Withholding tax
(WHT).
Withholding tax is a tax deducted at source on earnings, including employment income, dividends and interest payments, and can also include intangible services. It can be required to be deducted on domestic payments subject to domestic exemptions, and international payments where it is often subject to exemptions arising from double tax treaties.
For example in the UK there is an exemption for any payments of interest on a quoted Eurobond, being any security issued by a company and the security is listed on a recognised stock exchange and carrying a right to interest. There is also an exemption for interest paid by banks in the ordinary course of their business.
Care is required to ensure the receiver of the funds will be able to use the WHT against domestic tax, otherwise revenue could be subject to double taxation. Loan and derivative agreements usually require WHT is not required, and that if it becomes deductible the parties have the option to terminate the agreement.
