The TMI Tax Doctor: Withholding Tax

In this issue of Tax Doctor we look at two questions around Withholding Tax. Firstly, a practical solution to reducing the administrative burden of making double tax treaty claims to reduce/relieve the need to withhold tax on cross-border lending, and secondly the duty to withhold tax on interest payments in the context of a notional cash pooling arrangement.

Q1: We’re a non-UK lender and make loans to UK borrowers. Historically, we’ve relied on the certified claim method to benefit from reduced treaty withholding tax rates on interest and completed this on a loan by loan basis. We’ve recently seen a large increase in the number of loans entered into and the certified claim method is becoming an administrative burden. Is there another way?

The UK operates a Double Tax Treaty Passport (DTTP) Scheme which streamlines and simplifies the process of the making of Directions by HM Revenue & Customs (HMRC) to borrowers to pay interest at a reduced or zero rate of withholding tax.

To be eligible to enter the scheme, the overseas lender must be a corporate (or an entity treated by its country of residence as a corporation for tax purposes) in a country with which the UK has a double taxation treaty that includes an interest Article. As of April 2013, HMRC now also, in certain circumstances, will consider issuing a treaty passport to a US disregarded LLC or US S-Corporation.

The application for a Treaty Passport is made to HMRC using a specific form which can be completed by a responsible person for the company or its tax agent. It must also be certified by the tax authority in the company’s country of residence.

Download our Free Treasury App for mobile and tablet to read articles – no log in required.

Download Version Download Version