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.