Income Tax (Trading and Other Income) Act 2005 section 763

Special relationships

Section 763 deals with the restriction of the interest and royalties exemption where payments are made between parties that have a special relationship, rather than dealing with each other at arm's length.

• The exemption from tax on interest or royalties does not apply where the payer and the beneficial owner have a "special relationship" that results in payments not being at arm's length.
• "Special relationship" is a concept drawn from double taxation treaty language, covering situations where connected parties may set non-commercial terms for payments.
• Where a special relationship exists, any excess amount paid above what would have been agreed between independent parties loses the benefit of the exemption.
• If claiming relief under a double taxation treaty would provide greater relief than the exemption itself, the company may choose to claim under the treaty instead.