UK shipping companies could benefit from new double taxation treaty passport scheme

July 28, 2010 - Leading accountant and shipping industry adviser Moore Stephens says UK-based companies in the shipping sector which negotiate loans with overseas corporate lenders could benefit from a new Double Taxation Treaty Passport (DTTP) scheme recently introduced by the UK government.

Sue Bill, a tax partner with Moore Stephens, explains, "Under the new scheme, which comes into operation on 1 September 2010, an overseas lender in a country with which the UK has a double tax treaty can apply for a DTTP. If this is granted, the passport holder will be entered onto a publicly available website with its unique DTTP number. The UK-resident corporate borrower can then verify the lender's status on line, and thereafter apply the treaty rate of withholding tax from the start of the loan, relying on the lender's passport status.

"When UK borrowers enter into a loan agreement with a lender registered as a Treaty Passport Holder, the lender will notify them of its passport holder status and reference number. The UK borrower must then notify Her Majesty's Revenue & Customs (HMRC) within thirty days of the passported loan. Therefore, if a company is taking out a loan from an overseas bank or other lender, it should find out whether the lender is a passport holder and, if it is, notify HMRC within thirty days of the making of the passported loan."

Previously, where a UK borrower paid interest to a non-UK resident lender, it was required to deduct withholding tax from the interest at twenty per cent and pay it to HMRC. Although the withholding tax liability could be reduced or eliminated if there was a suitable double tax treaty in place, advance clearance had to be obtained before any interest payments were made in order to prevent withholding tax liabilities arising - a potentially time-consuming process.

The previous rules did not apply where interest was paid to a UK bank or to the UK branch of an overseas bank and this continues to be the case.

Moore Stephens LLP