On 27 June 2016, the First-Tier Tribunal (FTT) published its decision in Coal Staff Superannuation Scheme Trustees Limited (Coal) v HMRC, a test case seeking to recover withholding tax on manufactured overseas dividends (MODs). In broad terms, the First-Tier Tribunal considered whether under EU law (Article 63 – free movement capital), HMRC were permitted to exercise their taxing powers and charge UK withholding tax on MODs when they do not charge any tax or equivalent tax on manufactured dividends in relation to UK shares.
The FTT has decided that Coal’s claim to recover withholding on MODs should not succeed. The main reasons why the FTT ruled in favour of HMRC are as follows:
We expect permission to appeal to the Upper Tribunal will be requested. In respect to the breach of the free movement of capital we believe the FTT did not consider comparability at the correct level. The FTT compared a MOD with the receipt of an overseas dividend, whereas in actual fact we believe the correct comparison to be a MOD with a UK manufactured dividend. In respect to the justifications HMRC raised and the FTT accepted, we do not believe Court of Justice of the European Union (CJEU) case law supports the use of these justifications in this particular scenario.