817V. Payment of interest

(1) This section applies to a relevant payment of interest paid by a company to—

(a) an associated entity that is resident in a specified territory and is not resident in another territory that is not a specified territory, or

(b) a permanent establishment of an associated entity which is situated in a specified territory,

to the extent that the relevant payment of interest is not an excluded payment.

(2) Sections 64(2), 198(1)(c), 246(3), 246A(3)(a)(A) and 246A(3)(b)(A) shall not apply to a relevant payment of interest to which this section applies.

(3) Subsection (2) of section 246 shall apply to a relevant payment of interest to which this section applies as if a reference to a payment of yearly interest in that subsection were a reference to a relevant payment of interest to which this section applies.

(4) Where this section applies to a relevant payment of interest on a security referred to in section 37(2), section 36(2) shall apply as if ‘shall be paid without the deduction of tax, but all such interest’ were omitted.

(5) Where an arrangement is entered into by any person and it is reasonable to consider that the main purpose or one of the main purposes of the arrangement, or any part of the arrangement, is the avoidance of the application of any of the provisions of this section to a relevant payment of interest, directly or indirectly, to an associated entity in a specified territory, then this section shall apply as if the arrangement, or that part of the arrangement, had not been entered into.

(6) Subject to subsection (5), this section shall not apply to a relevant payment of interest by a company where that relevant payment of interest is a payment—

(a) to which section 64(2)(b)(i) or 246A(3)(a)(A) would apply, but for subsection (2), or

(b) to which section 246A(3)(b)(A) would apply, but for subsection (2), solely by virtue of section 246A(3)(b)(ii)(I),

where it is reasonable to consider that the company is not, and should not be, aware that any portion of the relevant payment of interest is made to an associated entity.

(7) This section shall not apply to the portion of the relevant payment of interest made by a company to an entity to the extent that—

(a) a corresponding amount has been paid by that entity to another person in a tax period which commences within 12 months of the end of the tax period in which the payment is made by the company,

(b) the corresponding amount referred to in paragraph (a) would have been an excluded payment had that corresponding amount been paid directly by the company to that other person referred to in that paragraph, and

(c) all payments were made for bona fide commercial purposes.

(8) Nothing in this section shall result in the application of section 246(2) to an entity other than a company which makes a relevant payment of interest.