Where a UK company is funded by off-shore loans, payments of interest – even to an intra-group lender – will be subject to UK withholding tax.
However, the tax withholding will not apply if the loan is structured as a quoted Eurobond for tax purposes and we are seeing increasing use of this exemption.
To qualify as a quoted Eurobond:
- The loan must be a fully transferrable debt security – generally documented as a loan note issue by the borrower (or issuer) under the terms of a Loan Note Instrument
- The debt can be denominated in any currency and drawn down in one payment or in tranches under successive note issues
- The debt may be secured or unsecured
- Interest may be payable at any rate (fixed / floating) typically quarterly or annually and may be payable in cash or rolled over by the issue of PIK Notes
- The debt must be listed on a HMRC recognised stock exchange. There are currently some 45 jurisdictions with recognised exchanges, including London, Guernsey (TISE) and Cayman Islands (CSX)
- The issuer must maintain a register of loan note holders and comply with the continuing obligations of the listing authority.
Listing on a European exchange, where compliance with prospectus regulation is required, will not be cost-effective unless the loan notes are to be funded in the market and publicly traded. Where the loan notes are structured for intra-group funding with no intention to trade publicly, typically the issuer will seek to list on an overseas exchange, eg CSX or TISE, where the listing requirements can be readily satisfied and the application made by its appointed sponsor. Time-scale for listing is generally 4 – 8 weeks.
For further information regarding Quoted Eurobonds, please contact Martin Kay or Cathy Bryant.
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