UK residents who make interest payments that are not currently treated as having a UK source would be required to deduct income tax from those payments under the proposed new definition. It is possible that they would not have entered into the arrangements giving rise to the interest had there been a requirement to deduct income tax.
We therefore suggest that existing arrangements, including future rollovers of existing loans with the same lender or lending group and no other changes in basic terms apart from interest rate, fees and maturity dates, should be excluded from the new rules.
Overseas branches of UK companies often take out loans with local banks for the purposes of the branch business. It is not clear whether interest paid on such loans would be excluded from the new definition. We believe it should be, to avoid penalising UK companies that operate through foreign branches rather than subsidiaries.
