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Interest and royalties implementation

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As provided for at Article 1(12) of the Directive, the Member States requires companies (and permanent establishments) resident in other Member States to establish their entitlement to exemption from UK income tax. They may do this by making a claim to the Member tax authorities.

The claim must be certified by the tax authority of the EU Member State in which the claimant is resident.

Relief at source from natural income tax on future interest payments
Interest
Relief at source for companies is available for national-source interest payments only, in cases where national tax authority is able to issue an exemption. If relief at source is granted, the instruction to pay interest without deduction of national tax may

  • normally apply for a period of three years from the date on which the claim form is received
  • apply to future interest and royalty payments
  • be effective from the date on which the certified claim form is received by the State tax authorities

The company claiming relief from national income tax is required to notify its tax authorities as soon as possible, if there is any subsequent change to the material conditions underlying the granting of relief.

Royalties
Claim form EU Interest & Royalties may be used only to claim repayment of tax deducted from national-source royalty payments. In several Member States, the payer of a royalty should make a payment without deduction of tax if it has a reasonable belief that all the conditions for exemption are present.

To qualify for exemption from tax under the terms of the Directive a company making a claim must be subject to one of the following taxes without being exempt (or to a tax that is identical or substantially similar and which is imposed after the date of entry into force of the Directive) that are identified in Article 3(a)(iii) of the Directive.

Permanent establishments
The term ‘permanent establishment’ is defined at Article 3(c) of the Directive as ‘a fixed place of business situated in a Member State through which the business of a company of another Member State is wholly or partly carried on.’

To qualify for exemption from tax under the terms of the Directive a permanent establishment making a claim must, under Article 1(5)(b), ‘insofar as the payments of the interest or royalties represent income in respect of which it is subject in the Member State in which it is situated be subject to one of the taxes mentioned in Article 3(a)(iii) or in the case of Belgium to the impôt des non-résidents/belasting der niet-verblijfhouders or in the case of Spain to the Impuesto sobre la Renta de no Residentes or to a tax which is identical or substantially similar and which is imposed after the date of entry into force of this Directive in addition to, or in place of, those existing taxes.’