Exemption from UK withholding tax on interest and royalty payments made to an associated EU resident company
Exemption from UK withholding tax on interest and royalty payments made to an associated EU resident company

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

  • Exemption from UK withholding tax on interest and royalty payments made to an associated EU resident company
  • Conditions for exemption
  • Exemption notice is required to pay interest gross
  • Paying royalties without deduction of tax under ITA 2007, s 914
  • Notification obligations
  • Restrictions on exemption
  • Limitations of the exemption
  • Exemption notice for interest can be cancelled or become ineffective
  • Appealing against refusal or cancellation of exemption notice for interest

Brexit: As of exit day (31 January 2020) the UK is no longer an EU Member State. However, in accordance with the Withdrawal Agreement, the UK has entered an implementation period, during which it continues to be subject to EU law. This has an impact on this Practice Note. For further guidance, see Practice Note: Brexit—UK tax consequences.

Where a UK payer and an EU recipient (in this Practice Note, the EU recipient is referred to as the EU payee) are 25% associates, the EU payee is not liable to UK income tax on the interest or royalty payment. The payment can therefore be paid gross (ie without deduction for UK tax) by the UK payer (essentially a UK tax resident company or a UK permanent establishment (PE)) to the EU payee (essentially, an EU tax resident company or its PE in another EU Member State) provided no restriction applies.

The exemption:

  1. is restricted to the arm's length amount of the payment in cases where there is a special relationship between the payer and the payee, or

  2. does not apply at all where any person concerned with the creation or assignment of the loan or rights in respect of which interest or royalty payments are made has a main purpose of taking advantage of this exemption

Where this exemption is restricted or does