Double taxation treaty passport scheme

By Tolley

The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Double taxation treaty passport scheme
  • Introduction
  • Features of the new DTTP scheme
  • DTTP rules for loans entered into prior to 6 April 2017


Where a corporate borrower other than a financial institution pays interest with a UK source to an overseas lender, then the general rule is that income tax must be withheld at 20%. This is subject to a significant number of exceptions such as the one related to interest on quoted Eurobonds in ITA 2007, s 882. For additional information, see the Withholding tax on payments of interest guidance note. For general details on withholding tax (WHT) on interest, royalties and rental income, see the Withholding tax guidance note.

ITA 2007, s 874(1)(a), (2)

Where a double taxation treaty exists between the jurisdictions of the borrower and the lender then WHT may be reduced partially or wholly on the making of a formal claim. European directives reduce intra-EEA WHT rates to zero in many circumstances. For example, the EU interest directive may be applicable to interest payments on a loan where an EEA company beneficially owns at least 25% of a UK company, or vice versa. Relief is not automatic and an application to HMRC by the overseas recipient is required in order to receive gross interest from a UK company. It remains to be seen what arrangements will exist after the UK leaves the European Union.

Prior to the introduction of the double taxation treaty passport (DTTP) scheme, a time-consuming and onerous process was required for each and every loan issued. The overseas lender had to prove its tax residence status with its home country fiscal authority and submit this proof to HMRC along with the loan documentation. In the interim, while clearance was awaited, the UK borrower may be required to deduct income tax at source leaving the lender in a less than satisfactory position. However, many standardised loan agreements also provided for ‘gross-up’ clauses requiring the borrower to make good any tax deductions which would impact the lender’s

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