Revenue And Customs v Burlington Loan Management DAC

Factual and Procedural Background

This is an appeal from the Upper Tribunal (Tax and Chancery Chamber) concerning the withholding tax treatment of post-administration interest payable in an English administration of Company B. The Respondent (a company resident in Ireland) acquired a legal assignment of a debt claim ("Claim X") from Company A (a Cayman Islands resident) by a back-to-back transaction effected through a broker, Company C, in February–March 2018. The gross post-administration interest on Claim X was about £90.7m; 20% (£18.1m) was withheld under UK domestic law and paid to the Appellants. The First-tier Tribunal and the Upper Tribunal held that Article 12(1) of the UK–Ireland double taxation treaty applied so that the interest was taxable only in Ireland. The Appellants appealed to the Court of Appeal, challenging the tribunals' conclusions that Article 12(5) did not disapply Article 12(1) on the ground that the assignment was not entered into with a main purpose of "taking advantage of" Article 12(1).

Legal Issues Presented

1. Whether the post-administration interest payable in respect of Claim X to the Respondent was taxable only in Ireland under Article 12(1) of the UK–Ireland double taxation treaty.
2. Whether Article 12(5) disapplied Article 12(1) because it was the main purpose or one of the main purposes of any person concerned with the assignment of Claim X to "take advantage of" Article 12(1) by means of that assignment.
3. Whether, for the purposes of Article 12(5), "to take advantage of" simply means to obtain the treaty benefit or requires an abusive use contrary to the object and purpose of the treaty; and, relatedly, whether Article 12(5) is limited in scope to transactions involving artificial steps.

Arguments of the Parties

Appellant's Arguments

• The tribunals erred in law by effectively requiring a further, undefined element of "abuse" beyond the words of Article 12(5); Article 12(5) should be applied according to its terms.
• The profitability of the assignment to the Respondent depended entirely on its assumed ability to reclaim UK withholding tax under Article 12(1); therefore a main purpose of the Respondent in entering into the assignment was to obtain that treaty benefit ("to take advantage of" Article 12(1)).
• The tribunals should have started the analysis from the pre-assignment position (when Company A would have been subject to UK WHT) rather than from the post-assignment treaty allocation.
• The transaction amounted in economic substance to withholding-tax arbitrage and was analogous to conduit/treaty-shopping arrangements caught by Article 12(5).

Respondent's Arguments

• The assignment was a genuine, arm's-length commercial transaction entered into to realise a profit; the Respondent's calculation of price properly took account of its tax attributes but that did not make obtaining the treaty benefit a main purpose within Article 12(5).
• Article 12(5) should be read as limited to artificial or conduit-like arrangements; it should not catch ordinary market purchases that reflect differing tax attributes among bidders.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court approached Article 12 by reference to standard treaty interpretation principles (Vienna Convention Article 31 and related authorities) and permitted recourse to the OECD Commentary and Conduit Report as persuasive contextual materials. It accepted that Article 12(5) is an anti-abuse provision but concluded that the words "to take advantage of" cannot be read as synonymous with merely obtaining the benefit of Article 12(1); rather they require obtaining that benefit in a manner contrary to the treaty's object and purpose (i.e. abusive use such as conduit/treaty-shopping).

The Court held that Article 12(5) is not confined to artificially-structured transactions, but that artificiality and the absence of genuine commercial rationale are highly relevant indicators of abusive purpose. The assessment of whether a person had as a main purpose "to take advantage of" Article 12(1) is a subjective-purpose inquiry for the tribunal, informed by domestic authorities on purpose but carried out in the treaty context.

Applying the law to the facts found by the FTT (and accepted by the UT), the Court analysed separately the purposes of Company A (the seller) and the Respondent (the purchaser). Company A's liquidators had not inquired into the purchaser's tax position when agreeing the sale and hence did not have a purpose of taking advantage of Article 12(1). The Respondent (through its investment manager, Company D) did know it would rely on Article 12(1) and priced the bid accordingly, but the tribunal was entitled to conclude that the Respondent's subjective purpose was a commercial one — to realise a profit — and that the treaty exemption formed part of the market "setting" rather than being a purpose of taking advantage of the treaty contrary to its object and purpose.

The Court contrasted the present arm's-length market purchase with classic conduit/treaty-shopping scenarios in the OECD materials where the assignor creates or uses an entity under its control to channel income so as to obtain treaty benefits improperly. The facts did not fit those paradigmatic abuses: there was no collusion, no retained economic interest by the seller, and the assignee was an independent, established purchaser negotiating at arm's length.

Holding and Implications

HMRC's appeal dismissed and Respondent's notice dismissed.

Consequences: The Court upheld the First-tier Tribunal and Upper Tribunal decisions that Article 12(1) applied so that the interest payable in respect of Claim X was taxable only in Ireland; Article 12(5) did not disapply Article 12(1) on these facts. The decision clarifies that Article 12(5) requires an abusive taking of treaty benefit contrary to the treaty's object and purpose (as illustrated by conduit/treaty-shopping examples), not merely the presence of a commercial purchaser who factors lawful treaty relief into its bid. The ruling operates to the direct effect that the Respondent retains the treaty entitlement in this case; the Court emphasised that questions of main purpose are factual evaluations for tribunals and that routine commercial pricing that reflects tax attributes does not necessarily amount to "taking advantage" within Article 12(5).