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HMRC internal manual

Savings and Investment Manual

Payment of interest overseas: borrowing by United Kingdom permanent establishment of overseas company

  • has a permanent establishment in the UK and
  • the company raises a loan outside the UK for use by the UK permanent establishment in its business and
  • the interest is paid abroad by the permanent establishment and
  • the interest is annual

then the interest is subject to income tax, by way of deduction, unless the overseas recipient has applied for and been granted exemption, or a reduced rate, under a double taxation agreement. Most such permanent establishments are banks and these will secure exemptions on that basis. See also SAIM9240, which provides guidance in circumstances where both the payer and the recipient of interest are outside the UK. The source of interest is governed by the principles outlined at SAIM9090.