Introduction Background Note
16.The current manufactured overseas dividend (MOD) rules and regulations aim to give the recipient of a MOD (or any payment deemed to be a MOD) the same relief for foreign tax as the recipient of the real dividend. The amendment ensures that no relief is given by way of a credit or deduction where the recipient of a MOD has not borne the economic cost of the foreign tax.
17.The measure will counter a complex tax-driven scheme which involves the sale and repurchase (repo) of a foreign shareholding between two group companies. Part of the repo agreement involves what is in substance the obligation to pay an amount that represents an overseas dividend. The MOD rules apply to this deemed payment and although the recipient receives an amount representing the full amount of the overseas dividend without any deduction of foreign tax, it nonetheless claims an entitlement to a deduction for the foreign tax.