Double Tax Treaty Passport – New procedure regarding UK tax withholding on interest

Mazars can help you gain the benefits of this initiative launched by HM Revenue & Customs. Doing so should reduce administrative costs for both lending and borrowing companies. It's relevant where loans are made to UK corporate borrowers by any company resident in a country with which the UK has a double tax treaty.

Currently there is a paper trail, before a UK borrower is entitled to pay interest to a non-resident lender at a beneficial double tax treaty withholding rate. The loan details have to be provided to HMRC, and confirmation of residence status of the lender has to be subsequently confirmed. This current procedure can be time consuming, meaning payment of interest has to be made less 20% UK income tax, with the inconvenience of a subsequent repayment claim by the borrower, pending completion of the procedures..

The new initiative, applicable to loans made after 31 August, is that any overseas company can apply to HMRC for a “passport”. Once they have a passport, the procedure to apply for authorisation from HMRC to use the treaty rate of withholding is merely for the UK corporate borrower to give HMRC the lender’s passport details. The passport procedure is applicable to any loans – both external and intra-group. So it can apply to an offshore group treasury company that is resident in a treaty jurisdiction.

Please contact Ken Almand on 020 7063 4094 if you would like to explore this possibility.