Changes to UK Interest Taxation Could Affect Group Financing Structures

In a consultation document published on 27 March 2012, the UK government has proposed a number of significant changes to the income tax rules on taxation of interest received and on deduction of tax from interest paid. If implemented, the changes are likely to come into effect in 2013. The proposed restriction of the exemption for quoted Eurobonds is a major change and could have serious implications for multinational groups who have used Eurobonds in their intra-group financing structures. Removal of the distinction between "short" and "yearly" interest arising in the UK would bring all interest paid by UK companies within the scope of UK withholding tax regardless of the duration of the loan. This could have a particularly adverse impact for cash pooling arrangements.