UK and International Tax news
Court of Appeal Considers DTT Anti Abuse Provision Case
Tuesday 19th May 2026
The Court of Appeal has recently issued its judgment in a case involving the UK withholding tax exemption provided by the UK – Ireland Double Tax Treaty.
In HMRC v Burlington Loan Management DAC (2026) EWCA Civ 461, the appeal concerned the tax treatment of interest received by the Respondent (“BLM”) in respect of a debt claim in the administration in England of Lehman Brothers International (Europe) (“LBIE”).
BLM was resident in the Republic of Ireland. It purchased the rights to the debt claim in February 2018, by way of a back-to-back assignment via a broker from SAAD Investments Company Ltd (“SICL”), a company resident in the Cayman Islands.
The issue was whether BLM’s entitlement to receive about £90m of post- administration interest in respect of the SICL claim was exempt from UK WHT by virtue of Article 12 of the UK-Ireland DTT.
Article 12 provided that interest derived and beneficially owned by a resident of a Contracting State shall be taxable only in that State, the term “interest” as used in the Article meant income from debt-claims of every kind, and the provisions of this Article shall not apply if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the debt-claim in respect of which the interest is paid to take advantage of this Article by means of that creation or assignment.
Both the FTT and the UT had held that the payment of interest to BLM from the LBIE administration was taxable only in Ireland by reason of Article 12(1). HMRC appealed on the basis that the FTT and UT should have found that Article 12(1) was disapplied by Article 12(5) because the main purpose or one of the main purposes of BLM was to take advantage of Article 12 by means of the assignment of the SICL claim.
The FTT held that SICL also did not have, as one of its main purposes, taking advantage of Article 12(1) by means of the assignment, as at the time that the liquidators reached the agreement in principle to sell the SICL claim, they had not inquired about the identity of the end purchaser. They had no way of knowing that the purchaser could offer the price that it had because it was able to benefit from Article 12(1) rather than benefitting from some other exemption from UK WHT, or because it had significant tax losses against which to offset the interest received.
The FTT also rejected the suggestion that it made any difference that, by the time that the SICL liquidators entered into the formal assignment of the SICL claim, they knew that BLM was relying on Article 12(1) for its exemption from UK WHT.
The FTT noted that HMRC was effectively arguing that a seller would be “taking advantage” of Article 12(1) as long as it knew that its purchaser was taking into account its exemption from UK WHT in framing its offer.
FTT had also commented that it would have an enormous impact on the secondary debt market if purchasers were to be unable to obtain the benefit of an applicable treaty simply because there were people in the market with different tax attributes which were reflected in the market price of the debt claim which was the subject of the transaction, and the seller happened to know the reason why its purchaser had the necessary tax attributes to be able to pay the market price of the debt claim.
The FTT rejected the submission by HMRC that this situation was akin to the case of a “conduit company” or “treaty shopping”. The FTT referred to the report from the OECD Committee on Fiscal Affairs entitled “Double Taxation Conventions and the Use of Conduit Companies” (the “Conduit Report”). Article 12(5) and its equivalent in other treaties are aimed specifically at transactions involving conduits or treaty-shopping.
The FTT concluded that in order for a person to be said to have a main purpose of taking advantage of a treaty relief itself in relation to a debt claim, the central issue is whether the concept in Article 12(5) of having a main purpose to “take advantage of” Article 12(1) simply means to have a main purpose of “obtaining the benefit of” that article, or whether it means something else.
This point was recently considered in relation to a provision in the double tax treaty between the UK and Japan in Vietjet Aviation JSC v FW Aviation (Holdings) Ltd (2025) EWCA Civ 783. Vietjet was involved a commercial dispute relating to aircraft financing agreements that were in default. One of the issues was whether the claimant assignee of the aircraft loans was a permitted assignee within the meaning of the financing documents. These documents required any assignee to be an entity which benefited from a double tax treaty with Japan so that no withholding tax would be levied on payments of interest.
The argument made by the defendant, Vietjet, was that the claimant had been deliberately incorporated in England in order to benefit from Article 11.1 of the UK – Japan DTT and thus came within the class of permitted assignees. This meant that it was taking advantage of Article 11 within the disapplication provisions of Article 11.7. Popplewell LJ rejected that argument and gave two reasons for doing so.
The first was that “taking advantage” in Article 11.7 did not mean simply taking the benefit of Article 11. It meant doing so contrary to the object and purpose of the treaty, i.e. as an anti-abuse provision and the object and purpose of the treaty, and also from the OECD Commentary on the Model Convention. The object and purpose of the treaty was to attribute the right to tax persons in the state of residence or state of source in accordance with its detailed provisions, and to avoid double taxation and non-taxation.
It is noted that VietJet is a significant decision that was not available either to the FTT or the UT in this case.
In the CA, Snowden LJ agreed with Popplewell LJ’s conclusion that to “take advantage” of a provision such as Article 12(1), within the meaning of an anti-abuse provision such as Article 12(5), cannot simply be synonymous with to “obtain the benefit” of that provision, with the result that the treaty would be self-defeating.
All three Judges dismissed HMRC’s appeal in a significant decision on the correct interpretation of Article 12(5).
If you would like more information on this decision, please contact Keith Rushen on 0207 486 2378.
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