Income Tax Act 2007 section 923

Foreign payers of manufactured overseas dividends: the reverse charge

Section 923 requires UK recipients of manufactured overseas dividends (MODs) from non-UK resident payers to account for and pay the income tax that would otherwise have been deducted at source by a UK payer.

• When a manufactured overseas dividend is paid by a non-UK resident person who is not trading in the UK through a branch or agency, the normal obligation to deduct tax at source cannot apply to that foreign payer.
• Instead, the obligation shifts to the UK recipient, who must account for and pay the income tax on the manufactured overseas dividend — a mechanism known as the "reverse charge" by analogy with VAT terminology.
• The amount of income tax the recipient must account for and pay is exactly the same amount that the payer would have been required to deduct at source had the payer been UK resident or trading through a UK branch or agency.
• Three conditions must all be met for the reverse charge to apply: the payment must be a manufactured overseas dividend, it must be paid in the circumstances set out in section 581(1), and the payer must be non-UK resident and not operating through a UK branch or agency.