Summer2012


• On the proposal to abolish the distinction between yearly and short interest, we stated that we agree that the position around yearly interest is not currently wholly satisfactory but that we do not believe that the right answer is to abolish the distinction with the result


that


becomes payable on loans of all durations. Whatever the historic reason for the short/yearly interest distinction, it has become very important in many areas such as the short term commercial paper market, credit card operations and short term bridge financing.


• On the issue of source and when interest arises in the UK, we said that we agree with the view that the


question of where a loan


agreement is held should not be material to the question of the source of the resulting interest payments. We urged that the definition of UK source be included in the wider review of the taxation of interest.


• On the proposal to limit/abolish the quoted eurobond exemption for intra-group loans, we said that we understand the policy reasons but


that the proposal quoted Eurobond market


they will pay withholding tax in cash if they can, and secondly, funding bonds are most typically issued because a borrower does not have the cash to pay interest. These factors suggest to us that it would be wrong to amend the rules on funding bonds to require the payment of withholding tax in cash since to do so would impose a need to find cash on businesses which lack it.


to deny


the relief to intra-group bonds which are not regularly traded is fraught with practical difficulties. The


generally remains of enormous importance to the UK economy, both for companies that borrow money using it and the financial services industry that advises the issuers and buyers of the bonds. Damaging this market would have a serious detrimental effect on the UK economy, so it is critical that any measures aimed at perceived abuses are well-targeted and so do not affect the wider market. We also queried the £200m estimate of the amount of tax which would be raised by this measure which is included within the consultation document.


•


In relation to the proposal regarding funding bonds, we made two key points: firstly, companies do not as a rule want to


find


their securities held by HMRC and so even under the current rules


Looking ahead, there are a number of recently announced HMRC/HM Treasury Consultations post-Budget for the Committee to comment on over the summer months. In particular, the Consultations on the proposed GAAR and Statutory Residence Test.


Bradley Phillips, Chair, Herbert Smith LLP


Financial Law Committee


The Committee has continued to be busy on a number of initiatives, some connected with the response to the financial crisis and others of a more general nature.


We have made submissions to the European Commission on its working document on bail-in powers in bank resolution and to the Scottish Government recommending against the implementation of Part 2 of the Bankruptcy and Diligence etc (Scotland) Act 2007 and urging them


to work with the regime in the Companies Act 2006, so


as to preserve the simplicity of a harmonised regime for


registration


of floating charges throughout the UK and avoid the additional expense and complexity a separate Scottish process for the recognition of floating charges would create. We have also contributed to the CLLS submission to the Department of Justice on the EU proposal for a Common European Sales Law.


We expect to comment further on EU and UK proposals on bank resolution, where both the EU Commission and HM Treasury are seeking views, and on EU plans for the structural reform of the banking sector. We have also set up a group to review the law on the taking of security and related issues generally with a view to considering whether, and if so what reform, might be appropriate in the longer term. Meanwhile we have contributed to the work led by DBIS on implementation of the provisions of the Companies Act 2006 on the registration of charges and are contributing to Insolvency Law Committee work on the review of the EU Insolvency Regulation.


Our Deputy Chairman, Geoffrey


Yeowart, is to be congratulated on having been appointed a member of the Financial Markets Law Committee sponsored by the Bank of England and City institutions.


Dorothy Livingston, Chairman, Herbert Smith LLP


City Solicitor • Issue 78 • 5


withholding tax


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