Key Facts
- •Burlington Loan Management DAC (BLM), an Irish resident company, acquired a debt claim (SAAD Claim) from a Cayman Islands company (SICL).
- •The SAAD Claim entitled BLM to receive interest payments from a UK resident company (LBIE).
- •The UK-Ireland double tax treaty (treaty) generally provides that interest is taxable only in the resident state (Ireland in this case).
- •Article 12(5) of the treaty contains an anti-abuse provision, preventing the treaty's application if a main purpose of the assignment was to take advantage of Article 12(1).
- •HMRC argued that the assignment of the SAAD Claim was an abuse of Article 12(1) and Article 12(5) should apply, leading to UK tax being due.
- •The FTT held that Article 12(5) did not apply.
- •HMRC appealed the FTT's decision.
Legal Principles
Interpretation of double tax treaties should be in accordance with Articles 31 and 32 of the Vienna Convention on the Law of Treaties, focusing on the ordinary meaning of terms within their context and in light of the object and purpose.
Vienna Convention on the Law of Treaties, Smallwood v The Commissioners for Her Majesty’s Revenue and Customs [2010] STC 2045, The Commissioners for Her Majesty’s Revenue and Customs v Anson [2015] STC 1777, Fowler v The Commissioners for Her Majesty’s Revenue and Customs [2020] STC 1476
Article 12(5) of the UK-Ireland treaty is an anti-abuse provision, aimed at preventing the improper use of the treaty to gain unintended tax benefits.
OECD Model Tax Convention Commentary, Conduit Report
Determining a person's main purpose involves a question of fact, considering all relevant evidence and inferences. Subjective purposes (including subconscious motives and inevitable consequences) must be assessed, but mere inevitable consequences don't automatically equate to a main purpose.
IRC v Brebner [1967] 2 AC 18, Travel Document Service and another v HMRC [2018] STC 723, Vodafone Cellular Ltd v Shaw [1997] STC 734
In appeals concerning evaluative factual conclusions, a high hurdle must be overcome to successfully challenge the lower tribunal's decision. The appellate court must determine whether the decision is wrong due to an identifiable flaw such as a gap in logic, lack of consistency, or failure to account for a material factor.
Lifestyle Equities CV and another v Amazon UK Services Ltd and others [2024] UKSC 8, In re Sprintroom Ltd [2019] EWCA Civ 932
Outcomes
Appeal dismissed.
The Upper Tribunal (UT) held that the FTT correctly applied the law and its findings were not flawed. The UT rejected HMRC's arguments that the FTT misinterpreted Article 12(5), overlooked the UK WHT arbitrage, or made specific errors in its determination of BLM's and SICL's purposes. The UT clarified the meaning and application of Article 12(5) and emphasized the need to consider all the circumstances of the transaction to determine whether there was an abuse of the treaty.