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A4.450 Exemption from duty to deduct withholding tax for payments to associated EU companies

A UK company is normally required to deduct income tax at the basic rate when making a payment of interest or royalty, and to account to HMRC for the tax deducted. See A4.424 for the duty to deduct tax from yearly interest and A4.435 and A4.441 for the duty in respect of royalties. Whilst the UK was a member of the EU, however, it was subject to the EU Interest and Royalties Directive 2003/49/EC. The UK legislation giving effect to the Directive, ITTOIA 2005, ss 757–767 provided for the payment of most interest and royalty payments by a UK company or a UK permanent establishment of an EU company to an associated company in an EU member state without deduction of tax.

Following Brexit, the UK legislation is repealed from 1 June 2021 (subject to the detailed rules below), so that interest or royalty payments made from the UK to a connected EU company are no