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Technical updates // 18/08/2014

Tax structuring for UK subsidiaries

Companies that are subsidiaries of an overseas parent company face several unique tax issues. Below is a summary of cross-border tax issues that can arise.

Funding – Interest on debt finance

  • Interest paid to overseas lenders attracts withholding tax, usually at
    20%
  • You can get tax clearance from HMRC for a lower rate (either under a
    tax treaty or EU Directive)
  • Overseas corporate lenders may wish to register under the Double
    Tax Treaty Passport Scheme
  • Tax relief on interest is subject to anti-avoidance provisions, including
    Thin Capitalisation and Debt Cap rules.

Foreign exchange on debt finance between the UK and overseas group companies

  • May be a revolving credit facility or injection of loan capital
  • UK tax treatment follows the accounting treatment, with gains/losses
    subject to UK corp tax on an accrued rather than realised basis. This
    can create significant tax liabilities in the UK sub.

Read the extended tax update here.

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