Article 11 of the Organisation for Economic Co-operation and Development (OECD)'s model tax convention (MTC) is concerned with the taxation of interest paid cross border. In particular, it deals with the allocation of taxing rights between: • the state of residence of the person receiving payment, which will be referred to as the recipient state, and • the state of residence of the person making the payment, which will be referred to as the source state This Practice Note considers: • the meaning of interest in a double tax treaty or convention (DTT) context • the model convention approach to the taxation of interest • specific anti-treaty shopping provisions • variations on this approach in DTTs, and • the practical contexts in which an assessment of the interest article will arise The EU Interest and Royalties Directive, which exempts from withholding tax all interest payments between associated companies of different Member States, and which was implemented into UK law, was repealed following the UK’s departure from the EU with effect

Interest cover measures the amount of interest paid by a company on its borrowings against its operating profit in the same period. The ratio shows the impact of gearing on a company’s profit and loss account. If the figure is low, a small reduction in operating profits, or a rise in the cost of borrowing, can wipe out pre-tax profits. To calculate interest cover, divide the operating profits by the interest paid. Example: a company which has profits of £4 million and which pays net interest of £1 million, has interest cover of 4.

For trust law purposes, where a beneficiary has a current fixed entitlement to an ascertainable part of the net income or net capital (if any) or the use and enjoyment of trust property. For tax purposes, the term interest in possession has not been defined by legislation but its meaning was confirmed as a ‘present right to present enjoyment’ in the House of Lords case of Pearson v IRC. Also called a life interest trust.

Broadly speaking, a life tenant is entitled to receive the income from an interest in possession (IIP) trust and that income will be taxed at the life tenant's marginal rates. This is the case both when the trustees first receive the income and then pay it to the life tenant and when the trustees have ‘mandated’ the income to the life tenant so that the life tenant receives it directly. Although the overall income tax treatment is the same, the process for declaring the income and paying any tax due on it differs. The source of the beneficiary's income The source of the income of a life tenant of an IIP trust is the trust property itself, rather than the right that is enforceable against the trustees to have the trust properly administered. Therefore, the life tenant's sources of income for income tax purposes will match the underlying investments made by the trust. The life tenant is specifically entitled to the trust income that has not

General principles The trustees are together treated for tax purposes as if they were a single person (distinct from the individuals who are the trustees of the trust from time to time). An interest in possession (IIP) is characterised by a beneficiary's right to the income of a trust as it arises. The income belongs to the beneficiary and the trustees have no authority to withhold it, except to use it for legitimate expenses. If trust income does not fall within the definition of accumulated or discretionary income in section 480 of the Income Tax Act 2007 (ITA 2007) then it is considered the income of ‘other persons’ and is to be taxed at basic and dividend rates. Ultimately the income is charged on the beneficiary at their personal rates, regardless of when and whether the income is paid over to them. However, the trustees are liable to income tax on the income arising from trust property because they are the legal owners of the trust property and therefore the persons receiving the income. The

This Practice Note explains how, and from what date, interest is payable on monetary awards confirmed or varied on appeal by the EAT. For claims presented to the employment tribunal on or after 29 July 2013, where the amount of any monetary award is confirmed or varied on appeal by the EAT, the confirmed or varied amount is subject to interest as from the day immediately

This Practice Note explains the circumstances in which: • an employment tribunal may award interest generally, as an integral part of the amount awarded in respect of the claim (see: Interest as a part of the award below) • interest accrues on any unpaid employment tribunal awards, ie for late payment (see: Interest on unpaid employment tribunal awards (all claim types) below) Interest as a part of the award Unlike the High Court and County Court, employment tribunals do not generally have the power to award an element of interest in the calculation of compensation, however long the period from the date the party suffered the loss or damage to the date of any monetary award. The exceptions to this rule, set out in the Employment Tribunals (Interest on Awards in Discrimination Cases) Regulations 1996 (ET (Interest on Awards in Discrimination Cases) Regs 1996), SI 1996/2803, are: • discrimination and other prohibited conduct claims under the Equality Act 2010 (EqA 2010) (see Practice Note: Prohibited conduct claims: assessing compensation—Interest) • equality of terms (equal pay) claims under

Claimants who bring successful wrongful dismissal claims, which result in an award of compensation, may receive payment in respect of certain sums either before or after the date on which they would have received those sums had they remained employed. Where a sum is received after the date on which it would have been received if the individual had remained employed, the claimant will be entitled to interest, which is discussed below.

This Practice Note considers the law and practice of awarding interest on damages and costs in international commercial arbitration proceedings, including under the law of England and Wales and the Arbitration Act 1996 (AA 1996). Reference is also made to comparative guidance from investment treaty arbitration proceedings. To compare the position on this issue in jurisdictions around the world, see our International Comparator Tool. Which law determines the award of interest in arbitration proceedings? The question of whether to award interest and, if so, at what rate is a matter for the arbitral tribunal which first has to determine the basis on which interest is to be awarded. The tribunal will consider: • any agreement between the parties (either in the original arbitration agreement, the underlying contract or subsequently) • the provisions of any relevant arbitral rules or legislation (such as a provision for statutory interest) • the relevant applicable law In practice, the tribunal will apply any express agreement by the parties. If there is no agreement regarding

Interest on general damages Entitlement A claimant is entitled to simple interest at a rate the court deems fit. The rate Interest on general damages is awarded at the rate of 2% a year. Interest can be awarded on all damages for personal injury and death that exceed £200. The period Interest accrues from the date of service of the claim form until the date of trial. See our Interest on General Damages calculator in Interest on general damages. Interest on special damages Entitlement There is a presumption that the claimant is entitled

This Practice Note provides guidance on claiming interest on judgment debts. For information on claiming interest when issuing: • a claim, see Practice Note: Claiming interest • a foreign currency claim, see Practice Note: Foreign currency claims—interest on damages claims and judgment debts When and at what rate do judgment debts attract interest? Judgment debts accrue simple interest at a rate of 8% a year until payment, unless rules of court provide otherwise, pursuant to section 17 of the Judgments Act 1838 (JA 1838) and the Judgment Debts (Rate of Interest) Order 1993, SI 1993/564. This rate has applied to judgments since 1 April 1993. There is an exception regarding enforcement steps in the County Court. Under the County Courts (Interest on Judgment Debts) Order 1991, SI 1991/1184, art 4, where a judgment creditor takes proceedings in a County Court to enforce payment, the judgment debt shall cease to carry interest except where such proceedings fail to produce any payment from the debtor. The court cannot vary the rate of interest under JA 1838 (School

Taxpayers who pay tax late are charged interest at a rate set by legislation. A harmonised regime was introduced in the Finance Act 2009 (FA 2009) in respect of interest for the late payment of tax to apply across all taxes, with the exception of excise duties (corporation tax and petroleum revenue tax were initially excluded from the regime, but are now to be included from a date to be announced). This Practice Note explains the harmonised regime and how interest on late paid tax arises outside of the harmonised regime. Harmonised late paid interest regime The FA 2009 regime is being introduced gradually across the different taxes. So far, it applies to: • bank payroll tax, from 31 August 2010 • penalties for failure to make returns under the construction industry scheme (CIS), from 6 October 2011 • income tax and capital gains tax self-assessment, and Class 4 National Insurance contributions (NICs), from 31 October 2011 • machine games duty, from 1 February 2013 • penalties for dishonest tax agents, from 1 April 2013 • the