What is Double Taxation Treaty Passport Scheme?

What is Double Taxation Treaty Passport Scheme?

Double Taxation Treaty Passport Scheme was introduced in the year 2010 by the UK government in order to allow non-resident lenders to make multiple loans and thus aimed to streamline and simply the process of obtaining treaty clearance, however, originally, this scheme was applicable only where borrower and lender are both corporate entities. Prior to the introduction of this scheme, lenders have to wait for the approval from the Her Majesty’s Revenue and Customs i.e. HMRC which kept them waiting for days, months and at time for years also.

In addition to making the application to the HMRC for a loan, they had to go through the same process for each loan. It was September 2010 when Double Taxation Treaty Scheme came as a huge relief for them because once the lender has a passport; he just has to give the information of the same to the resident borrower at the time of lending the loan. The borrower, in turn, needs to notify about the same to the HMRC.

The information is transmitted electronically and takes 30 days for the clearance and thus reduces the waiting period for the lenders and the borrowers. Under this scheme, the non-resident lender has to make a single application to obtain ‘Treaty Passport Status’, however the borrowers still have to obtain the approval from HMRC for each time they take the loan from a particular lender.

Who can Apply for Double Taxation Treaty Passport Scheme:

You can apply for the Double Taxation Treaty Passport Scheme in case you fit in one of the following criteria:

1. If you are a permanent resident of the country which has double taxation treaty with the United Kingdom;
2. If you are an overseas lender;
3. If you have taken loan on or after 1st September 2010.
4. Chances of you getting double treaty passport is high in case you are a US limited liability company and US corporations that elect to pass corporate income, losses, deductions and credits to the shareholders for federal tax purpose.

Once a passport is issued, HMRC does a periodical review of the passport holders in order to:

1. Check if the passport holders are fulfilling their responsibilities well and if they are within the defined guidelines of the scheme and in case you are found wavering from your defined responsibilities, HMRC may:
1. Send you a formal warning stating the reason for the same;
2. Suspend your passport for a defined period or
3. Remove your passport holder status permanently.
2. Check if there is any change in the scheme from the time passports were issued. In case there has been change, then it is HMRC duty to cover up for the deficiency.
3. Encourage the customer involvement and to obtain the feedback from the customers on timely basis.

How to Register under Double Taxation Treaty Passport Scheme?

In order to register under Double Taxation Treaty Passport Scheme, you need to fill up the Form DTTP1 and send it to the HMRC for their approval. Once HMRC receives your application, it will go through the same and approves it within 30 days after receiving the same. Once approved by HMRC, you will be allocated a unique double taxation treaty passport reference number and details of your company will be made public by the HMRC in order to facilitate the borrowers to verify the passport holder’s status.

Once you have got your reference number, you have to give the same to the borrower(s), who will then forward the same to the HMRC by filling up the Form DTTP2.

However, your passport status remains valid only for five calendar years and you need to get it renewed before its expiry. You will get a notification from HMRC at least 3 months the expiry date and on getting the same, you need to fill up the Form DTTP1 renewal form, Failing to do so, your passport status may get suspended or withdrawn.

What Changes Have Been Made to the Double Taxation Treaty Passport Scheme?

In April 2013, Double Taxation Treaty Scheme has been revised in order to improve the customer experience of its users and enhance its effectiveness. Major changes in the scheme are as below:

1. One of the most important changes in the scheme is that this scheme is now available to other non-corporate entities as well, such as charities and individuals.
2. Entities such as partnership entities, pension funds entities etc can also avail this scheme. However, it is important to mention that all the members of the transparent entities must be resident in the same jurisdiction and hence entitled to the same benefits under this scheme.

HMRC has published the changes on its website on 6th April 2017 and the changes are in effect from this date onwards. Any loan which is entered in between 1st Sept 2010 and 5th April 2017 will be subject to the terms and conditions mentioned in the previous DTTP.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.