Bingham

Bingham

Double Tax Treaty Passport Scheme

June 10, 2010

HM Revenue & Customs (“HMRC) has published details of the UK’s new Double Tax Treaty Passport Scheme (the “DTTP Scheme), the aim of which is to simplify and speed up the process for granting double tax treaty relief on UK loan interest payments to non-UK corporate lenders.

Applications can now be made for passports under the scheme. A passport can then be used on loans made from September 1, 2010.

Outline of the DTTP Scheme

Set out below is a summary of some of the key aspects of the DTTP Scheme:

  • A non-UK company (or similar fiscally opaque entity) that is resident in a country which has a double tax treaty with the UK providing for a reduced rate of withholding tax on interest, may apply for a “treaty passport” from HMRC.
  • If an application is accepted, the applicant will be given a scheme reference number and will be included on a public register of passport holders.
  • Upon making a loan, the passport holder would notify the borrower of its status and DTTP Scheme reference number.
  • The borrower must then, within 30 days of the making of the loan, notify HMRC of the passport.
  • HMRC should then issue a direction to the borrower to pay interest to the passport holder with income tax deducted at the rate set out in the applicable treaty.
  • Passports are granted for five-year periods. Holders may apply for renewal of a passport.
  • The DTTP Scheme is not compulsory. Lenders may continue to use the existing treaty relief application process if they wish.
  • The DTTP Scheme is only available to corporate lenders. Individuals are not eligible.

Further details can be found by visiting the HMRC Website or by clicking here.

Advantages of the DTTP Scheme

The DTTP Scheme should reduce the administrative time and cost incurred by non-UK lenders who regularly make loans to UK borrowers. Under the scheme, a passport holder would need only notify a borrower of its DTTP Scheme status and reference number, as opposed to completing and submitting a certified double tax treaty relief claim form for each UK loan it enters into.

The process should also give rise to far quicker treaty directions for UK borrowers in respect of passport holders, and therefore reduce gross-up risk under loan documentation. 

For more information regarding this alert, please contact the following lawyer:

Stuart Sinclair, Partner, Tax and Employee Benefits Practice
stuart.sinclair@bingham.com, +44.20.7661.5390

Circular 230 Disclosure: Internal Revenue Service regulations provide that, for the purpose of avoiding certain penalties under the Internal Revenue Code, taxpayers may rely only on opinions of counsel that meet specific requirements set forth in the regulations, including a requirement that such opinions contain extensive factual and legal discussion and analysis. Any tax advice that may be contained herein does not constitute an opinion that meets the requirements of the regulations. Any such tax advice therefore cannot be used, and was not intended or written to be used, for the purpose of avoiding any federal tax penalties that the Internal Revenue Service may attempt to impose.

Back To Top

Legal insight. Business instinct. Global intelligence. ®