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INTM574050 - Thin capitalisation: treaty clearances: Informal treaty clearances

The situations under which recommendations for formal, provisional and informal treaty clearances may be given to pay loan interest gross, or at the reduced treaty rate, are outlined from INTM574020 onwards.

Additionally, an officer of HM Revenue & Customs has discretion to allow payment of interest at the treaty rate before formal clearance is given. This is only likely to arise where treaty clearance is dependent on the outcome of thin cap enquiries, or clearance is delayed for reasons outside the control of the applicant and unrelated to any enquiry into the bona fides of the application itself.

It can be granted in the following circumstances:

  • Interest has fallen due for payment, or is about to do so, and there is no formal clearance to pay gross or withhold tax at a lower rate (depending on the treaty)
  • Any enquiry, should there be one in progress, is proceeding at reasonable speed and with goodwill
  • There is a treaty clearance application in the hands of the DT Treaty Team at LBS Nottingham and there is no reason to suggest that there is anything wrong with the treaty claim itself e.g. a doubt as to the lender’s beneficial ownership of the interest income (where that is relevant to the treaty)

The terms of the informal clearance are:

  • That it will apply only to the particular interest payment then falling due
  • The clearance is in effect saying nothing more than that if the interest is paid subject to nil withholding tax or to tax at the lower treaty rate (depending on the treaty), there will be no negative consequences such as an interest charge under TMA1970/S87
  • The clearance is saying nothing about the nature of the money being paid over
  • Once the matter has been agreed in principle, the payer will advise the office dealing with their CT affairs of the date and amount of the payment, and the officer will notify the DT Treaty Team.
  • Confirmation of the arrangement must be recorded, but there need be no special formality about giving permission, so long as it is clear what is being agreed

This informal clearance is offered on a goodwill basis, and may not be extended to payers who are simply late in commencing the clearance process, or are creating delays in enquiries.

Please consult Miles Nelson at Business International for any clarification or assistance.