In December 2014, the UK Chancellor announced a new withholding tax exemption for interest on “qualifying private placements”. The private placement (PP) market performs an important role in other jurisdictions in financing to mid-sized companies, and the UK Government hopes to stimulate this in the UK.
Draft legislation sets out “gateway” criteria for qualifying PP status, and the Government is consulting on further criteria to be set out in regulations. The gateway criteria are that qualifying PP must: be a security issued by a company; represent a loan relationship of the debtor for corporation tax purposes; have a term of issue of at least three years; and not be a “quoted Eurobond” for UK tax purposes.
The Government proposes further criteria relating to: the status of the issuer; the size of the PP issue; the status of investors; and the terms of the security. Investors would have to certify those criteria relating to their status on acquisition and at intervals thereafter. There will also be an anti-avoidance rule. The proposal will come into force on a date that is to be specified in future regulations, and so is not certain at present.
The new exemption is welcome, but we expect it to be the subject of discussions between HMRC and industry bodies. An immediate concern is the requirement that qualifying PP is a security, which may exclude PP in the form of a bank loan. In addition, some of the extra conditions look unduly restrictive. HMRC needs to get the detail right or it will run the risk that the new exemption will not meet its policy objective of stimulating UK PP.