HMRC looking at extending scope of Double Taxation Treaty Passport scheme

HMRC has opened a consultation on renewing and extending the scope of the Double Taxation Treaty Passport (DTTP) scheme, to ensure it still meets the needs of UK borrowers and foreign investors and to see if it should be offered to sovereign investors, pension funds and other entities

DTTP was introduced as an administrative simplification in late 2010. It is available to corporate-to-corporate lending into the UK and is designed to reduce the burden of accessing reduced rates of withholding tax (WHT) under the relevant tax treaties.

The DTTP scheme is currently available to corporate bodies only. The overseas corporate lender applies for a treaty passport under the scheme and, once granted, this passport can be used to make multiple loans to UK borrowers. Thus the lender does not need to apply to their own tax authority and HMRC in connection with every loan.

The prospective borrowers in the UK consult an online database of passported lenders to check that a valid passport exists and, prior to making the first interest payment, the UK borrower notifies HMRC of the lending/borrowing relationship.
 HMRC then issues a Direction to the UK borrower to pay the interest without WHT or at a lower rate of WHT, as specified in the relevant tax treaty. Passport holders need to apply for renewal of their passports after five years. Around 3,000 passports have been since the scheme commenced.

The consultation document says the idea of extending the DTTP scheme to UK partnerships as borrowers was originally suggested in an Office of Tax Simplification (OTS) report. One example is that of a UK partnership borrowing externally from two US lenders (both with DTTP reference numbers) where it was not possible to access the DTTP scheme, as the borrower was not a UK corporate body.

It also considers the issues arising if overseas partnerships were admitted to the DTTP scheme as lenders, over how HMRC would police this and receive sufficient information on the parties involved to prevent abuse, whilst keeping the compliance burden low on both sides. One option here is for partners’ passports to have a shorter duration of one or two years and be contingent on all of the partners being either companies or individuals resident in the same jurisdiction.

The consultation closes on 12 August and details are here.

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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