HM Revenue & Customs (HMRC) published on 27th March 2012 a
consultation paper with proposals to amend certain income tax rules
affecting interest payments. HMRC are accepting comments on these
proposals until 22nd June. Key proposals include:
removing the 'quoted Eurobond' exemption from UK
withholding tax on interest payable in respect of issues of
securities to non-UK group companies under certain
increasing the scope of interest payments that are subject to
UK withholding tax; and
a requirement that all UK withholding tax on funding bonds
(e.g. payments-in-kind (PIK) notes) representing interest and other
interest payments in the form of assets (such as goods or vouchers)
be paid to HMRC in cash.
Removing the 'quoted Eurobond' exemption from UK
withholding tax on interest payable on securities issued to non-UK
group companies under certain circumstances
HMRC propose to remove the 'quoted Eurobond' exemption
for securities issued to non-UK group companies and listed on a
stock exchange where there is no substantial or regular trading in
those securities. 'Quoted Eurobonds' for the purposes of
the exemption are interest-bearing securities that are issued by a
company and listed on a recognized stock exchange. At present,
there is no requirement for the securities to be regularly traded
on that exchange. HMRC view some of these arrangements as having
been undertaken for the purpose of circumventing UK withholding tax
as opposed to facilitating the raising of finance in the capital
markets from external non-UK lenders.
The proposal if implemented could have significant implications
for groups who have relied on the 'quoted Eurobond'
exemption in relation to group debt lent into the UK.
Increasing the scope of interest payments that are subject to
UK withholding tax
HMRC propose to amend the withholding tax rules by removing the
requirement for interest to be 'yearly interest' in order
to attract UK withholding tax. The effect of this would be to
impose withholding tax at 20% on all payments of UK source
interest, not just yearly interest. Currently, interest paid on
loan agreements with a term of less than one year does not
generally attract UK withholding tax. If this proposal is
implemented, this will cease to be the case.
Imposing a cash withholding tax charge on interest paid in kind
(goods/ vouchers) and on funding bonds such as payments-in-kind
(PIK) notes representing interest
Interest payments in non-cash form such as vouchers and PIK
notes have become increasingly popular with, respectively, some
retailers and financial institutions in order to manage cash
HMRC are seeking views on proposals to clarify the rules on cash
withholding tax obligations with respect to vouchers or PIK notes
used to satisfy interest obligations. Of particular interest to PIK
note issuers is the fact that any withholding tax currently paid to
HMRC by means of an issue of PIK notes to HMRC would instead be
payable in cash.
Other proposals made by HMRC include:
clarifying and extending the rules on withholding tax on
interest on, or included in, compensation and damages
clarifying the 'source' rules in relation to interest
so that the location of the deed or agreement evidencing the debt
is irrelevant in determining whether the interest has a UK source;
extending the 'disguised interest' rules, currently
included in the loan relationships code for corporation tax
purposes, to the income tax code, so that structured products
involving derivatives, zero coupon bonds, zero rate preference
shares, warrants or other financial arrangements which produce an
interest-like return would be subject to income tax on that return
We will continue to monitor these proposals and let you know as
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This note is intended as an introduction to inheritance tax (IHT) issues that need to be covered where a "non-dom" (an individual domiciled outside the UK) is planning on becoming resident in, or is already resident in, the UK.
Where losses for tax purposes arise within a company within a given year, such losses may be able to be offset against profits from other activities or surrendered to another company within the