Out-Law / Your Daily Need-To-Know

Government proposes legislation to beat avoidance scheme

Out-Law News | 19 Sep 2011 | 8:00 am |

New legislation published and taking effect from last Thursday will stop the use of manufactured overseas dividends (MODs) in a tax avoidance scheme, the Government has said.

MODs are payments between companies relating to the transfer of shares overseas and the payment of dividends relating to those shares.

The avoidance scheme involved companies offsetting or reclaiming tax from the UK that they had in fact never paid. This was particularly likely in the financial sector, a Treasury statement said.

“The Government is determined to reduce tax avoidance," said Exchequer secretary to the Treasury David Gauke. "We have acted quickly to prevent the use of this particular scheme and we will not hesitate to close down other schemes representing a significant risk to the Exchequer as we become aware of them.”

Tax law expert Catherine Robins of Pinsent Masons, the law firm behind Out-Law.com, said that the proposed new laws demonstrate the speed of Government action on tax avoidance.

"The fact that HMRC appears to have been able to close down this scheme quickly shows how the Disclosure of Tax Avoidance (DOTAS) rules are working well for HMRC," said Robins.

"These rules oblige devisers and sellers of tax avoidance schemes to give HMRC details of how the schemes work within a timescale which enables HMRC to take action before too many people have used the scheme," she said.