The ACT expressed particular concern about proposed tax changes abolishing "yearly interest" and restricting the withholding tax exemption for interest on Eurobonds. HMRC have now published their response to representations received and both of the above proposed changes, along with some others, will not be proceeded with. The ACT welcomes the HMRC decisions on these points as they would have added complexity and cost in compliance and made the UK a less attractive place to carry out some treasury functions. On annual interest, the changes were put forward as a simplification but in practice this would not be the case. It was doubtful whether the changes would in practice generate any benefit to the Exchequer, since payments made between UK businesses commonly do not require deduction, and in a cross-border context double taxation treaties often reduce withholding rates to nil. However, as treaty applications are time consuming there would be an increase in the administrative burden on many companies and a cash-flow disadvantage while the clearances are sought. We note that HMRC has said it will continue to study the representations made on the wider question of the extent to which tax is withheld from interest in a cross-border context.
HMRC’s Response Document was issued today and is available here. The consultation period closed on 22 June but the document is still available here.