Bond issues—withholding tax
Bond issues—withholding tax

The following Tax practice note provides comprehensive and up to date legal information covering:

  • Bond issues—withholding tax
  • When must UK tax be withheld from payments of interest?
  • Interest
  • Yearly interest
  • UK source/arising in the UK
  • Exemptions from the obligation to withhold tax
  • Quoted eurobond exemption
  • Other exemptions
  • UK-UK exemption for excepted payments
  • EU associated companies
  • More...

IP COMPLETION DAY: 11pm (GMT) on 31 December 2020 marks the end of the Brexit transition/implementation period entered into following the UK’s withdrawal from the EU. At this point in time (referred to in UK law as ‘IP completion day’), key transitional arrangements come to an end and significant changes begin to take effect across the UK’s legal regime. This document contains guidance on subjects impacted by these changes. Before continuing your research, see Practice Note: What does IP completion day mean for Tax?

The requirement to deduct tax from UK source interest payments (ie withholding tax) is one of the key factors to be considered in the context of a bond issue in the UK. Where a tax deduction is required, this is:

  1. at best, a cash flow disadvantage, ie the UK tax withheld can be set off against other UK or foreign tax due on the interest received, and

  2. at worst, a permanent cost, ie the bondholder does not pay tax or pays less tax than the amount withheld on the interest received and cannot reclaim the tax withheld

Clearly in either case a bondholder would rather receive the interest gross and, as a result, whether deduction of tax is going to be required on a bond is a very important consideration for the issuer of the bond and the managers or arrangers

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