Interest and royalties directive

The EU interest and royalties directive will cease to have effect in UK law which means that, from 1 June 2021, any payments of interest and royalties by UK companies to fellow group companies in the EU will be subject to withholding tax at 20%, unless there is an exemption from or reduced rate provided for under the relevant double tax agreement between the UK and the territory of residence of the recipient. It also means that UK recipients of such income from group companies in the EU may suffer withholding tax in the territory of residence of the payer.

Affected groups should therefore start reviewing applicable double tax treaties and making applications to the relevant tax authorities to apply the treaty rate where one exists. Restructuring may also be appropriate where the withholding taxes arising are sufficiently large.

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• Making payments of interest or royalties to connected companies in the EU

OECD mandatory disclosure rules

The government is going to consult on the implementation of OECD rules to combat offshore tax evasion by facilitating global exchange of information on certain cross-border tax arrangements.

Regular readers of ICAEW’s tax news will recall an article published in January, DAC 6 to be replaced by OECD rules for UK intermediaries, which outlined that the UK's rules requiring the reporting of cross border tax arrangements were scaled back as a result of the end of the Brexit transition period and now only require arrangements which undermine the common reporting standard or disguise beneficial ownership, to be reported.

Only arrangements that would have fallen within Category D of DAC 6 now need to be reported, in line with the OECD’s mandatory disclosure rules. HMRC confirmed to ICAEW’s Tax Faculty that this change applies retrospectively.