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HMRC internal manual

International Manual

DT applications and claims - Provisional Treaty Relief Scheme for Interest

Background continued

The Provisional Treaty Relief Scheme (PTRS) is an optional alternative to existing procedures that is available to borrowers and to the lending institutions.

A UK borrower may choose not to accept a provisional authority and instead may decide to wait for a formal SI Direction. The borrower is not obliged to make payments without deduction of tax under the terms of the Provisional Treaty Relief Scheme.

The advantage to the borrower is that many contracts have a “grossing-up” clause. This means that the borrower must pay the full amount of interest due to the lender even though no authority not to deduct tax has been issued. If a PTRS authority is issued then the borrower does not need to fund the full interest payments expected by the lenders whilst having to account at the appropriate date for UK tax.

The advantage to a lender as a member of a syndicate is that they do not need to submit a formal, certified Double Taxation treaty application. Also, they can use the Syndicate Manager to help sort out any problems which may arise.

In general, normal examination requirements apply to One to One loans accepted within the Provisional Treaty Relief Scheme. These requirements differ slightly for Syndicated Loans. We have

  • waived the requirement for each overseas lender to make a formal application under the terms of the relevant double taxation agreement, and
  • we have chosen to deal with the Syndicate Manager as agent and intermediary for the lending members of the syndicate.

If you discover that Double Taxation relief is not available to any lender, the existence of a notification (PTR-SM2 or SM2A) that a loan has been accepted into the Provisional Treaty Relief Scheme does not remove the potential liability of a UK borrower to account for tax that ought to have been deducted under ICTA88/S349.