The Finance Act 2015 introduced certain gateway conditions for the new exemption from UK withholding tax on interest payments for "qualifying private placements." The Qualifying Private Placement Regulations 2015 setting out the detailed conditions for relief have now been made.
While January 1, 2016 was appointed as the effective date, the exemption potentially benefits existing and new loans.
The exemption is likely to be particularly welcome to non-UK (but non-tax haven) lenders resident in a jurisdiction which has a double tax treaty with the UK which does not provide for full exemption from withholding tax on interest. Some major jurisdictions like China, South Korea, India, Israel, Australia and Indonesia do not reduce withholding tax to zero in the treaties with the UK, but their lenders can now qualify for this new relief.
This may be labelled an exemption for private placements, but it is no such thing. It applies to all forms of loans (subject to the requisite conditions being met) and is as relevant for a simple bilateral loan as it is for a private placement of notes. It can also be claimed in preference to more complicated and administratively cumbersome reliefs, like the treaty passport or the old-style treaty claims, which is good news because it avoids timing risk for borrowers.
The exemption is also good news for borrowers and lenders because it increases the pool of potential lenders that can join a syndicate without an associated withholding cost. The Loan Market Association (LMA), which produces template documentation upon which the majority of EMEA loan agreements are based, is understood to be working on updated templates.
Updates to the LMA templates are awaited.
Find out more by contacting the authors.