Court Case Arguably Clarifies UK Source Rules With Respect To Interest

A recent case heard by the First Tier Tribunal (the junior UK tax tribunal) serves as a timely reminder of the complexities that surround the UK's regime for deduction of tax from interest paid. In general, the payer of UK-source interest to a recipient outside the UK is required to withhold 20 percent from the interest. This obligation can be reduced (either in whole or in part) under the terms of a tax treaty entered into by the UK. The recent decision, Andrew Collins Perrin v the Commissioners for Her Majesty's Revenue and Customs, although decided in favor of HMRC rather than the taxpayer, arguably clarifies how the question of whether interest has a UK source will be decided.