Update – UK withholding tax application (the “Application”) – HMRC position re: proposed scheme of arrangement - 18 April 2018

On 20 December 2017 LBIE issued an announcement regarding the Court of Appeal judgment handed down on 19 December 2017. The judgment ruled that statutory interest is “yearly interest” for the purposes of Section 874 of the Income Tax Act 2007 and therefore LBIE is subject to an obligation to withhold amounts representing UK income tax (“WHT”), currently at a rate of 20%, from payments of statutory interest that it makes to creditors. On 16 January 2018 the Joint Administrators of LBIE sought permission to appeal the Court of Appeal judgment to the Supreme Court. HMRC filed a Notice of Objection to the Joint Administrators application for permission to appeal and a decision on whether or not the appeal will proceed is awaited.

LBIE has been in discussion with HMRC to ensure creditors can apply to receive statutory interest payments without (or at a reduced rate of) WHT, if applicable, whilst the litigation continues.

HMRC have now confirmed their position as follows:  

1. Creditors who may benefit from an exemption from (or a reduced rate of) WHT under a double tax treaty should apply to HMRC for treaty relief on the statutory interest for each Claim Reference (as set out in the relevant UCC). HMRC guidance on the application process is provided in the link below.

https://www.gov.uk/guidance/double-taxation-relief-royalties-and-interest-paid-to-overseas-companies

In determining if approval is appropriate, HMRC is likely to request further information and confirmations from the creditor, particularly in relation to the beneficial ownership of the claim. Creditors should therefore submit with their treaty application supporting evidence of their beneficial ownership for each claim. This may include documents that demonstrate the claim rights being transferred from the original creditor to the creditor making the treaty application.

Treaty applications should be sent to both of the following HMRC email addresses:

contactus.largebusinesslondon@hmrc.gsi.gov.uk

dttteam.lbnottingham@hmrc.gsi.gov.uk

A treaty direction (“Direction”) given by HMRC to LBIE in relation to an application by a creditor will be actioned by LBIE, provided the Direction is satisfactory to LBIE and is received no later than seven business days before the statutory interest payment to which the Direction relates is due to be made.

2. Creditors that hold a “passport” under the DTTP scheme and are also the original creditor in respect of a claim should contact LBIE at LBIETax@lbia-eu.com confirming:

i) they are the beneficial owner of statutory interest payable to them in respect of the claim;

ii) their DTTP scheme number and jurisdiction of tax residence; and

iii) their authorisation for LBIE to share any relevant information in relation to any of their claims with HMRC.

On receipt of this information LBIE will submit a DTTP2 form to HMRC. Any Direction given by HMRC in relation to a DTTP2 form will be actioned by LBIE, provided the Direction is satisfactory to LBIE and is received by LBIE no later than seven business days before the statutory interest payment to which the Direction relates is due to be made.

Creditors that hold a passport under the DTTP scheme but are not the original creditor in respect of their claim should make a treaty application per the guidance at paragraph 1 above, setting out in the application that they are a passport holder and providing their passport number.

3. LBIE has been unable to agree a clearance process with HMRC in respect of the UK excepted payments legislation within sections 933 to 937 of the Income Tax Act 2007. LBIE will therefore not apply these exemptions to payments of statutory interest. Affected creditors will need to obtain a refund of the WHT from HMRC either through their CT61 filing or their annual UK tax return, as appropriate.

LBIE would encourage creditors to speak to their tax advisor to consider the options available to them.

In summary and based on the current WHT judgment, all payments of statutory interest will be made to creditors less an amount in respect of WHT unless LBIE receives a Direction from HMRC directing LBIE to make a payment of statutory interest to a specified creditor either without or at a reduced rate of WHT (as applicable). Where no Direction is received, where a Direction is received later than seven business days before the statutory interest payment to which it relates is due to be made, or where a Direction received is not satisfactory to LBIE, LBIE will deduct WHT from the statutory interest payment and pay such WHT to HMRC.

LBIE may issue further updates regarding the WHT position on statutory interest payments in due course.

 

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