Double taxation treaty passport scheme

Produced by Tolley
Double taxation treaty passport scheme

The following Corporation Tax guidance note Produced 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 acorporate borrower other than afinancial institution pays interest with aUK source to an overseas lender, then the general rule is that income tax must be withheld at 20%. This is subject to asignificant 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.

Where adouble taxation treaty exists between the jurisdictions of the borrower and the lender then WHT may be reduced partially or wholly on the making of aformal claim. For payments made before 1 January 2021, European directives also reduced intra-EEA WHT rates to zero in many circumstances. For example, the EU Interest and Royalties directive may have been applicable to interest payments on aloan where an EEA company beneficially owns at least 25% of aUK company, or vice versa. Relief was not automatic and an application to HMRC by the overseas recipient was required in order to receive gross interest from aUK company.

Prior to the introduction of the double taxation treaty passport (DTTP) scheme, atime-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 aless 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 return. This would put the borrower at aparticular disadvantage from acash flow perspective. The problem was particularly severe when dealing with loans

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