Simplifying treaty relief from withholding tax: Simmons response

Simmons & Simmons LLP has responded to HMRC's consultation on Simplifying Treaty Relief from Withholding Tax on Interest Paid Overseas, published on 13 July 2026 (the "Consultation"). Our response notes that the corporate loan market has changed materially in recent years. In the past, UK banks were the mainstream lenders to UK borrowers and overseas lenders were typically overseas banks, each requiring a simple, single treaty clearance with which their personnel were familiar. Funds are now increasingly parties to finance transactions, as both lenders and borrowers, and changes in the lender group during the term of a loan are much more common than they used to be, as are very large syndicates. These developments have materially increased the significance of complexity and delay in the clearance process.

However, we are also aware that the UK system is longstanding and that a reasonably settled practice of risk allocation and procedures around UK withholding tax has developed, particularly in the LMA standard documentation. In our view, it is preferable to simplify and streamline this established framework rather than to depart from it entirely or to add another layer to it.

The response highlights what we see as the most important points to consider in the Consultation, which are as follows:

• Given taxpayers’ and advisers’ familiarity with the current system, it may be better to reform key aspects of this, rather than to depart from it entirely or add another layer of compliance. Whilst in principle we support a move to self-assessment, the risks of doing so must be carefully managed.
• As an example of this concern, in the context of the large corporate loan market, placing the risk of an incorrect self-assessment solely on the borrower would be unsatisfactory and could result in the benefits of a streamlined system being outweighed by the cost of extensive negotiations between lenders and borrowers.
• The Consultation's aims are only likely to be met if borrowers benefit from clear rules whereby, if they obtain specified evidence at the time the loan is made, they are not at risk of HMRC pursuing them for tax which has not been withheld. Practical solutions include a modified treaty passport scheme and/or lender self-certification modelled on US W-8 forms or the UK qualifying private placement regime.
• Developments internationally, including the proposed introduction of the EU Taxation Omnibus package, which would exempt interest payments between European companies from withholding tax except in limited circumstances, indicate that retaining stringent administrative processes could make the UK an outlier.
• The outcome of this Consultation must be properly aligned with the outcome of the review of the HMRC concession on late-claimed treaty relief, so that there is no gap in protection for taxpayers between the two workstreams.