Double Taxation Treaty Passport Scheme extended to non-corporates

Jacob Gilkes

The Government announced today that it is to extend the Double Taxation Treaty Passport scheme (the “DTTP Scheme“) so that it applies to all lenders and borrowers, rather than just corporate lenders and borrowers.

The DTTP Scheme was introduced in 2010.  It simplifies the process for claiming exemption from (or the reduced rate for) withholding tax provided for in the relevant tax treaty with the UK.  Under the scheme, the lender registers with HMRC and receives a passport number.  In due course, when the lender makes a loan, it simply provides the borrower with its passport number and the borrower files a short form with HMRC to claim the appropriate withholding tax exemption/reduction.  HMRC already have the necessary details of the lender and so the claim can be processed relatively quickly.

 Currently, the scheme only applies to corporate lenders and corporate borrowers.  Accordingly, non-corporate lenders, for example partnerships, pension funds and certain co-operative societies, cannot register for a passport.  Equally, non-corporate borrowers, such as individuals, partnerships and charitable trusts cannot use the scheme even if they are borrowing from a lender which has a passport.  In these cases, the usual process involves the lender completing a detailed form which is first sent to its own tax authority, who confirm the lender is resident in that jurisdiction, and then the form is filed with HMRC.  This process can take many months.  In practice it can mean that the first interest payment date for a loan needs to be delayed to allow sufficient time for the necessary filings to be made and processed.

Today’s announcement explains that from 6 April 2017 the restriction of the DTTP Scheme to corporate lenders and corporate borrowers will be removed, with further details of the revised terms for the DTTP Scheme to be published in April 2017.  Based on the limited details provided, the changes should allow the much simpler and more efficient process for claiming withholding tax exemption/reduction to apply to the not insignificant number of loans which currently fall outside the scope of the DTTP Scheme.

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