Income Tax (Trading and Other Income) Act 2005 section 757

Interest and royalty payments: introduction

Section 757 introduces the provisions that exempt certain cross-border interest and royalty payments between associated companies from UK income tax, giving effect to the EU Interest and Royalties Directive.

• Sections 758 to 767 implement the EU Interest and Royalties Directive (Council Directive 2003/49/EC of 3 June 2003), which eliminates source country taxation on interest and royalty payments between associated companies in different EU member states.
• The exemption applies where the beneficial owner of the interest or royalties is a company in another EU member state, or a permanent establishment of such a company located in an EU member state other than the UK.
• Although the recipient will be a company, the exemption is from income tax rather than corporation tax, because non-UK resident companies are only subject to corporation tax on such payments if they trade in the UK through a permanent establishment and the payments are attributable to that establishment.
• Section 757 itself serves as the introductory framework for the detailed rules that follow in sections 758 to 767.