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HMRC internal manual

International Manual

DT applications and claims - Provisional Treaty Relief Scheme for Interest

Syndicated Loans continued

Only those syndicates that are made up of straightforward corporations qualify for admission in their entirety to the Provisional Treaty Relief Scheme (PTRS).

But, as noted in Part 8 of the Guidance Notes, from January 2003 Syndicate Managers are able to make provision for a “block” of lenders who will have 20% tax deducted from their share of the interest.

This additional block of lenders will include “non-corporate” lenders such as Limited Liability Companies and partnerships. For the purposes of the Provisional Treaty Relief Scheme these types of concern are not eligible for treaty relief given by way of the PTRS. However, any “non-corporate lender” may be able to claim treaty benefits separately. They do so by completing a normal treaty application form, which will be processed in the ordinary way. If we conclude that treaty benefits are available to that lender, then a separate non-transferable Direction under the terms of SI1970/488 may be issued for the share of the loan held by that non-corporate lender.

There is a further restriction to admittance to the Provisional Treaty Relief Scheme attached to partnerships/Limited Liability Companies etc. No more than 20% of the value of the loan may be held by non-corporate lenders. And Limited Liability Companies/partnerships etc may not together constitute more than 20% of the total number of lending members of a syndicate.

The Provisional Treaty Relief Scheme allows us to move the focus away from the individual lenders to the loan itself. This means that the syndicate manager has a much bigger role to play in making sure that interest is paid tax free or at the correct rate of deduction of tax.

A syndicate manager will submit a composite application on form PTR-SM1 http://www.inlandrevenue.gov.uk/cnr/ptr_sm1.pdf in the name of the syndicate members. The application form asks them to include relevant additional documents about the loan. CNR will take the receipt of an application on form PTR-SM1 as our authority to address any questions about either the loan or the members to the syndicate manager.

Except where the lender is “non-corporate”, formal double taxation treaty applications are not required from each of the syndicate members.

If, for any reason, the application fails, the UK borrower will be required to account for any tax that ought to have been deducted from the interest paid on the strength of the letter of acceptance into the Scheme (PTR-SM2).

The part of the loan that does not qualify for payment tax free (or reduced rate) must be held in a separate block reserved for deduction of UK tax on non-qualifying participants.