Tax issues on financing an inbound investment
Produced in partnership with Jacob Gilkes of CMS
Tax issues on financing an inbound investment

The following Tax guidance note Produced in partnership with Jacob Gilkes of CMS provides comprehensive and up to date legal information covering:

  • Tax issues on financing an inbound investment
  • Acquisition structure
  • Withholding tax on interest
  • Tax deductions for interest payments
  • Other taxes

This Practice Note considers a typical structure that might be used when an overseas group makes an inbound investment into the UK and outlines the key UK tax issues that may arise in respect of financing that investment.

For a more general discussion of UK tax issues relating to cross-border borrowings, see Practice Note: UK tax considerations for a UK corporate borrower borrowing from an overseas lender

For a discussion of the wider UK tax considerations relevant to inbound investments, see Practice Note: What are the UK tax considerations for an overseas purchaser acquiring a UK business?

Acquisition structure

Where a non-UK resident company (referred to in this Practice Note as Parent) intends to acquire a UK company (Target) from Target’s existing shareholders, it will often create a new wholly-owned UK holding company for the purposes of the acquisition (UK Holdco).

Parent will provide UK Holdco with funds for the purposes of the acquisition and this is likely to include both debt and equity financing elements. The extent of each will typically be driven by transfer pricing considerations and the level of dividend income sought by Parent, which in turn may be influenced by differences, if any, between the tax treatment of dividends and interest in Parent’s jurisdiction.

The amount of equity injected into UK Holdco is important for transfer pricing purposes (as explained