Payment of interest overseas: loan documentation
Gross up for tax deducted
Loan agreements will commonly include a ‘gross up’ clause - a provision which requires the payer to gross up payments for any tax deducted, so that the recipient receives the expected amount i.e. the interest in full. In other words, the payer must bear the cost of the income tax deducted. The loan agreement will usually require the recipient to take whatever action he can to reduce the tax charged, for example, by submitting a claim for relief under a double taxation agreement.