Income Tax Act 2007 section 581A

Avoidance arrangements

Section 581A prevents tax deductions for manufactured overseas dividends where avoidance arrangements are involved.

• A manufactured overseas dividend (MOD) is a payment that replicates an overseas dividend, typically made under stock lending or repo arrangements.
• If a MOD is made directly or indirectly as a consequence of, or in connection with, avoidance arrangements, it cannot be deducted for income tax purposes.
• This applies regardless of whether the link to the avoidance arrangements is direct or indirect — any connection is sufficient to trigger the restriction.
• The effect is to deny income tax relief where manufactured overseas dividends form part of, or are linked to, tax avoidance schemes.