test claimant and other registered pension schemes, it remains to be seen whether HMRC will seek to appeal this decision to the Court of Appeal.
The position for other claimant types which are not registered pension schemes, including life insurance companies and investment funds, is potentially muddied somewhat by the narrow conforming interpretation proposed by the UT. However, where such claimants have not been able to obtain relief by way of credit for the relevant withholding tax, it would appear that the rest of the judgment strongly supports their entitlement to a reclaim.
Note that following legislative changes, with effect from 1 January 2014, there is no longer any UK withholding tax on MOD payments. Therefore claims relate to periods prior to this date and there is no opportunity to file reclaims in relation to MODs received after 1 January 2014.
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