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HMRC internal manual

International Manual

UK subsidiaries of foreign banks and foreign banks trading in the UK through permanent establishments: Treaty claims and the EU interest and royalties directive

Relief from UK income tax, under the terms of a double taxation agreement (DTA), is not automatic and cannot be assumed. Where a UK non-resident is resident in a country with which the UK has a DTA then it may be able to get relief from UK income tax on UK source income. It can do this by making a treaty claim to -HMRC; see INTM330010 onwards.

If an obligation to deduct tax remains, from 1 January 2004 the EU Directive on Interest and Royalties may apply in addition to any DTA provisions where interest and royalties are paid between ‘associated companies resident in the EU - see INTM367000 onwards.

Many of the claims made by foreign companies will relate to interest and royalties. However, deduction of tax at source, and therefore exemption claims, are likely to be less of an issue for banks and financial institutions than they are for other business sectors. ITA07/S878 removes the obligation to deduct tax from interest payments where those payments are made by banks in the ordinary course of their business.