Analysis – Double tax treaty passport scheme

A standard feature of double tax treaties is an article specifying the rate of withholding tax on interest payable on loans between a lender resident in one treaty state and a borrower in the other treaty state. The treaty rate is generally lower than the standard domestic rate of withholding tax and may be as low as zero so it will normally be in the interests of both borrower and lender for payments to be made at the treaty withholding rate. If not the standard rate of withholding (currently 20% in the UK) must apply and the lender must make a treaty repayment claim to the extent that the tax withheld exceeds the treaty rate of withholding. Oft en a lender will require that a borrower 'grosses up' the payment so the...