The Government is introducing an exemption from withholding tax for UK source interest on debt traded on a multilateral trading facility.
Following earlier consultation, the draft Finance Bill issued on 13 September 2017 includes a new interest withholding tax (WHT) exemption for debt traded on a multilateral trading facility operated by a recognised stock exchange regulated in a European Economic Area (EEA) territory. The exemption reflects concerns that the current requirement to withhold tax is a barrier to the establishment of multilateral trading facilities in the UK. The proposal is intended to make the UK more competitive in this area. In addition, the scope of rules applying to certain sharia compliant financial instruments is being extended where they are admitted to trading on a multilateral trading facility as referred to above.
New interest WHT exemption for debt traded on a multilateral trading facility
Companies and certain other entities that pay interest with a UK source have an obligation to withhold income tax at 20 percent. While this WHT can be reduced or eliminated if paid to a recipient in a country that has a tax treaty with the UK this comes with an administrative burden.
In addition to the network of tax treaties, the quoted Eurobond exemption removes UK source interest from WHT when it arises from a security which is listed on a recognised stock exchange. Currently, securities admitted to trading on a multilateral trading facility are not classified as ‘listed’ in the UK because they do not meet the admission and disclosure requirements of the UK’s listing rules and hence they cannot benefit from the quoted Eurobond exemption.
Securities admitted to trading on a multilateral trading facility in other countries meet the local regulatory requirements to be classified as ‘listed’ and so payments of interest on such securities can benefit from the quoted Eurobond exemption. For example, a UK company’s securities which are admitted to trading on a multilateral trading facility in Luxembourg or Ireland may benefit from the quoted Eurobond exemption whereas the same securities admitted to trading on a UK multilateral trading facility would not.
Draft legislation provides that the obligation to withhold tax will not apply to a payment of interest on an interest-bearing security issued by a company which is admitted to trading on a multilateral trading facility operated by a recognised stock exchange regulated in an EEA territory.
The amendments are due to apply in relation to payments made on or after 1 April 2018.
Extension of scope of rules applying to sharia compliant financial instruments
Legislation provides for the tax treatment of certain Sharia compliant financial instruments, e.g. they are deemed to be loan relationships.
The scope of these provisions is being widened so that certain investment bond arrangements are included where they are admitted to trading on a multilateral trading facility operated by a recognised stock exchange regulated in an EEA territory.
The amendments apply for corporation tax purposes in relation to accounting periods beginning on or after 1 April 2018 and for income and capital gains tax purposes for the 2018/2019 tax year and subsequently.
For further information please contact: