The Court of Appeal has recently refused to overturn rulings of the lower courts in the case of Hargreaves Property Holdings Ltd v HMRC [2024] leaving the taxpayer with a circa £2.8m UK withholding tax liability.
The taxpayer put in place an artificial structure part of which was intended to avoid UK withholding tax on interest payable under revolving long-term funding arrangements. The recipient of the interest sought to rely on the UK corporate exemption from withholding tax, but this required it to be beneficially entitled to the interest, which the court adjudged it was not. The court confirmed that "beneficially entitled" involved entitlement with benefits and did not simply equate to equitable ownership. Some form of real and practical entitlement to benefit from the interest was required and this was not present because of the back-to-back payments the structure contained.
The taxpayer also sought to argue that the relevant payments of interest were not "yearly interest" which would have meant there were no withholding tax obligations. Although some of the loans in the case were repaid within twelve months of being made, the cycles of assignments, repayments and routines re-advances of the short-term loans meant that the Court found they were in the nature of long-term funding that had a measure of permanence. They were therefore considered to be yearly interest.
If you have any withholding tax queries or require any other tax advice in connection with funding arrangements please contact our tax specialists who can provide you with further guidance.
