UK and International Tax news
Double Tax Treaty Passport Scheme Update
Monday 24th April 2017
HMRC has recently published its response to the consultation document ‘Double Taxation Treaty Passport Scheme Review’ issued in May 2016.
The purpose of the consultation was to explore whether HMRC should renew and extend the administrative simplifications of the existing Double Taxation Treaty Passport (DTTP) scheme.
HMRC received 17 written responses with respect to renewing the scheme, the Treaty Passport renewal process, sanctions for misuse, extending the scheme, UK partnerships as borrowers, overseas partnerships as lenders, and sovereign investors and pension funds. In particular, the following questions were asked:
Is the current DTTP scheme meeting its objective of providing an administrative simplification for corporate-to-corporate lending and should it be continued? The alternative would be to return to the “certified claim” approach for each loan.
Do the current DTTP arrangements create any barriers to the making of debt based investments in the UK?
Is the passport renewal process operating appropriately? If not, how should it work
Do the sanctions for misuse of the scheme need to be changed and/or strengthened?
Is the current scope of the scheme, which mainly covers corporate-to corporate lending, adequate? If expansion is advantageous, what entities should and should not be admittede to the scheme and why?
What potential benefits and/or difficulties may arise from admitting UK partnerships to the DTTP scheme as borrowers?
What potential benefits and/or difficulties may arise from issuing passportsto partners in overseas partnerships if they are admitted to the DTTP scheme as lenders?
If overseas partnerships were admitted to the DTTP scheme as lenders, how would HMRC police this and receive sufficient information on the parties involved to prevent abuse, whilst keeping the compliance burden low on both sides? For example, should partners’ passports have a shorter duration of one or two years and be contingent on all of the partners being either companies or individuals resident in the same jurisdiction?
Are there any obstacles to prevent sovereign investors and overseaspension funds being admitted to the DTTP scheme, such as issues of liability to tax and entity characterisation? Admittance to the DTTP scheme would also require publication of their names in the public register of passported lenders.
Other than those detailed above, what investment structures are typicallyused by sovereign investors and pension funds, and are these suited to the mechanics of the DTTP scheme?
HMRC has now confirmed that the scheme will be made available to all UK borrowers that have an obligation to deduct withholding tax, including UK partnerships, individuals and charities. Transparent entities (including partnerships) will be admitted to the scheme as lenders where all of the constituent beneficial owners of the income are entitled to the same treaty benefits under the same treaty. Sovereign wealth funds and pension funds, who are utilising withholding tax treaty rates, will be admitted into the scheme as lenders.
The DTTP scheme’s terms, conditions and guidance have been updated and were published on 6 April 2017 and will apply to loans entered into on or after this date.
If you would like further information on the consultation, please contact Keith Rushen on 0207 486 2378.
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