INTM505070 - Payment of interest overseas: deducting income tax

Borrowing by overseas permanent establishment of United Kingdom company

There is no obligation to deduct tax from foreign source interest. For example, if a UK company

• has a foreign permanent establishment and
• it raises a loan from a foreign lender for use by the permanent establishment in its business and
• the permanent establishment pays the interest on the loan

then, although the permanent establishment is part of the UK company, the interest may be foreign-source interest and, if so, there is no obligation to deduct UK income tax. The money would have to be identified as being connected to the permanent establishment. The source of interest is governed by the principles outlined at INTM505020.