The tax treaty passport scheme was introduced from September 2010 to allow a simplified clearance scheme for taxpayers applying for reduced rates of withholding tax on interest under a double tax treaty. An overseas corporate lender in a country with which the UK has a double tax treaty may apply for a treaty passport, and if this is granted the lender is entered on a register and given a unique DTTP reference number. A UK corporate borrower may consult the on-line register to see if the overseas lender has a reference number under the scheme. When a loan agreement is made between a UK borrower and an overseas lender the lender notifies the UK borrower of its treaty passport status and reference number and the UK borrower then notifies HMRC of the passported loan using Form DTTP 2. HMRC uses these details to issue a Direction to the UK borrower to deduct tax from the interest at the treaty rate.
Under the amendments to the scheme the UK borrower will no longer be required to submit Form DTTP2 to HMRC within 30 days of the commencement of the loan relationship with the overseas lender. The new requirement will be that the borrower should send the Form DTTP2 to HMRC at least 30 days before the first interest payment is made under the loan agreement. Another change being made is that HMRC will now consider issuing a treaty passport to a US disregarded LLC or to an S-corporation.
