 Double Taxation Treaty Passport (DTTP) Scheme
In the absence of a Double Tax Agreement (“DTA”) a UK corporate borrower is generally required to deduct 20% withholding tax on interest paid to overseas corporate lenders. The terms of a DTA typically reduce this rate, sometimes to 0%.
Application of the DTA is not automatic and approval must be granted before the reduced rate can be applied. The lender must submit a separate clearance application for each loan, with each application requiring confirmation of residency from the overseas tax authority.
A facility was introduced from 1 September 2010 to ease the burden for serial overseas lenders generating interest income from the UK. The DTTP Scheme is available to any corporate lender resident in a country with which the UK has a DTA that includes an interest article. This scheme makes it quicker and simpler to obtain HMRC approval that the treaty rate of withholding tax can be applied.
Under the DTTP scheme the lender can apply for a “Treaty Passport” from HMRC. If a passport is granted, the lender will receive a unique DTTP number and will be entered on HMRC’s publicly available online register of recognised passport holders. The passport can then be used for any new loans made in the following five-year period.
If a UK corporate borrower enters into a loan agreement with a lender who is registered as a Treaty Passport holder, the lender will provide its passport holder status and reference number. The UK borrower must then provide HMRC with details of the loan, within 30 days of the loan agreement, following which HMRC will issue direction that the treaty rate of interest can be applied.
The scheme also applies to non-UK corporate borrowers whose interest payments have a UK source.
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