UK Law and Practice Contributed by: Fergus Wheeler, Paul Yin, Tracy Liu and Medha Vikram, Latham & Watkins
resident company or a UK permanent establish - ment. 4.2 Other Taxes, Duties, Charges or Tax Considerations For private credit lenders using tax transpar - ent vehicles, a key consideration is that, under the Loan Market Association (LMA) definition of “qualifying lender”, these vehicles are not con - sidered “qualifying lenders” because they are not “beneficially entitled” to the interest. How - ever, their ultimate partners or members are. The definition must therefore be amended to reflect this. If a lender is not a “qualifying lender”, it cannot benefit from change in law protection in respect of the gross-up. 4.3 Tax Concerns for Foreign Lenders Certain lending vehicles, particularly tax trans - parent vehicles, may not qualify for a DTTP. In these cases, a long-form certificated claim for each beneficial owner of the interest income is required, which can be time-consuming. If an interest payment is due before completion, the QPP exemption might be used as an alterna - tive or short-term back-stop until HMRC grants treaty relief. The QPP exemption is theoretically administra - tively simple, requiring only a QPP certificate from the lender to the borrower. However, there is some market uncertainty around the interpre - tation of the regulations. If the QPP exemption isn’t viable as a back-stop, it may be possible to include an interest deferral mechanism in the facilities agreement allowing the borrower to defer payments until HMRC issues a gross pay - ment direction. 4.4 Tax Incentives There are no specific tax incentives for for - eign private credit lenders lending into the UK.
However, it is worth noting that in 2022, the UK introduced the qualifying asset holding com - pany (QAHC) to enhance the UK’s appeal as an asset-holding jurisdiction. This allows funds to establish asset-holding companies in the UK with greater tax efficiency and compete more effectively with the regimes in Luxembourg and Ireland. To qualify, a QAHC must meet specific condi - tions including related to ownership and activi - ties, which should be primarily investment- related. Continuous self-monitoring is essential to maintain QAHC status. Foreign private credit lenders wishing to hold UK assets using a UK vehicle should consider if the QAHC regime applies. 4.5 Non-Bank Status It should be noted that for funds setting up enti - ties in Europe, there has been increased scru - tiny on economic “substance” tests, which con - sider factors like office space and employees. These requirements prevent funds from simply establishing a lending vehicle in a jurisdiction to access double tax treaty relief. The European Commission’s anti-tax-avoidance directive (ATAD III) targets shell entities misuse for tax purposes. EU entities must pass certain gateways related to income, staff and premises to prove suffi - cient “substance”. Entities deemed to be lack - ing “substance” may be unable to obtain tax residence certificates or benefit from double tax treaties and EU Directives. The draft ATAD III is not finalised, so its impact on private credit finance is uncertain.
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