The government has introduced legislation to repeal parts of the UK tax code which implement the EU Interest and Royalties Directive into UK law. These provisions will be repealed with effect from 1 June 2021 and will mean that businesses will have to rely upon the withholding tax provisions in the double tax treaty entered into with the relevant EU Member State in order to reduce or eliminate UK withholding tax on outbound payments of interest and royalties to EU connected companies.
This is somewhat of a policy U-turn by the government who had previously published guidance (which was subsequently quietly withdrawn) stating that they did not intend to repeal these provisions. This measure is not a big revenue raiser (projected to raise £35 million) but is pitched as ensuring that EU companies do not enjoy more favourable tax treatment than companies elsewhere in the world. In many cases the double tax treaty will produce the same outcome (where the treaty provides for a zero withholding tax rate), but that will not always be the case – for example, interest and royalty payments to an Italian parent company would suffer a withholding under the UK: Italy Double Tax Treaty).
Read the policy paper.
Return to Budget 2021.
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