Valid from 22/07/2004
Exemption from income taxU.K.
98Exemption from income tax for certain interest and royalty paymentsU.K.
(1)No liability to income tax arises in respect of a payment of interest or a payment of a royalty if, at the time the payment is made, the following conditions are satisfied.
(2)Condition 1 is that the person making the payment is—
(a)a UK company (but not such a company’s permanent establishment in a territory other than the United Kingdom), or
(b)a UK permanent establishment of an EU company.
See section 99(2) as to when a permanent establishment is to be treated as the person making the payment.
(3)Condition 2 is that the person beneficially entitled to the income in respect of which the payment is made is an EU company (but not such a company’s UK permanent establishment or non-EU permanent establishment).
See section 99(3) as to when a permanent establishment is to be treated as the person beneficially entitled to the income in respect of which the payment is made.
(4)Condition 3 is that the company in Condition 1 and the company in Condition 2 are 25% associates (see section 99(4)).
(5)Condition 4 is that, if the payment is a payment of interest, the Board has issued an exemption notice in accordance with regulations under section 100.
(6)This section is subject to—
section 103 (special relationships), and
section 104 (anti-avoidance).
99Permanent establishments and “25% associates”U.K.
(1)This section has effect for supplementing section 98 and is to be construed as one with it.
(2)For the purposes of Condition 1, a permanent establishment in a territory of a company that is resident in another territory is to be treated as the person making the payment (instead of the company) if, and to the extent that, (within the meaning of Article 1(3) of the Directive) the payment represents a tax-deductible expense for the permanent establishment in the territory in which it is situated.
(3)For the purposes of Condition 2, an EU company’s UK permanent establishment or non-EU permanent establishment is to be treated as the person beneficially entitled to the income in respect of which the payment is made (instead of the company) if, and to the extent that, (within the meaning of Article 1(5) of the Directive)—
(a)the debt-claim, right or use of information in respect of which the payment arises is effectively connected with the permanent establishment, and
(b)the payment represents income in respect of which the permanent establishment is subject in the territory in which it is situated to United Kingdom corporation tax or a tax corresponding to that tax.
(4)For the purposes of Condition 3, two companies are “25% associates” if—
(a)one holds directly—
(i)25% or more of the capital in the other, or
(ii)25% or more of the voting rights in the other, or
(b)a third company holds directly—
(i)25% or more of the capital in each of them, or
(ii)25% or more of the voting rights in each of them.