The syndicated loan scheme (SLS)

Unless an exemption or a relief applies, a payment of yearly interest arising in the UK (ie with a UK source) is generally subject to UK withholding tax at the basic rate (currently, 20%) if it is made:

1. •

   by a company

2. •

   by a local authority

3. •

   by or on behalf of a partnership of which a company is a member, or

4. •

   by any person to another person whose usual place of abode is outside the UK

In the absence of relief, tax withheld at source:

1. •

   is a genuine economic cost for

   1. ◦

      the lender because it inevitably reduces the level of return it receives, or

   2. ◦

      the borrower if it has been obliged to gross up an interest payment under the loan agreement, and

2. •

   may result in double taxation (ie the interest income accruing under the loan agreement being taxed in both the state of source (the UK) and the state of the lender's residence)

It is worth noting that in a corporate finance context, a lender is usually referred to as a creditor and a borrower as a debtor. These terms are used interchangeably in this Practice Note.

The debtor is obliged to withhold the tax 'at source' (ie from the amount of interest payable) and account for such amounts to HM Revenue and Customs (HMRC). Imposing this obligation effectively makes the debtor a tax