The following Tax guidance note Produced in partnership with Eloise Walker of Pinsent Masons LLP provides comprehensive and up to date legal information covering:
It is standard market practice for loan agreements (also known as facility agreements), whether bilateral or syndicated, to:
prohibit a borrower from deducting (or withholding) an amount from any payment unless that deduction is required to be withheld by law, and
where tax is obliged by law to be withheld from a payment (such as withholding tax on interest), require (subject to limited exceptions) a borrower to pay an additional amount that, after deduction of the tax, will leave the lender with the same amount as it would have been entitled to receive had no tax been required to be withheld from the payment—this is known as the tax gross up
The prohibition on withholding is general and applies to any form of withholding. It would, for instance, prevent the borrower from deducting an amount owed by the lender to the borrower. The exception to the prohibition is that any deduction required to be made by law can be deducted from a payment. Because withholding tax on interest is normally the only type of withholding that is required by law in respect of payments made under a loan, the only withholding permitted under a loan is likely to be withholding tax, leaving the prohibition in place in respect of any other type of withholding that is not required by law. Similarly, the
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