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U.K. Budget to Upset Intra-Group Eurobond Financings? - by Tony Martin and Liz Murphy 

Global Tax Adviser


April 03, 2012


Tony Martin
Vancouver, International Corporate Tax


Liz Murphy
Toronto, International Corporate Tax


As stated in its 2012 budget announcement, the U.K. tax authorities are seeking comments on a proposed amendment to revoke the withholding tax exemption for Eurobonds issued between specific "avoidance situations". These situations involve Eurobonds issued by intra-group companies that are listed on a stock exchange that has no substantial or regular Eurobond trading. Any actual legislative amendment resulting from this review would not take effect before 2013.

Currently, the obligation to deduct U.K. withholding tax from interest payments is not required if the instrument on which the interest is paid is a quoted Eurobond. The United Kingdom introduced this exemption from the withholding tax requirement in 1984 to facilitate external financing from third party non-U.K. lenders through the issue of Eurobonds.


In recent years, several groups have issued Eurobonds between companies in the same corporate group and listed them on stock exchanges in tax-friendly territories such as the Channel Islands and Cayman Islands, where they are not actually traded. In effect, the conversion of existing inter-company debt into quoted Eurobonds enables a company to make gross payments of interest out of the U.K. to a fellow group company, where otherwise withholding tax would be required.


For more information, contact your KPMG adviser.

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