IFM40780 - Treatment of certain payments: withholding tax

FA22/SCH2/PARA55

Qualifying asset holding companies (QAHCs) benefit from a full exemption from withholding tax on interest which they pay, provided for by a new ITA07/S888DA, inserted by PARA 55. This exemption applies whether or not the interest in question is paid in relation to ringfenced or non-ringfenced business.

PARA 32 is also in point in relation to the withholding tax exemption. This provision recognises that where a company which is a debtor is sold, it is common for the buyer to procure that debt to be repaid immediately on completion of the sale. The paragraph ensures that such a payment may be treated as made by a QAHC (and so qualify for the withholding tax exemption), even if the company being sold loses its QAHC status as a result of the sale. In order to benefit from PARA 32, the payment must be made in connection with the transfer of relevant interests (normally the contract of sale will place the buyer under the obligation to procure immediate repayment of the debt, which would satisfy this requirement).

PARA 32 will generally apply to prevent withholding tax arising even where beneficial ownership of securities conferring relevant interests in a QAHC has been lost by the seller(s) in advance of completion of the sale, due to the operation of PARA 30 (see IFM40455). This requires the conditions for PARA 30 to apply to be met.