The Double Taxation Treaty Passport (DTTP) scheme was introduced in 2010 to allow non-resident corporate-to-corporate lenders to make multiple loans into the UK without requiring HMRC (and the non-resident tax authorities) to approve their Treaty status each time a loan was made. HMRC have now opened a consultation is to consider whether the DTTP scheme is still fit for purpose and the potential to extend its scope.
Non-resident lenders making corporate-to-corporate loans into the UK are subject to income tax (currently 20%) on interest paid by UK borrowers. It is the UK borrower’s obligation to withhold this tax at the point of payment. Under the UK’s Treaty network, the lender may be eligible to receive a reduced rate of withholding tax. However, applying for Treaty relief can prove an administrative burden, particularly if the lender is making multiple loans into the UK.
Under the DTTP scheme, a single application is made by the lender to seek ‘Treaty Passport status’ (which is not enduring). The UK borrower is still required to request approval from HMRC (each time they become party to a loan with such lender) by disclosing certain information in advance of the first interest payment.
The consultation requests views on the DTTP scheme to ensure it is still meeting the needs of overseas lenders and UK borrowers. In addition, the consultation has requested views on expanding the scheme to overseas partnerships, sovereign investors and pension funds.
It is clear from this measure that the Government is continuing to focus on improving investment opportunities in the UK for foreign entities. Whilst the extension of the scheme to additional entity types is supportive of this, its application will have to be carefully thought out to ensure it does not create additional administration and monitoring from the perspective of HMRC and the foreign lender.
We believe this to be a positive step towards a more robust process and will be responding to the consultation to discuss the application of the issues above and also the practical difficulties currently facing existing scheme members.
This consultation is open until 12 August 2016. Foreign entities, in particular banks, pension funds, sovereign wealth funds and partnerships which may be affected will want to consider carefully how the proposals are likely to impact them and may wish to respond to the consultation document directly or through their tax adviser or an industry body.
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