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Double Taxation Treaty Passport Scheme
Practical Law Legal Update 6-503-1055 (Approx. 3 pages)
Double Taxation Treaty Passport Scheme
by David Ward, Norton Rose LLP
| Published on 31 Aug 2010 • United Kingdom |
This article is part of the PLC Global Finance August 2010 e-mail update for the United Kingdom.
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HM Revenue & Customs has launched a Double Taxation Treaty Passport (DTTP) Scheme for overseas corporate lenders, which is intended to simplify and improve the system of applying for double taxation treaty relief on interest payments made by UK borrowers.
HM Revenue & Customs has launched a Double Taxation Treaty Passport (DTTP) Scheme for overseas corporate lenders, which is intended to simplify and improve the system of applying for double taxation treaty relief on interest payments made by UK borrowers.
An overseas corporate lender in a country with which the UK has a Double Taxation Treaty that includes an interest Article, may apply for a Treaty Passport from HMRC. The scheme is open to overseas corporate lenders only; individuals are not eligible.
Overseas corporate lenders may register now for a Treaty Passport, although the DTTP Scheme will not start until 1 September 2010.
The DTTP Scheme will work as follows:
- An overseas lender will apply to HMRC for a passport using application form DTTP1. If accepted, the lender will receive a formal letter of acceptance, a unique identifying reference number and will be included on the publicly available register of recognised passport holders.
- A Treaty Passport will be valid for 5 years, but may be renewed by written application to HMRC four months before its expiry.
- The lender must inform the borrower of the need to notify HMRC within 30 working days of entry into the loan. The borrower must notify HMRC on form DTTP2, providing details of the passport holder, the main terms and features of the loan, the borrower's contact details and the name and reference number of its tax office.
- HMRC may issue a direction (usually valid for 5 years) based on the information provided by the borrower in form DTTP2. This will enable the borrower to apply the reduced rate of withholding tax provided by the double tax treaty to the interest payments it makes to the lender under the loan.
While borrowers can search the HMRC database to verify that a lender has been granted passport holder status, they will not be permitted to apply the treaty rate of withholding tax until a direction has been received from HMRC.
The Loan Market Association has published a revised version of its senior multi-currency term and revolving facilities agreement for leveraged finance transactions, which reflects the DTTP Scheme (although it only applies where the treaty provides a full exemption, rather than a reduced rate of withholding tax). It is expected that the DTTP Scheme will improve the process of obtaining clearance for lenders who rely on a double tax treaty for relief from withholding tax. However, for those who do not hold passports, the normal certified claim procedure remains available.