Despite the tax exemption costing the UK economy at least £500m a year, the Government bowed to pressure after intense lobbying from the financial sector to allow companies to use it
The Government chose not to close a tax loophole which costs the UK economy at least £500m a year after intense lobbying from the financial sector, The Independent has learnt.
More than 30 companies are paying more than £2bn in total to their overseas owners every year as interest on borrowings. As these can be deducted from the companies’ taxable UK income, this amounts to a corporation tax saving of around £500m when compared to equivalent investment in shares in the company.
Without the exemption, any tax savings from the interest deductions would be greatly reduced by the 20 per cent withholding tax that HMRC would otherwise take from interest payments going overseas. As many more companies list debt in the Channel Islands, and the loophole also works in other exchanges including Luxembourg and the Cayman Islands, the total tax lost may be significantly higher.
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