Withholding tax on payments to UK companies

11 March 2022 / Insight posted in Article

UK companies may have suffered additional or new withholding taxes on payments received from EU companies following Brexit.

The Brexit transition period ended on 1 January 2021. Since that date, payments from the EU to UK companies have no longer benefited from automatic exemption, which some companies may have relied upon to ensure that payments were not made under deduction of withholding taxes.

Before the end of the transition period, the EU Interest and Royalties Directive allowed EU companies to make payments of royalties and interest within the EU free from withholding tax. The EU Parent Subsidiary Directive permitted dividends between associated EU companies similarly to be paid free from withholding tax.

There are a number of possible ways in which companies can mitigate their exposure to withholding tax.

 

Double Tax Treaty claims

The terms of double tax treaties between the UK and the jurisdictions from which companies receive payments may provide for full or partial exemption from withholding tax.

Where a double tax treaty with another jurisdiction includes provision for a reduced withholding tax rate, companies must follow the procedures laid out in the treaty. These are likely to involve providing a Certificate of Residence to the overseas tax authority and/or the payer, completion and filing of a treaty clearance application and other requirements.

 

How can we help?

Treaty relief claim advice

We can advise on making claims under the UK’s network of double tax treaties. Where an overseas authority requires a Certificate of Residence to be provided, we can prepare and submit these to HMRC. We will use our expertise to reduce the likelihood that HMRC will require further information, refuse an application or otherwise add unnecessary delay to the process.

We can work with advisers within our Moore Global Network in relation to other requirements for treaty relief claims in other jurisdictions.

Reclaims of excess withholding tax

We will also work with our Moore Global colleagues to assist in reclaims of excess withholding taxes in excess of the treaty rate.

Restructuring

We can advise on structuring of intra-group payments and/or financing where projected tax costs may be material, taking into account all possible claims.

 

Moore Global Network

As part of the Moore Global Network, we work closely with our colleagues throughout the EU and the world. We share tax information and developments freely to enable us to provide the best advice to you and to ensure that we are kept up to the minute on tax developments which affect your business.