CW Energy LLP

Simplified Treaty Relief for Interest Payments

Obtaining clearance to pay interest at reduced double taxation treaty withholding rates has been made simpler with the introduction of the optional HMRC ‘Double Taxation Treaty Passport’ scheme in respect of loans made from 1 September 2010. Once a lender is within the scheme, there is no longer the need for a borrower to seek certification from the overseas tax authority for each loan made. However borrowers will still be required to notify HMRC in order for a Direction can be issued that interest on a particular loan can be paid at reduced withholding.

The overseas corporate lender needs to apply for a Treaty Passport using the appropriate form. Once accepted, the passport holder is entered onto a publically available register with a unique number.

Where a UK borrower enters into a loan agreement with the passport holder, the lender will be obliged to send the borrower details of its passport including the rate of withholding that should apply. The borrower then needs to inform HMRC of the borrowing within 30 days of the loan being made, which can be done online, using the appropriate form. A copy of the loan documentation need not be submitted, unless requested. Unless there are special circumstances, HMRC will then issue a ‘Direction’ to the UK borrower to pay interest with income tax deducted at the reduced treaty rate with effect from the beginning of the loan. The present policy of issuing a direction for no more than 5 years will continue, although there is some flexibility on a case by case basis.

The existing certified claim method of obtaining double taxation relief will remain for non-Treaty Passport situations.


The introduction of the Treaty Passport scheme will reduce the administrative burden of needing each loan certified before a ‘Direction’ can be issued. It can apply to both third party and group borrowings and companies may therefore wish to look at obtaining a “passport” for group finance companies. As with the existing scheme any Direction will cease to apply if there is a material change in the circumstances of the lender, and the existence of a Direction does not of course signify that the interest will be an allowable deduction. Borrowers will need to ensure that adequate protection is included within loan agreements for this eventuality. For loans which are expected to have a term of more than five years the borrower would be obliged to apply for clearance in the normal way before the expiry of the Direction (although the application would not require certification).For further information, please call your usual CWE contact.

CW Energy LLP
September 2010