57.1.2 Players signed on an International Loan must sign an employment contract with the Transferee Club in a form equivalent to the Standard Contract;
The Official home of the English Football League
www.efl.com
I think it's because of variations in employment law. To avoid players working in the UK having fewer rights than domestic players they are required to sign a contract with the club. Because they sign a contract with the club they can't be considered a loan player.
Although I note the rules do not appear to be as clear as they used to be. So that may have been a loophole that has since been closed.