Rob Norris and Mark Eaton give their view on HMRC’s consultation process covering an interest withholding tax exemption for debt traded on a multilateral trading facility.
HMRC are consulting on a new interest withholding tax exemption for debt traded on a multilateral trading facility which is due to apply from April 2018. The proposed exemption follows concerns that the requirement to withhold tax is a barrier to the establishment of multilateral trading facilities in the UK. 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 income tax at 20%. While this withholding tax can be reduced or eliminated if paid to a recipient in a country that has a tax treaty with the UK this comes with an administrative burden.
In addition to the network of tax treaties, the quoted Eurobond exemption removes UK source interest from withholding tax when it arises from a security which is listed on a recognised stock exchange.
Securities admitted to trading on a multilateral trading facility are not classified as ‘listed’ in the UK because they do not meet the admission and disclosure requirements of the UK’s listing rules and hence they cannot benefit from the quoted Eurobond exemption. Securities admitted to trading on a multilateral trading facility in other countries meet the local regulatory requirements to be classified as “listed” 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 a multilateral trading facility in Luxembourg or Ireland may benefit from the quoted Eurobond exemption whereas the same securities admitted to trading on a UK multilateral trading facility would not.
The consultation proposes that the obligation to withhold tax will not apply to a payment of interest on an interest-bearing security issued by a company which is admitted to trading on a multilateral trading facility operated by a recognised stock exchange regulated in an EEA territory.
The requirement to be “admitted to trading” on a multilateral trading facility is a different threshold from the “listed on a recognised stock exchange” requirement for the quoted Eurobond exemption. It is intended that a security admitted to trading on a UK multilateral trading facility will benefit from the new exemption from withholding tax.
The new exemption will be limited to multilateral trading facilities in EEA territories to ensure that the securities are subject to regulation under the EU’s Markets in Financial Instruments Directive.
As well as this new multilateral trading facility exemption, it should be remembered that there is also the qualifying private placement exemption which has applied since 1 January 2016. We are seeing this being used where debt is not listed on a recognised stock exchange and the double tax treaty does not provide a complete exemption from the obligation to withhold tax.
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