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HMRC internal manual

International Manual

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HM Revenue & Customs
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EU Directive: Interest & Royalties paid between Associated Companies - claims and applications by non- residents

Statutory Instrument 2004 No 2622

These Regulations make provisions for the issue of exemption notices that permit payments of interest to be made without deduction of tax as provided for by FA2004/S97 to 106. This legislation implements the provisions of Council Directive 2003/49/EC of 3rd June 2003.

Regulation 1 provides for the Regulations to be cited as ‘The Exemption From Tax For Certain Interest Payments Regulations 2004’ and for them to come into force from 1 November 2004.

Regulation 2 is an interpretation provision.

Regulation 3 makes provision for a request for and the issue of an exemption notice. The request must come from the non-resident claiming the exemption. A decision must be made within three months of the receipt of all necessary details. Where the decision is to allow exemption from UK tax copies of the exemption notice are issued to both the UK company and the claimant.

Regulation 4 specifies the information to be provided in the certificate that must accompany a request for an exemption notice. Items (a) and (c) would normally be satisfied by a certificate of tax residence issued by the tax authority in the Member State of the applicant company, and/or copies of tax assessments relating to the company or its permanent establishment. The loan agreement requested in item (e) would usually satisfy item (b) as well. A copy of a group family chart showing the applicant and payer companies’ relationship would satisfy item (d). In all cases the Inland Revenue may be able to accept alternative evidence where appropriate.

Regulation 5 makes provision for the exemption notice to specify the amount of the payment or the method to be used to determine the amount of the payment where Finance Act 2004/S103 (special relationship) applies.

Regulation 6 imposes notification requirements if the conditions for exemption cease to be satisfied and provides for the exemption notice to become ineffective.

Regulation 7 makes provision for the cancellation of an exemption notice by the Board. In such circumstances the Board will notify both parties of its decision in writing.

Regulation 8 makes provision for the recovery of tax where after the issue of an exemption notice it is discovered that the conditions for the exemption were not satisfied so tax was deductible from a payment of interest but has not been deducted. This can be effected by either an assessment on the applicant, or by requiring the payer to deduct tax from subsequent interest payments, if so directed by the Board.

Regulation 9 allows for appeals to be made against a refusal to issue an exemption notice the cancellation of an existing exemption notice