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
- 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.