Double taxation relief for inter-company loan interest and inter-company royalties
Contents
- How to make an application for relief
- The paperwork: What form do I use?
- Documents and other information to support the application
- Provisional Treaty Relief (PTR) Scheme
The following pages contain specialised information for an overseas corporation resident in a country with which the United Kingdom has a Double Taxation treaty that provides for relief from UK tax on interest or royalties paid from a source in the UK. We also provide more general information about Double Taxation treaty relief.
An overseas corporation
- can claim repayment of UK tax already deducted from loan interest, or from royalties, payable by a UK company
- can apply for relief from UK tax at source in respect of future income.
The key documents required to support claims / applications under a DT treaty are
- loan agreements for inter-company loans
- licence agreements or contracts for inter-company royalties.
How to make an application for relief
Relief from UK tax provided in a DT treaty is not automatic. Treaty benefits must be the subject of an application to HMRC Residency.
Only the overseas corporation receiving the income can make a valid application.
The application will be dealt with by HM Revenue & Customs (HMRC) - HMRC Residency (HMRC Residency)
The paperwork: what form do I use?
There are application/claim forms for each relevant DT treaty country. The forms are dual purpose, in that they provide for both
- an application for relief from tax at source in respect of future income from the specified source of interest or royalties and
- a claim to repayment of tax deducted from earlier payments of income.
You can get the form(s) from:
- the HMRC Residency helpline or
- the tax authorities of the overseas corporation's country of residence.
To make sure that you get the correct claim form please:
- give the full name and address of the overseas corporation and
- say that the overseas corporation is receiving loan interest or royalty payments, as appropriate.
After completion, the form needs to be certified by the taxation authorities of the overseas corporation's country of residence to confirm that it is a resident of that country.
Documents and other information to support the application
Before the overseas corporation's entitlement to relief under the DT treaty can be fully considered, HMRC Residency will ask the Inspector of Taxes dealing with the corporation tax affairs of the UK company making the relevant payment for a report.
The Inspector of Taxes, in turn, will need to see the document, etc. relating to the loan/licence agreement to make his report to HMRC Residency.
Documents needed
In both loan interest and royalties cases, the overseas applicant corporation should attach the relevant document to the application/claim.
For loan interest
- a copy of the text of any agreement or exchange of correspondence regulating the terms on which the interest is paid
For royalties
- a copy of licence agreement or contract.
If these documents have already been supplied to the Inspector of Taxes dealing with the UK company's corporation tax affairs, let HMRC Residency know. It will not then be necessary for the overseas claimant to send the same document to HMRC Residency.
Provisional Treaty Relief (PTR) Scheme
HMRC Residency also operates a scheme which allows a UK company borrower to pay interest to a non-resident lender with DT relief at source on a provisional basis. The scheme is only applicable where the borrower and lender are unconnected and the transaction is on arm's length terms. For further information about this scheme, please see
- HMRC Tax Bulletin June 1999 page 668
- The Provisional Treaty Relief Scheme Guidelines booklet (PDF 91K)
The Scheme's application forms are also available for download (please consult the Guidelines before making any application):
