Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

International Manual

HM Revenue & Customs
, see all updates

Intra-group funding: group finance companies and the treasury function: Centralising the finance function: tax considerations

The main advantage in centralising finance functions is for relief for interest expenses and exchange losses to be managed more effectively. Other benefits for the group may flow from the tax regime of the finance company’s jurisdiction of residence. The tax criteria for finding a suitable location will include-

  • the applicable corporate tax rate (or rates)
  • any specific tax rules for financial activities, including the basis on which the group finance company’s profits will be computed for the purposes of local corporate taxes, or the availability of special rates
  • domestic withholding tax provisions applicable to financial payments made out of the jurisdiction
  • the country’s treaty network and in particular whether or not the prospective payments and receipts of interest will be treaty-protected, so that they can be made and received without deduction of withholding tax.
  • The existence of relevant double taxation agreements is an important consideration when deciding where to locate a finance function. This is because without the protection of a good network of double tax agreements, interest paid to the finance company is likely to be subject to withholding tax in the source countries. This means that companies based in low tax jurisdictions without suitable agreements are unlikely to lend directly to the UK. Finance companies are therefore likely to be found in countries which have extensive treaty networks and in some cases special regimes or rates for such companies. Tackling the use of intermediary jurisdictions to obtain treaty benefits is an issue specifically considered in the chapter on Beneficial Ownership at INTM504000.

The decision as to where to locate the finance function has take into account both commercial factors and tax factors, leading to an overall assessment of the benefits to be obtained from centralising finance functions in any given location.