Obtaining clearance to pay loan interest gross has always been a tedious and cumbersome process and even the Provisional Treaty Relief Scheme seemed to give little practical help. Keeping track of the status of lenders, especially where the syndicate make up changes through loan trading, can be a nightmare. For these reasons the ACT working together with the Loan Market Association started discussions with HMRC back in 2008 and proposed a form of passporting arrangement. After various public consultations during 2009 we have been pleased to see that the concept has been taken up with a new Double Tax Treaty Passport (DTTP) scheme opened for applications on 1 June, with a start date of 1 September 2010. Prior to the new scheme, a lender had to make a separate treaty application for each loan it grants/acquires. The application needs to be certified by its home tax authority and then filed with HMRC – this process typically takes several months (but delays of a year or more are not uncommon). During this time, the borrower must continue to withhold tax. If all goes well, treaty clearance is granted, and the tax withheld can be reclaimed, but the delay and cashflow cost can prove problematic. The new DTTP scheme will work such that:
The Scheme is not compulsory, and lenders may opt to continue to use the previous gross payment clearance application system. Existing clearances are not affected. HMRC weblinks:
Slaughter and May briefing regarding the DTTP scheme, from the corporate borrower perspective, including implications for loan agreements.The HMRC Double Taxation Treaty Passport: Slaughter and May