One of the many consequences of Covid-19, is the potential for banks and other financial institutions to have a scenario where negative interest rates apply to an advance of money or a loan – the bank or financial institution will actually pay you interest in return for you borrowing from them.
Gearing up for this potential unprecedented event, questions have been asked as to whether the payer of the negative interest will have either RWT or NRWT withholding obligations at the time of making the interest payments to the borrower.
IR has responded with draft ADV000097 – Whether ‘negative interest’ payments are subject to withholding taxes.
The draft QWBA suggests that the correct answer to the question is no – the payments will not be subject to withholding taxes. This is because the RWT and NRWT rules only apply to payments made by a person to another person in respect to money lent. However with a negative interest rate scenario, it cannot truly be said that the interest is paid for money lent – if it was paid for money lent, then it would be in return for the money lent, and paying interest to the person who has received the loan funds, is not a return to the lender on the loan funds advanced.
If you wish to have your say on ADV000097, the deadline for comment is 15th January 2021.