Court of Appeal ruled in favour of the test claimant regarding recoverability of withholding tax on manufactured overseas dividends.
On 3 October 2019, the Court of Appeal (CoA) published its decision in Coal Staff Superannuation Scheme Trustees Limited (the Trustee) v HMRC, a test case seeking to recover withholding tax on manufactured overseas dividends (MODs), following an appeal from the Upper Tribunal (UT) by HMRC. The CoA upheld the UT decision that HMRC’s MOD withholding tax rules prior to 1 January 2014 were a ‘restriction’ on the free movement of capital. Further, the justifications for this restriction were also dismissed.
A number of the key highlights from the decision are as follows:
The decision is clearly positive news for the test claimant and other registered pension schemes and it remains to be seen whether HMRC seek leave to appeal this decision to the Supreme Court. The decision also generally supports the position for other claimant types which are not registered pension schemes, including life insurance companies and investment funds. However, these other claimant types might require further clarification given the conforming interpretation proposed by the UT and upheld by the CoA.
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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