Double taxation treaty passport scheme

Produced by Tolley

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 DTTP scheme

Double taxation treaty passport scheme


Where a corporate borrowerother 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.

Where a double taxation treaty exists between the jurisdictions of the borrowerand the lender then WHT may be reduced partially or wholly on the making of a formal claim. For payments made before 1 June 2021, UK withholding tax on interest may also have been eliminated under the UK legislation which gave effect to the EU Interest and Royalties directive on a loan where an EEA company beneficially owns at least 25% of a UK 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 a UK company. The UK legislation enacting the provisions of the Directive is repealed for payments made on or after 1 June 2021, by FA 2021, s 34. 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.

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 borrowermay 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 borrowerto make good any tax deductions which would impact

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