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Revised Double Taxation Treaty Passport Scheme - UK

On 6 April 2017, UK HMRC published revised terms and conditions and guidance for the double taxation treaty passport scheme. This followed consultation over the previous year in relation to how the scheme could be amended to serve better the needs of lenders and borrowers in the commercial debt market where loans were being made to UK borrowers.

By way of reminder, once a lender has applied for and been issued with a double taxation treaty passport ("DTTP") number, it is able to give the passport number to a borrower under a new loan and the borrower can then apply to HMRC for a direction to pay interest gross of UK withholding tax that otherwise would be applicable. The scheme until recently has been fairly limited in scope. In particular, broadly speaking, only corporate lenders and corporate borrowers could participate.

Highlights of the revised terms and conditions and guidance are as follows:

  1. The scheme is now available to all UK borrowers that have an obligation to apply UK withholding tax on interest, including UK partnerships, individuals and charities.

  2. Certain transparent entities, including some partnerships, are able to participate in the scheme as lenders and apply for passports. 

  3. Sovereign wealth funds and pension funds which are using withholding tax treaty rates (as opposed, for example, to relying on sovereign exempt status) can be admitted into the scheme as lenders.

In general, the relaxations and extensions to the DTTP scheme are welcome, particularly in allowing a broader range of borrowers to be able to rely on passports. However, it is disappointing that the revised conditions that allow partnerships to participate in the scheme as lenders are as restrictive as they appear. In order for an overseas partnership lender to be able to apply successfully for a passport, all the partners in the partnership need to be resident in the same jurisdiction and entitled to the same treaty benefits. In practice, this is not often the case.

© 2020 Proskauer Rose LLP. National Law Review, Volume VII, Number 136


About this Author

Stephen Pevsner UK Tax law partenr Proskauer Rose private fund formation eorganisations, structured finance, investment funds

Stephen Pevsner is a tax partner and a member of the Private Investment Funds and Private Equity M&A groups. Stephen's practice covers the broad range of corporate and individual tax advice, with particular emphasis on private fund formation across a wide range of buyout, debt and infrastructure asset classes, as well as UK and international M&A transactions (often private equity backed). He has wide experience in corporate reorganisations, structured finance, investment funds and new business set-ups, and also advises regularly on a wide range of employee and fund manager...

Robert Gaut, Proskauer Rose, UK Tax Lawyer, Investment Attorney, Finance

Robert Gaut is a tax partner and head of our UK tax practice in London.

He has represented many of the world’s preeminent multinational corporations, sovereign wealth funds, investment banks and private equity funds on a full range of UK and international tax strategies relating to inbound and outbound transactions, capital markets offerings, establishment of investment funds and financing matters.

Recent representative transactions include:

  • Advising Ares Management LP, the leading global alternative asset manager, on the international tax aspects of its initial public offering, raising US$216 million in the first IPO by a major private equity firm since the Carlyle Group went public in 2012

  • Advising Virgin Media in the tax aspects of its US$23.3 billion acquisition by Liberty Global

Catherine Sear, Proskauer, Private Investment Funds Lawyer, Tax Legislation Attorney

Catherine Sear is a partner in the Tax Department and a member of the Private Investment Funds Group.

She focuses on the tax aspects of private investment fund structuring, including the structuring of carried interest and executive co-investment arrangements as well as tax issues relating to the establishment and operation of fund management businesses. She provides advice to fund managers on the tax aspects of private equity, venture capital, infrastructure, real estate and debt funds, including funds of funds, and has particular experience of...