Consultation - WHT exemption for debt traded on a.. | KPMG | UK

Consultation - WHT exemption for debt traded on a Multilateral Trading Facility

Consultation - WHT exemption for debt traded on a..

The Government is proposing an exemption from WHT for UK source interest on debt traded on an MTF.

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The Government announced at the Spring Budget 2017 that it would consult on the introduction of a new exemption from withholding tax (WHT) for interest on debt traded on a Multilateral Trading Facility (MTF), and the consultation document has now been published. The consultation follows concerns that the current requirement to withhold tax was a barrier to the establishment of MTFs in the UK, and the proposal is intended to make the UK more competitive in this area. 

Companies and certain other entities that pay interest with a UK source have an obligation to withhold tax on these payments at the basic rate of UK income tax (currently 20 percent). While this WHT can be reduced or eliminated if paid to a recipient in a country that has a tax treaty with the UK, this comes with a certain administrative burden.

In addition to the network of tax treaties, the UK also has the quoted Eurobond exemption, which exempts UK source interest from WHT when it arises from a security which is issued by a company that is ‘listed’ on a ‘recognised stock exchange’. Under existing legislation, securities admitted to trading on an MTF are not classified as ‘listed’ in the UK because the admission and disclosure requirements of the UK’s listing rules are not met, hence they cannot benefit from the quoted Eurobond exemption. 

In contrast, securities admitted to trading on an MTF in other countries can be classified as ‘listed’ due to differences in local regulatory requirements and so payments of interest on such securities can benefit from the quoted Eurobond exemption. For example, a UK company’s securities which are admitted to trading on MTFs in Luxembourg or Ireland may benefit from the quoted Eurobond exemption whereas the same securities admitted to trading on a UK MTF would not.

The consultation therefore proposes that legislation be enacted to provide that the requirement to deduct WHT does not apply to a payment of interest: 

  • on an interest-bearing security issued by a company;
  • where the interest-bearing security is ‘admitted to trading’ on an MTF; and
  • where that MTF is operated by a recognised stock exchange regulated in an EEA territory.

The requirement for ‘admission to trading’ on an MTF differs from the quoted Eurobond exemption requirement for ‘listing’.  It is intended that a security admitted to trading on a UK MTF will benefit from the new exemption from withholding tax.

The new exemption will be limited to MTFs in EEA territories to ensure that the securities are subject to regulation under the EU’s Markets in Financial Instruments Directive.

It is proposed that the new exemption will apply from April 2018.

Comments in response to the consultation are requested by 12 June 2017.

 

For further information please contact :

Rob Norris

Mark Eaton

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