Validity of interest charges on unpaid withholding tax subsequently found not to be due

Mon 20 Aug 2018

The CJEU has issued a decision in case C-553/16 (TTL EOOD) holding that interest charged by the Bulgarian authorities on unpaid withholding tax on cross border leasing payments to unconnected parties was contrary to EU law in the circumstances.  The case concerned payments on which withholding tax was not levied on the assumption that exempting double tax treaty provisions applied.  Evidence for the application of those provisions, however, was only obtained between one and four years after the payments were made.

The UK operates the EU interest and royalties directive by requiring clearance before interest can be paid to an EU member state lender without withholding tax (SI 2004/2622). It is our experience that HMRC will seek to levy interest charges in a similar way to the Bulgarian authorities where clearance that exemption from the requirement to withhold tax has not been obtained before payment, despite the arrangements otherwise meeting the requirements for exemption.

Claims in mistakes which are contrary to the charging of tax under EU law are not prohibited from the statute of limitations by FA 2007 s107, so the time limit for reclaims under the Limitations Act 1980 will be six years from the date it is reasonable for the claimant to have discovered the mistake. There may therefore be a period running to July 2024 to make claims for periods prior to August 2018.

For a further discussion of the implications of this decision for your business circumstances, please get in touch with a member of the Mazars international tax team.