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  • Caius Tax Management

Substance-WHT 2021: extension of director liability regime

The Withholding Tax Act 2021 (“WHT Act 2021”) introduces levying of a conditional withholding tax on interest and royalty payments to affiliated entities in designated low-tax jurisdictions and in abusive situations, where payments are artificially diverted to entities without the appropriate substance.

Often overlooked is that the WHT Act 2021 also introduces a significant extension of the director liability regime. To ensure that the correct amount of WHT is paid, the current director(s) of the paying entity, but also the current director(s) of the foreign receiving entity will collectively be held jointly and personally liable for the (timely) payment of the correct amount of withholding tax. Moreover, the (foreign) director(s) will not be discharged from said WHT liability upon retirement or after stepping down as director.

To escape from the above-mentioned WHT liability the (foreign) director(s) need to prove that they are imputable for not or not fully paying the correct amount of WHT, e.g. by obtaining timely a properly rendered should level opinion from a knowledgeable tax advisor.

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