Tax considerations on a loan agreement—treaty lenders
Tax considerations on a loan agreement—treaty lenders

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

  • Tax considerations on a loan agreement—treaty lenders
  • Conditions for exemption from withholding tax under a double tax treaty with the UK
  • Beneficial ownership
  • Drafting implications
  • Drafting implications—Treaty lender definition
  • Drafting implications—confirmation of lender status
  • Drafting implications—notification of lender ceasing to be a treaty lender
  • FATCA considerations

Tax considerations on a loan agreement—treaty lenders

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?

This Practice Note:

  1. outlines the main conditions that must be satisfied in order for a non-UK lender to be eligible for exemption from UK withholding tax on interest payments under a relevant double tax treaty with the UK, detailing in particular the potential problem raised by the beneficial ownership requirement, and

  2. provides drafting suggestions to strengthen a borrower's position

As noted in:

  1. Practice Note: Tax considerations on a loan agreement—the tax gross up clause, and

  2. Checklist: Reviewing a loan with a view to alleviating UK withholding tax risk—checklist

withholding tax is a key concern relating to a loan.

The risk that UK withholding tax might be due on an interest payment and therefore that a borrower might have to gross up a payment for that withholding tax is increased where the lender is not UK tax resident. Some

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