The ACT welcomed HM Treasury’s announcement in December 2014 of the intention to remove UK withholding tax (WHT) on private placement debt interest payment. The December 2012 report of the ACT working group commissioned by the Breedon Report (Boosting finance options for business) recommended a targeted WHT exemption to put private placements on the same tax footing as bank loans and quoted Eurobonds.
HM Treasury and HMRC published later in December 2014 a draft technical note on draft legislation to effect the intention. The ACT has now responded to the proposals – jointly with Slaughter and May (who have not approved the text of this page).
We "warmly welcomed the government’s announcement on 3 December 2014" but the draft legislation “does not go nearly as far as we had originally hoped it would”.
We are concerned that the proposed exemption will do little to deal with the potential obstacles to a private placement market that the WHT rules currently impose. UK WHT restricts the pool of potential investors in privately placed debt and complicates the process of investing and borrowing. There is no withholding tax on loan interest paid to qualifying banks, but the purpose of a private placement market is to bring in non-bank lenders.
Withholding taxes of this kind operate to increase the costs to the borrower rather than as a tax on the investor.
At present, UK issuers – non-financial, commercial and industrial firms, university colleges, housing associations, etc., tend to use the US private placement market and, to a lesser extent the German equivalent, and there is a very small UK market.
We are sure that the government’s intention is to help foster a flourishing UK private placement market as part of a vibrant wider European market. In our response we set out what an exemption needs to look like to enable it to remove the principal tax obstacles to creation of such a market.
To contact the ACT on this subject, please e-mail technical@treasurers.org.
The response is on the record and may be quoted with acknowledgement of The Association of Corporate Treasurers and Slaughter and May.
