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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
- 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.
- 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.
- 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
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Royal Bank of Canada v Appellant [2023] EWCA Civ 695 | Approach to treaty interpretation: Vienna Convention Article 31(1) — ordinary meaning in context and in light of object and purpose. | Used to frame the interpretative approach to Article 12 and to justify recourse to contextual materials (including OECD materials). |
| Lomas v Respondent [2017] EWCA Civ 1462 | Factual litigation history concerning calculation date for interest in related proceedings. | Referred to as part of background litigation affecting the quantum/timing of interest. |
| Appellant v Lomas [2017] EWCA Civ 2124 | Court of Appeal decision on domestic withholding tax liability under section 874 (as part of background). | Explains why UK WHT risk existed for Company A absent treaty relief; used in factual background on tax uncertainty. |
| Appellant v Lomas [2019] UKSC 12 | Supreme Court confirmation of domestic withholding tax position (background). | Noted in background to explain practical irrecoverable tax cost to Company A prior to sale. |
| Anson v Appellant [2015] UKSC (citation as in text) | Treaty interpretation principles (Lord Reed): objective ascertainment of common intention, ordinary meaning in context. | Adopted as authoritative support for treaty interpretation approach. |
| Memec [1996] STC 1336 | Observation that a treaty should be construed "international, not exclusively English". | Reinforced the international/contextual approach to treaty text. |
| Fothergill v Monarch Airlines [1981] AC 251 | Language of international conventions addressed to a wider audience; interpret by broad principles of general acceptation. | Supported the proposition that treaty interpretation is international and purposive. |
| James Buchanan v Babco Forwarding & Shipping [1978] AC 141 | Authorities on international interpretation cited to support broad principles. | Cited as part of the interpretative lineage favouring broad international meaning. |
| Fowler v Appellant [2020] UKSC 22 | OECD Commentaries may be persuasive aids to interpretation of treaties based on the MTC. | Supported use of OECD Commentary in interpreting Article 12(5). |
| Smallwood v Appellant [2010] EWCA Civ 778 | Support for use of OECD materials as persuasive aids. | Cited as part of authority for taking OECD materials into account. |
| BlackRock Holdco 5 v Appellant [2024] EWCA Civ 330 | Summarised approach to ascertaining subjective purpose/objects in tax contexts. | Adopted for legal principles on determining subjective purposes and distinction between purpose and effect. |
| Kwik-Fit Group v Appellant [2024] EWCA Civ 434 | Application of BlackRock summary; importance of fact-finding on main purpose. | Used to support proposition that main purpose is a factual evaluation and appellate interference is limited. |
| Mallalieu v Drummond [1983] 2 AC 861 | Subjective intention may include results not consciously contemplated if inevitably and inextricably involved. | Applied to explain limits of tribunal fact-finding on purpose (but distinguished on facts for Company A). |
| MacKinley v Arthur Young McClelland Moores [1990] 2 AC 239 | Further support for Mallalieu principle about inevitably involved consequences being purposes. | Used to explain legal yardstick for attributing purpose to parties. |
| Re Brebner [1967] AC 18 | General principle limiting appellate interference with fact findings. | Applied to caution against overturning tribunal findings absent identifiable legal error. |
| Re Sprintroom Limited [2019] EWCA Civ 932 | Examples of errors of law that justify appellate interference with fact findings. | Referenced to define permissible grounds for appellate challenge. |
| Lifestyle Equities CV v Amazon UK Services Limited [2024] UKSC 8 | Affirmation of Re Sprintroom principles re appellate review. | Cited to underline limited scope for interfering with tribunal evaluations of purpose. |
| Edwards v Bairstow [1956] AC 14 | Requirement that appellate error in tax appeals must amount to error of law. | Referred to when discussing grounds for upsetting tribunal findings. |
| Vietjet Aviation JSC v FW Aviation (Holdings) Limited [2025] EWCA Civ 783 | Considered meaning of "taking advantage" in an anti-abuse treaty provision; held it denotes contrary-to-object-and-purpose conduct (anti-abuse), not mere obtaining of treaty benefit. | Followed by the court to construe "to take advantage of" as requiring abuse contrary to the treaty's object and purpose. |
| Fisher v Appellant [2021] EWCA Civ 1438 | Approach to motive/mains purpose tests in anti-avoidance statutory context; example where avoidance was integral. | Relied on by Appellants as an analogy; Court distinguished its statutory context from treaty context. |
| Kleinwort Benson [1969] 2 Ch 221 | Obiter on commercial purchasers factoring tax attributes into price not necessarily having tax-advantage as main object. | Relied on by Respondent; Court noted the obiter nature but treated the principle as supportive on these facts. |
| IRC v Sema Group Pension Scheme Trustees [2002] EWCA Civ 1857 | Contextual caution about treating tax advantage as a main object where legislative code contemplates the tax treatment. | Used to illustrate importance of legislative/treaty context when assessing whether a tax attribute is a main purpose. |
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).
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