Double Taxation Guidance Note 11
Cross Border interest and Royalty payments
EU Directive on Interest and Royalty payments between associated companies of different Member States (Council Directive 2003/49/EC)
The Directive came into force on 1 January 2004 and is implemented as UK law by Sections 757 to 767 Income Tax (Trading and Other Income) Act 2005 ('ITTOIA'). The accession of a further ten countries to the EU on 1 May 2004, and two more on 1 January 2007, brought qualifying companies within these States within the scope of the Directive from those dates.
This Guidance Note includes two appendices:
Appendix 1 lists the countries concerned, together with the types of companies which may claim under the Directive.
Appendix 2 to this Guidance Note lists the taxes a company (or permanent establishment) claiming exemption from UK income tax must be subject to in a Member State.
As provided for at Article 1(12) of the Directive, the UK requires companies (and permanent establishments) resident in other Member States to establish their entitlement to exemption from UK income tax. They may do this by making a claim to HM Revenue & Customs Residency ('HMRC Residency'). You can download the claim form EU Interest & Royalties from our website or phone to request a form from the number given in our contact details below.
The claim must be certified by the tax authority of the EU Member State in which the claimant is resident.
Relief at source from UK income tax on future interest payments
Interest
Relief at source is available for UK-source interest payments
only, in cases where HMRC Residency is able to issue an exemption notice under
The Exemption From Tax For Certain Interest Payments Regulations 2004
- Statutory Instrument Number 2622 of 2004.
HMRC Residency has three months from receipt of the completed claim with full supporting information to determine whether to issue an exemption notice. If relief at source is granted, the instruction to pay interest without deduction of UK tax will
- normally apply for a period of three years from the date on which the claim form is received
- apply to future interest and royalty payments
- be effective from the date on which the certified claim form is received by HMRC Residency
The company claiming relief from UK income tax is required to tell HMRC Residency as soon as possible, if there is any subsequent change to the material conditions underlying the granting of relief (Regulation 6 of SI 2004/2622).
Royalties
Claim form EU Interest & Royalties may be used only to claim repayment of tax deducted from UK-source royalty payments. It is not possible to ask HMRC Residency for advance authority to pay royalties without deduction of tax. Instead, Section 914 Income Tax Act 2007 provides for the UK payer of a royalty to make a payment without deduction of tax if it has a reasonable belief that all the conditions for exemption set out in Section 758 ITTOIA 2005 are present.
Contact details
HMRC Residency helpline: Tel 0845 070 0040 if calling from the UK, or +44 151 210 2222 if calling from outside the UK.
Send an email.
Appendix 1
Which business concerns qualify to claim the benefits of the EU Directive?
Appendix 2
To qualify for exemption from UK tax under the terms of the Directive a company making a claim must be subject to one of the following taxes without being exempt (or to a tax that is identical or substantially similar and which is imposed after the date of entry into force of the Directive) that are identified in Article 3(a)(iii) of the Directive.
Permanent establishments
The term 'permanent establishment' is defined at Article 3(c) of the Directive as 'a fixed place of business situated in a Member State through which the business of a company of another Member State is wholly or partly carried on.'
To qualify for exemption from UK tax under the terms of the Directive a permanent
establishment making a claim must, under Article 1(5)(b), 'insofar as
the payments of the interest or royalties represent income in respect of which
it is subject in the Member State in which it is situated be subject to one
of the taxes mentioned in Article 3(a)(iii) or in the case of Belgium to the
impôt des non-résidents/belasting der niet-verblijfhouders or
in the case of Spain to the Impuesto sobre la Renta de no Residentes or to
a tax which is identical or substantially similar and which is imposed after
the date of entry into force of this Directive in addition to, or in place
of, those existing taxes.'
