Technical updates - Published 18th August 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
  • 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.

Posted in Technical updates