An exception to the rule that the borrower is taxed as if it
held the securities during the period of the arrangement is where
the securities that are sold are overseas securities. In those
cases, the borrower’s entitlement to double taxation relief
(“DTR”) in respect of any dividend arising on the
securities during the period of the arrangement is determined as if
it had received a manufactured overseas dividend
(“MOD”) representing that dividend, on the same date
that the real dividend is paid.
This rule (which means that the previous rules relating to
entitlement to DTR on manufactured payments continue to apply) is
needed because a MOD recipient may not be in exactly the same
position as it would have been if it had received the real
dividend. For instance, the rate of “relevant withholding
tax” that a MOD recipient may suffer under regulation 3(1) of
SI 1993/2004 may not always be the rate that the recipient would
have suffered if it had received the real dividend.
