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HMRC internal manual

Double Taxation Relief Manual

Non-residents: UK income: returns and reports: enquiries by FICO - interest

When a request is made for relief (either an application for relief at source or a claim to repayment of tax withheld) from United Kingdom tax on interest paid abroad (see DT215), FICO (International) is responsible for checking whether the applicant is entitled to relief as a resident of the other country. However the District or International Division 4/5, Melbourne House is responsible for other aspects and deciding how the interest payments should be treated in the payer’s computations. The flowchart in Technical Memo TS143/97 shows how this responsibility is shared. In order to help with the process FICO (International) will issue either a form 4450/I(Application)FD or a 4450/I(Claim)FD, giving some basic details of the loan to be considered.

Form 4450/I(Claim)FD is used where a repayment of withholding tax deducted for 1996/97 or later years is being claimed. Such a claim is within the Income Tax Self Assessment (ITSA) provisions, even if the claimant is a non-resident company, because the tax deducted is Income Tax. You should follow the usual ITSA procedures with respect to enquires : FICO (International) will be the caseholder and open the enquiry. You should make sure that they are notified as soon as it seems likely that enquiries are needed. They will co-ordinate proceedings and give you further guidance if required.

Form 4450/I(Application)FD is used when exemption from tax at source has been requested, either for past periods or going forward. This application does not constitute a claim within the ITSA provisions.

Both claims and applications should be examined critically and this will involve consideration of more than just the terms of the loan agreement. It should be used as the occasion to look at the status of payments under domestic law, principally ICTA88/S209, and the loan relationship rules, as well as under the relevant double taxation agreement. Remember that the new loan relationship rules do not change the application of ICTA88/S349 or ICTA88/S209, and that debits which could be treated as a distribution on payment are excluded from the regime (FA96/SCH9/PARA1).

The first two sections of each form are factual. Full and accurate answers are important. If you do not have the information, ask the agent or the United Kingdom payer. Do not wait for the borrower’s accounts covering the period in which the loan first appears.

The final section of each form addresses issues on which you or International Division will have to exercise judgement. If there are areas of uncertainty, either consult International Division 4/5, Melbourne House by telephone or pass the completed form to them, highlighting the area of doubt.

You will need the loan agreement to deal with the questions. If there is no written agreement, the terms will have been agreed orally, and your replies should be based on these.