The Government is extending the quoted Eurobond exemption which removes the obligation to withhold tax from UK source interest.
The Autumn Budget provided further details on the new withholding tax (WHT) exemption which will apply to debt issued by companies which is admitted to trading on a multilateral trading facility. It was also announced that the scope of the rules applying to certain Sharia compliant financial instruments is being extended.
New interest WHT exemption for debt admitted to trading 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 UK multilateral trading facility cannot benefit from the quoted Eurobond exemption because they do not meet the admission and disclosure requirements of the UK’s listing rules.
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. Changes are being made so that UK debt markets can operate on an equal footing with other European debt markets.
The forthcoming Finance Bill will include legislation so that the obligation to withhold tax will not apply to the 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 a European Economic Area (EEA) territory, including a UK multilateral trading facility.
The amendments will have effect in relation to payments of interest 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 financial instruments 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 tax purposes for the 2018/2019 tax year and subsequently.
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