Leading City firms successfully lobbied against the change, telling the government that reforming the law would make it more difficult to raise funds and therefore make the UK less competitive and add to compliance costs.
Last year HM Revenue & Customs estimated that shutting down the system – which enables companies to make interest payments to overseas investors – could raise up to £200m.
But in a consultation document released with little fanfare, the government has decided not to proceed with plans to tax quoted eurobonds, which are often used to move money to off-shore arms of UK firms.
A typical use of the eurobonds involves a firm’s overseas division lending money to its British arm. The UK-domiciled unit then pays interest on the loan back to the overseas division, without tax.