Withholding tax on royalties
Produced in partnership with Anne Fairpo of Temple Tax Chambers
Withholding tax on royalties

The following Tax guidance note Produced in partnership with Anne Fairpo of Temple Tax Chambers provides comprehensive and up to date legal information covering:

  • Withholding tax on royalties
  • Post-FA 2016 rules—enlarged scope of withholding tax on royalties
  • Post-FA 2016 rules—anti-treaty shopping
  • Post-FA 2016 rules—UK PE use of intellectual property
  • Other IP-related withholding tax obligations
  • Pre-FA 2016 rules
  • Reliefs from withholding tax

The UK's approach to withholding tax on royalties in domestic law has, historically, been rather haphazard and inconsistent—withholding tax has been applied only to certain limited types of intellectual property (IP), and to certain types of IP payments.

The Finance Act 2016 (FA 2016) introduced numerous changes to the UK rules on royalty withholding tax, including:

  1. widening the scope of UK withholding tax on royalties by:

    1. extending the types of IP to which the UK withholding tax rules apply—see: Post-FA 2016 rules: enlarged scope of withholding tax on royalties below, and

    2. providing that a royalty payment has a UK source if the payment obligation arises in connection with the business of a UK permanent establishment (PE) or an avoided UK PE—see: Post-FA 2016 rules: UK PE use of IP below, and

  2. limiting the benefit of double tax treaties (DTTs) in respect of royalties through anti-treaty shopping provisions—see: Post-FA 2016 rules: anti-treaty shopping, below

The changes introduced by FA 2016 (referred to in this Practice Note as the post-FA 2016 rules) had not been consulted on beforehand. However, it had been clear for a long time, highlighted by the ongoing base erosion and profit shifting (BEPS) project and EU investigations, that cross-border payments for IP were continuing to increase. In this context, the changes introduced by FA 2016 to the UK withholding tax rules