Deduction of withholding tax

[GSham]

A nominated bank that has negotiated and forwarded complying documents to the issuing bank is entitled to full reimbursement free of deduction of withholding tax. If the laws of the issuing bank's country require imposition of withholding tax, it should not be deducted from the payment. LCs need not include a "gross up clause" to ensure that issuing bank's payment is made in full, free of any deductions or withholdings, and without exercising any right of set-off.

Please share, if you have other views.

Regards
Gabriel

[DLloyd1]

Hi Gabriel,

Do you mean withholding tax on interest charged?

If the local law requires that it must be deducted then no clause in UCP or in the LC can override that law.

I had this problem once with India deducting withholding tax.

[GSham]

But the nominated negotiating bank has the right to full reimbursement both in accordance with the LC and UCP. If the law requires withholding tax, it should not be passed on to the beneficiary or nominated negotiating bank.

Regards
Gabriel

[MohammadS]

Folks,

Please allow me to share my experience with dealing w. tax deduction against export proceeds.

1) This withholding tax generally applicable by the specific law of the land, which is over ruled UCP;

2) The deduction is imperative “at source” means against realization of export proceeds;

3) Generally, such tax are govern among countries based on international conventions i.e., double taxation treaties, which is a binding on parties involved (including buyer & seller) in a an international trade transaction;

4) That is why the two parties always refer or encourage to refer such international as well as local convections before entering into a deal to avoid surprises.

Please share your views, if you feel otherwise.

Thanks,
Sohail

[AsifMahmoodButt]

I agree with Gabriel the nominated bank is entitled to receive full value of documents. If the laws of the issuers country require deduction of withholding or any other tax/levy the LC should make a special reference accordingly the seller may adjust his price (if required) unilateral deduction of tax otherwise is not justified.
Regards
Khalid

[EricLONGEPIERRE]

Dear Sohail,
as you mentioned withholding tax on export proceed, I totally, agree with you. but here case is totally different:

1. you are a issuing bank instead of beneficiary's bank.

2. beneficiary is not holding resident status in that country.

3. if there is any local law, normally, tax imposed at customs at the time of releasing of goods instead of at the time making any payment by the banks. Importer/applicant has to take care for this issue instead of beneficiary.

4. as per l/c terms beneficiary is entitled to received full face value of that instrument.

[RitaRicci]

I had the same question as DLloyd1. Assuming LC provides for negotiation with interest charges on 'applicant', in such cases I have seen witholding tax deducted and agree with Sohail that it would be prudent to find out before entering into a deal to avoid unpleasant surprises.

[EricLONGEPIERRE]

agreed, if charges were on applicant (whatever) means beneficiay entitled to received full amount.