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N2-7. Interpreting international treaties
Treaties only have effect to the extent that they are incorporated
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[6] Double taxation arrangements agreed with other territories are not straightforwardly incorporated into domestic law. As explained by Lord Hoffmann in NEC Semi-Conductors Ltd & other test claimants v Inland Revenue Commissioners [2007] UKHL 25; [2007] STC 1265 at [8]:
“… An international treaty does not give rise to any rights in English domestic law unless incorporated by legislation. The EC Treaty is so incorporated, in its entirety, by the European Communities Act 1972. But with DTCs the position is more complicated. Section 788 of the 1988 Act provides that Her Majesty may by order in council declare that arrangements made by a DTC shall ‘have effect’. But the result is not to make the whole DTC part of English law. By s788(3) the arrangements shall have effect ‘notwithstanding anything in any enactment’ – ‘in relation to income tax or corporation tax in so far as they provide (a) for relief from income tax, or from corporation tax in respect of income or chargeable gains; or (b) for charging the income arising from sources, or chargeable gains accruing on the disposal of assets, in the United Kingdom to persons not resident in the United Kingdom; or…(d) for conferring on persons not resident in the United Kingdom the right to a tax credit under section 231 in respect of qualifying distributions made to them by companies which are so resident.’” (HMRC v. Aozora GMAC Investments Ltd [2022] UKUT 258 (TCC), Falk J and Judge Jennifer Dean)
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Implied repeal does not apply to double tax treaties
"[20] The Treaty was originally entered into on 8 September 1978, and has since been amended. It has effect for the purposes of relieving double taxation by virtue of The Double Taxation Relief (Taxes on Income) (Canada) Order 1980 (SI 1980/709), made by an Order in Council pursuant to what is now Chapter 1 of Part 2 of TIOPA. It is uncontroversial that, if relief is available, then that will override the domestic charging provisions, even if those provisions are enacted later than the relevant Order in Council: s.6 TIOPA (previously s.788 of the Income and Corporation Taxes Act 1988). The constitutional reason for this is articulated in the illuminating judgment of Singh LJ in Irish Bank Resolution Corporation Ltd v HMRC [2020] EWCA Civ 1128, [2020] STC 1946 ("Irish Bank"), where he explained at [55]-[57] that the doctrine of implied repeal does not operate in the context of double tax treaties." (Royal Bank of Canada v. HMRC [2023] EWCA Civ 695, Falk, Asplin, Nugee LJJJ)
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Construction of legislation relating to implementation not directly informed by treaty​
"The interpretation of section 793A(3) cannot be directly informed by specific treaty provisions, in particular provisions agreed after enactment of the statute. Further, as explained in R (PRCBC) v Home Secretary, the external aids to which we were referred, although to some extent helpful in adding background and context, must have a secondary role. Adopting the purposive approach described in Hurstwood, we must identify the type of treaty provisions that section 793A(3) is intended to catch and assess whether Article 23 falls within that scope.” (HMRC v. Aozora GMAC Investments Ltd [2022] UKUT 258 (TCC), Falk J and Judge Jennifer Dean)
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Requirement for "express provision [in the treaty] to the effect that" does not include provisions that merely have that effect/consequence
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"[39] Section 793A(3) requires an “express provision to the effect that relief by way of credit shall not be given”. In contrast, we note that Article 23 does not expressly set out the circumstances in which credit relief is no available. t available, but rather it sets out the cases or circumstances in which the benefits of the Convention are.
[40] We consider that HMRC’s interpretation puts disproportionate weight on the word “effect”. The entire subsection must be construed in its wider context. In our view, there is no justification to stress one part of the subsection to the exclusion of the rest. HMRC’s approach appears to accord no weight to the word “express”, to the reference to “relief by way of credit”, to the use of the negative (credit shall “not” be given) or to the fact that the provision in question must apply “in cases or circumstances specified or described in the arrangements”. In our view, HMRC’s interpretation also has the effect of treating “to the effect that” as equating to “which has the effect that” (or has the consequence that), which is not the wording that Parliament chose to employ.
[41] We consider that a more natural interpretation of the words “… to the effect that relief by way of credit shall not be given…”, particularly in the context of the prior reference to an “express” provision, is that section 793A(3) is intended to catch provisions in a treaty which state, in terms, that credit relief shall not be given, or which contain other wording that conveys the same message, even if the text used does not precisely correspond to the words in section 793A(3). That gives a natural meaning to each of the words used.
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[45] Further, the wording “cases or circumstances specified or described” most naturally refer to criteria set out in a treaty from which it is possible for a taxpayer to discern whether they fall within them or not, rather than to something that may depend on the exercise of discretion by another Contracting State. HMRC’s interpretation has the effect on these facts that relief is denied under domestic law by a decision taken by the counterparty Contracting State in its discretion, not subject to judicial scrutiny in this jurisdiction or (potentially) in the other State. In our view, the Tribunal should be slow to adopt such an interpretation." (HMRC v. Aozora GMAC Investments Ltd [2022] UKUT 258 (TCC), Falk J and Judge Jennifer Dean)
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Vienna Convention approach not exhaustive​ if other rules of international law relevant
"[60] [The taxpayer] submitted before us that the Upper Tribunal was wrong to consider that the Vienna Convention is exhaustive as to what can be taken into account in the interpretation of treaties. While it may be true that the Vienna Convention is not exhaustive (and [HMRC] did not suggest that it is), what still has to be shown is that there is some other rule of international law which permits something else to be taken into account. Rules of international law have two main sources: they may be found in either treaty law or in customary international law. There is nothing in treaty law other than what is set out in the Vienna Convention to which [the taxpayer] was able to point. Nor was he able to point to any rule of customary international law to support his submission." (Irish Bank Resolution Corporation Ltd v. HMRC [2020] EWCA Civ 1128, Singh LJ)
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Summary of principles
[16] It was common ground that a convenient summary of these principles and the way in which they have been applied by the English courts is to be found in the judgment of Mummery J (as he then was) in Inland Revenue Commissioners v Commerzbank AG [1990] STC 285 at page 297 where the judge said:
"Before I examine the contrary submissions of the Crown, it is necessary to refer briefly to the approach to the interpretation of provisions, such as art XV, which have been agreed between sovereign states in a convention or treaty and have subsequently been given the force of law in the United Kingdom by reason of the implementing provisions of primary or secondary legislation. The parties are agreed that the correct approach is that laid down by the House of Lords in Fothergill v Monarch Airlines Ltd [1981] AC 251. That case gave rise to problems of comparison with a foreign language text (that is, the French text of the Warsaw Convention) which are not present in these appeals. The House of Lords had to compare the English text and the French text because of a provision in the convention that the French text should prevail if there was any inconsistency between it and the text in English. Putting that special feature on one side, that decision makes clear the approach which should be adopted by the court.
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[Consider clear meaning and whether it is consistent with purpose]
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(1) It is necessary to look first for a clear meaning of the words used in the relevant article of the convention, bearing in mind that 'consideration of the purpose of an enactment is always a legitimate part of the process of interpretation': per Lord Wilberforce (at 272) and Lord Scarman (at 294). A strictly literal approach to interpretation is not appropriate in construing legislation which gives effect to or incorporates an international treaty: per Lord Fraser (at 285) and Lord Scarman (at 290). A literal interpretation may be obviously inconsistent with the purposes of the particular article or of the treaty as a whole. If the provisions of a particular article are ambiguous, it may be possible to resolve that ambiguity by giving a purposive construction to the convention looking at it as a whole by reference to its language [1990] STC 285 at 298 as set out in the relevant United Kingdom legislative instrument: per Lord Diplock (at 279).
[Do not interpret as if UK legislation, apply broad principles of general acceptation]
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(2) The process of interpretation should take account of the fact that—
'The language of an international convention has not been chosen by an English parliamentary draftsman. It is neither couched in the conventional English legislative idiom nor designed to be construed exclusively by English judges. It is addressed to a much wider and more varied judicial audience than is an Act of Parliament which deals with purely domestic law. It should be interpreted, as Lord Wilberforce put it in James Buchanan & Co. Ltd v. Babco Forwarding & Shipping (UK) Limited [1978] AC 141 at 152], "unconstrained by technical rules of English law, or by English legal precedent, but on broad principles of general acceptation': per Lord Diplock (at 281–282) and Lord Scarman (at 293).
[Interpret purposively]
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(3) Among those principles is the general principle of international law, now embodied in art 31(1) of the Vienna Convention on the Law of Treaties, that 'a treaty should be interpreted in good faith and in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose'. A similar principle is expressed in slightly different terms in McNair's The Law of Treaties (1961) p 365, where it is stated that the task of applying or construing or interpreting a treaty is 'the duty of giving effect to the expressed intention of the parties, that is, their intention as expressed in the words used by them in the light of the surrounding circumstances'. It is also stated in that work (p 366) that references to the primary necessity of giving effect to 'the plain terms' of a treaty or construing words according to their 'general and ordinary meaning' or their 'natural signification' are to be a starting point or prima facie guide and 'cannot be allowed to obstruct the essential quest in the application of treaties, namely the search for the real intention of the contracting parties in using the language employed by them'.
[Consider supplementary aides to address ambiguity or avoid absurdity]
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(4) If the adoption of this approach to the article leaves the meaning of the relevant provision unclear or ambiguous or leads to a result which is manifestly absurd or unreasonable recourse may be had to 'supplementary means of interpretation' including travaux préparatoires: per Lord Diplock (at 282) referring to art 32 of the Vienna Convention, which came into force after the conclusion of this double taxation convention, but codified an already existing principle of public international law. See also Lord Fraser (at 287) and Lord Scarman (at 294).
[Relevance of subsequent commentaries and decisions of foreign courts depend on cogency of reasoning and reputation]
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(5) Subsequent commentaries on a convention or treaty have persuasive value only, depending on the cogency of their reasoning. Similarly, decisions of foreign courts on the interpretation of a convention or treaty text depend for their authority on the reputation and status of the court in question: per Lord Diplock (at 283–284) and per Lord Scarman (at 295).
[Use of aides is discretionary]
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(6) Aids to the interpretation of a treaty such as travaux préparatoires, international case law and the writings of jurists are not a substitute for study of the terms of the convention. Their use is discretionary, not mandatory, depending, for example, on the relevance of such material and the weight to be attached to it: per Lord Scarman (at 294)."" (Irish Bank Resolution Corporation Ltd v. HMRC [2020] EWCA Civ 1128, Patten LJ)
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Ordinary meaning in light of context and purpose
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"(1) A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose." (Vienna Convention on the Law of Treaties, Article 31(1))
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"[26] As Lord Reed explained in Anson v HMRC [2015] UKSC 44, [2015] STC 1777:
"[56] Put shortly, the aim of interpretation of a treaty is therefore to establish, by objective and rational means, the common intention which can be ascribed to the parties. That intention is ascertained by considering the ordinary meaning of the terms of the treaty in their context and in the light of the treaty's object and purpose. Subsequent agreement as to the interpretation of the treaty, and subsequent practice which establishes agreement between the parties, are also to be taken into account, together with any relevant rules of international law which apply in the relations between the parties. Recourse may also be had to a broader range of references in order to confirm the meaning arrived at on that approach, or if that approach leaves the meaning ambiguous or obscure, or leads to a result which is manifestly absurd or unreasonable."
[27] Later in his judgment Lord Reed commented on the fact that the process of interpretation must take account of the fact that what is being interpreted is an international convention, not a UK statute. He said this:
"[110] Article 31(1) of the Vienna Convention requires a treaty to be
interpreted "in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and
purpose". It is accordingly the ordinary (contextual) meaning which is relevant. As Robert Walker J observed at first instance in Memec [1996] STC 1336 at 1349, 71 TC 77 at 93, a treaty should be construed in a manner which is "international, not exclusively English".
[111] That approach reflects the fact that a treaty is a text agreed upon by negotiation between the contracting governments…"
He went on to emphasise in the same paragraph the courts' predisposition, when faced with "narrow and technical constructions", to favour an interpretation which reflects the "ordinary meaning of the words used and the object" of the treaty." (Royal Bank of Canada v. HMRC [2023] EWCA Civ 695, Falk, Asplin, Nugee LJJJ)
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- Start with the text
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"[41] Thirdly, the primary means of ascertaining the object and purpose of a treaty will generally be its text, read in the context of relevant surrounding circumstances. At the very least the text will be the place to start. This point was made by Mummery J in IRC v Commerzbank AG, IRC v Banco Do Brasil SA [1990] STC 285 ("Commerzbank"), p.298 at para. (3), in a passage cited by Patten LJ in Irish Bank at [16] and also referred to with approval by this court in the earlier cases of Memec plc v HMRC [1998] STC 754, 766 and Re the Trevor Smallwood Trust, Smallwood v Revenue and Customs Comrs [2010] EWCA Civ 778, [2010] STC 2045 ("Smallwood") at [26]. This part of Smallwood was also referred to with approval by Lord Briggs in Fowler at [19]. Mummery J said this:
"Among those principles is the general principle of international law, now embodied in art 31(1) of the Vienna Convention on the Law of Treaties, that 'a treaty should be interpreted in good faith and in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose'. A similar principle is expressed in slightly different terms in McNair's The Law of Treaties (1961) p 365, where it is stated that the task of applying or construing or interpreting a treaty is 'the duty of giving effect to the expressed intention of the parties, that is, their intention as expressed in the words used by them in the light of the surrounding circumstances'. It is also stated in that work (p 366) that references to the primary necessity of giving effect to 'the plain terms' of a treaty or construing words according to their 'general and ordinary meaning' or their 'natural signification' are to be a starting point or prima facie guide and 'cannot be allowed to obstruct the essential quest in the application of treaties, namely the search for the real intention of the contracting parties in using the language employed by them'."
[42] A similar point was made with some force by the Supreme Court of Canada in one of the cases on which GEFI relies, Canada v Alta Energy Luxembourg SARL 2021 SCC 49 ("Alta Energy"). In considering an argument that the Canadian general anti-avoidance rule ("GAAR") was engaged in a treaty context, Côté J, giving the judgment of the majority, said this at [58]:
"It must be remembered that the text also plays an important role in ascertaining the purpose of a provision. The proper approach is one that unifies the text, context, and purpose, not a purposive one in search of a vague policy objective disconnected from the text."" (HMRC v. GE Financial Investments [2024] EWCA Civ 797, Falk, Arnold, Whipple LJJ)
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- Starting with commentaries increases risk of error
"[126] It also follows that the UT made an error of law in reaching the conclusion that GEFI was US resident for Convention purposes. I will not comment further on its detailed reasoning, other than to note that using the MTC and OECD Commentary as its starting point, rather than the words of the Convention itself in the light of its object and purpose, may have increased the risk of error. I should also observe, however, that although it makes no difference in light of the decision of this court, I have some concern that the UT exceeded its jurisdiction in purporting to take a different view of some aspects of the expert evidence to that of the FTT (see [54] above). The UT (and this court) is fixed with the lower tribunal's findings on the evidence unless its decision is set aside due to an error of law. It is only at that point that the UT or this court has power to make its own findings on the evidence: ss.12 and 14 Tribunals, Courts and Enforcement Act 2007." (HMRC v. GE Financial Investments [2024] EWCA Civ 797, Falk, Arnold, Whipple LJJ)
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- Starting with commentaries increases risk of error
"[126] It also follows that the UT made an error of law in reaching the conclusion that GEFI was US resident for Convention purposes. I will not comment further on its detailed reasoning, other than to note that using the MTC and OECD Commentary as its starting point, rather than the words of the Convention itself in the light of its object and purpose, may have increased the risk of error. I should also observe, however, that although it makes no difference in light of the decision of this court, I have some concern that the UT exceeded its jurisdiction in purporting to take a different view of some aspects of the expert evidence to that of the FTT (see [54] above). The UT (and this court) is fixed with the lower tribunal's findings on the evidence unless its decision is set aside due to an error of law. It is only at that point that the UT or this court has power to make its own findings on the evidence: ss.12 and 14 Tribunals, Courts and Enforcement Act 2007." (HMRC v. GE Financial Investments [2024] EWCA Civ 797, Falk, Arnold, Whipple LJJ)
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Strive to avoid conclusion that treaty provision is otiose
"[75] It is well established that a conclusion that a treaty provision is otiose should be avoided if that is reasonably possible. In Anson v HMRC Lord Reed said this at [94]:
"Following the jurisprudence of the International Court of Justice (eg United Kingdom v Albania (Corfu Channel) [1949] ICJ 4 at 24), the court would be reluctant to conclude that a provision in an agreement made between two governments was otiose, if that conclusion could reasonably be avoided."
[76] The point was also discussed by Mummery J in IRC v Commerzbank AG [1990] STC 285, 299, where he referred to the earlier decision of Avery Jones v IRC [1976] STC 290 in which Walton J had said (at pp.299–300):
"… I think that the courts would always be very slow to refuse to give any meaning at all to a provision in an agreement made between two governments if any sensible construction at all could be placed on it."
Mummery J also referred to IRC v Exxon Corporation [1982] STC 356, where Goulding J departed from the plain meaning of the words in question because, unless he did so, the provision "would fail of effect"." (Royal Bank of Canada v. HMRC [2023] EWCA Civ 695, Falk, Asplin, Nugee LJJJ)
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Aides to determining context: other agreements and subsequent practice
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(2) The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes:
(a) Any agreement relating to the treaty which was made between all the parties in connexion with the conclusion of the treaty;
(b) Any instrument which was made by one or more parties in connexion with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty.
(3) There shall be taken into account, together with the context:
(a) Any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions;
(b) Any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation;
(c) Any relevant rules of international law applicable in the relations between the parties." (Vienna Convention on the Law of Treaties, Article 31(2) - (3))
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- Unilateral practice of contracting state inadmissible
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"First, the unilateral opinion or practice of a tax authority is not a relevant aid to interpretation: see Irish Bank Resolution Corporation Ltd v HMRC [2020] EWCA Civ 1128, [2020] STC 1946 ("Irish Bank") at [18]-[23]." (HMRC v. GE Financial Investments [2024] EWCA Civ 797, Falk, Arnold, Whipple LJJ)
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"[22] The UT took the view that the practice of the Inland Revenue in relation to the assessment of the profits attributable to the UK branch of a bank was inadmissible as an aid to the construction of Article 8(2) of the 1976 Convention. At [29]-[31] they said:
"29. There is also a further – and in our judgment altogether more fundamental reason, which we put to the parties in argument – why this material is inadmissible. That is because this material is irrelevant to the question of construction that we have to answer. The unilateral practice of a taxing authority – no matter how well-advised – is not material that can support or contradict a particular interpretation of a treaty.
30. It is permissible to look to the subsequent conduct of the parties to a treaty to see if there is a subsequent agreement or practice that goes to the meaning of the treaty. Such agreement or practice would have to be evidenced, and would have to demonstrate a bilateral agreement or practice involving both parties to the treaty. No such agreement or practice was alleged here; and we consider the point to be a factual one, that could only properly be raised before the FTT.
31. We do not consider that the unilateral practice of a contracting party – even if that practice shows a careful attempt by that party to abide by a treaty – can affect the meaning of that treaty or constitute material going to its construction."
[23] This seems to me to be clearly right. Mr Baker submitted that Article 31 of the Vienna Convention should not be treated as an exhaustive and immutable code and I think that may be correct. As with any other set of legal principles, the norms of international law are capable of development and change. But what the UT said in [30] of its decision (which is derived from Article 31(3)(b) of the Vienna Convention) is an established norm of international law. By contrast with that, the Appellants have been unable to identify any established principle of international law which recognises the unilateral practice of a contracting state as an aid to the construction of a treaty. In that respect, there is no divergence between international law and the English private law system which has never received evidence of what a party to a contract believed that the language of the agreement meant except in relation to a claim for rectification. The legal meaning of the words used is an abstract question of law to be determined on an objective basis." (Irish Bank Resolution Corporation Ltd v. HMRC [2020] EWCA Civ 1128, Patten LJ)
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- How contracting states have approached the issue in other treaties may be relevant
"[90] In my view there is a difference between the practice of an individual taxing authority, which I agree with Patten LJ is irrelevant, and how the relevant Contracting States have approached the issue in other treaties that are based on the MTC. It seems to me that it is not irrelevant to consider examples of how other treaties entered into by the UK or Canada, being treaties that are similarly based on the MTC, modify the MTC definition of immovable property or otherwise make specific provision for income related to natural resources. Those other treaties are of course not determinative in interpreting Article 6(2) of the Treaty, and I accept that they do not fall within the list of sources in Article 31 of the Vienna Convention. However, particularly given the common source of the MTC I consider that they may form a legitimate supplementary reference point because they demonstrate that, where it has been considered appropriate to do so, each party has agreed to include specific wording.
[91] In this case, however, I am not convinced that the UK/US or Canada/US treaty adds much to what can be derived from the terms of the Treaty with which we are concerned. The approach in Article 13 of the UK/US treaty is similar in substance to Article 13(4) of the Treaty. The Canada/US Treaty extends the reach of Article VI to amounts "computed by reference to" production, but that is part of wording that replaces the entirety of the fifth limb in the MTC version of the definition." (Royal Bank of Canada v. HMRC [2023] EWCA Civ 695, Falk, Asplin, Nugee LJJJ)
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- Unilateral view of third party not relevant​
"[143] The aim of interpretation of a treaty is to establish, by objective and rational means, the common intention which can be ascribed to the parties. The unilateral view of a government department of the United States of America (a third party) in relation to the interpretation of a different instrument (the USA / UK treaty) is of no assistance in establishing a common intention which existed as between the UK and Canada in relation to the Treaty at the time that it was concluded (cf Irish Bank Resolution Corp v HMRC [2020] EWCA Civ 1128, [2020] STC 1946 at [22]-[23] in relation to unilateral practice on the part of one of the contracting states to the same instrument – the present case is a fortiori)." (Royal Bank of Canada v. HMRC [2022] UKUT 45 (TCC), Edwin Johnson J and Judge Rupert Jones)
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- Academic commentaries and foreign judgments persuasive at most
"[39] Secondly, academic commentaries and judgments from foreign courts are at most of persuasive value. In Fothergill v Monarch Airlines Ltd [1981] AC 251 Lord Diplock said this at pp.283-284 about academic commentaries published after a treaty had been concluded and decisions of foreign courts:
"To a court interpreting the Convention subsequent commentaries can have persuasive value only ... The persuasive effect of learned commentaries, like the arguments of counsel in an English court, will depend upon the cogency of their reasoning…
As respects decisions of foreign courts, the persuasive value of a particular court's decision must depend upon its reputation and its status, the extent to which its decisions are binding upon courts of co-ordinate and inferior jurisdiction in its own country and the coverage of the national law reporting system…"
[40] Lord Scarman made similar comments at pp.294-295. After referring to the legislative history, travaux préparatoires, international case law and the writings of jurists as aids to construction of a convention which are not a substitute for its terms and the use of which is in the court's discretion, Lord Scarman compared the usefulness of an agreed conference minute of the meaning of draft text with other documents such as working papers of delegates which would "seldom be helpful", and then said at p.295:
"The same considerations apply to the international case law and the writings of jurists. The decision of a supreme court, or the opinion of a court of cassation, will carry great weight: the decision of an inferior court will not ordinarily do so. The eminence, the experience and the reputation of a jurist will be of importance in determining whether, and, if so, to what extent, the court should rely on his opinion.
Nevertheless the decision whether to resort to these aids, and the weight to be attached to them, is for the court. However, the court's discretion has an unusual feature. It is applied not to a factual situation but to a choice of sources for help in interpreting an enactment. It operates in a purely legal field. An appellate court is not, therefore, bound by the lower court's selection of aids, but must make its own choice, if it thinks recourse to aids is necessary. This legal process is not unlike the use made by our courts of antecedent case law, though it lacks the inhibitions of any doctrine of precedent."
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Special meanings​
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(4) A special meaning shall be given to a term if it is established that the parties so intended." (Vienna Convention on the Law of Treaties, Article 31(4))
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- Query whether OECD commentary is equivalent to academic commentary
"[43] Fourthly, there was some discussion at the hearing about how reference to OECD Commentaries (and indeed to the MTC itself) fits in with the terms of Articles 31 and 32 of the Vienna Convention. Given Lord Briggs' guidance in Fowler and the fact that there is no controversy that reference is permitted, it is not necessary to determine the extent to which the power to refer to such material is derived from Article 31 or 32, or (at least for versions of the OECD Commentary that post-date the relevant treaty) is akin to academic commentaries. However, I note that in relation to later versions of the OECD Commentary Lord Briggs referred in Fowler at [18] to the cogency of their reasoning in a similar way to Lord Diplock's reference to the use of academic commentaries in Fothergill v Monarch Airlines, and that the authority that Lord Briggs cited was Smallwood at [26], where Lord Diplock's comment is referred to in a citation from Commerzbank, p.298 at para. (5). In other words, those later versions were treated in a similar way to academic commentaries." (HMRC v. GE Financial Investments [2024] EWCA Civ 797, Falk, Arnold, Whipple LJJ)
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Supplementary means where ordinary approach leads to ambiguity or absurdity​
"Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of article 31, or to determine the meaning when the interpretation according to article 31:
(a) leaves the meaning ambiguous or obscure; or
(b) leads to a result which is manifestly absurd or unreasonable." (Vienna Convention on the Law of Treaties, Article 32)
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Treaties authenticated in multiple languages: each text equally authoritative unless otherwise agreed
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"(1) When a treaty has been authenticated in two or more languages, the text is equally authoritative in each language, unless the treaty provides or the parties agree that, in case of divergence, a particular text shall prevail.
(2) A version of the treaty in a language other than one of those in which the text was authenticated shall be considered an authentic text only if the treaty so provides or the parties so agree.
(3) The terms of the treaty are presumed to have the same meaning in each authentic text.
(4) Except where a particular text prevails in accordance with paragraph 1, when a comparison of the authentic texts discloses a difference of meaning which the application of articles 31 and 32 does not remove, the meaning which best reconciles the texts, having regard to the object and purpose of the treaty, shall be adopted." (Vienna Convention on the Law of Treaties, Article 33)
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"[81] Returning to Article 6(2), there was no dispute that we should consider the French text of the Treaty on the basis that the attestation provision, which forms part of the text of the Treaty set out in the schedule to SI 1980/709, expressly states both versions to be "equally authoritative". (There was a debate below as to whether the effect of the Order in Council was to incorporate the entire French text into English law. That debate is unnecessary to resolve given that there is no issue about the approach that we should apply, namely that we should follow the clear instruction that both texts have equal authority.)
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[87] In my view, and again in respectful disagreement to the Tribunals below, the language used in the French text of the Treaty does support a narrower construction of the fifth limb than that contended for by HMRC. Obviously the French text does not prevail over the English text – they are equally authoritative – but it is highly relevant that the French text uses a term that, at least in its ordinary sense, connotes the creation rather than the transfer of a right." (Royal Bank of Canada v. HMRC [2023] EWCA Civ 695, Falk, Asplin, Nugee LJJJ)
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Wide range of aides to interpreting wording of treaty in a foreign language
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[126] We are able to consider a wide range of legal materials, when required to construe the wording of a treaty in a foreign language; see Lord Wilberforce in Fothergill, at 273F-274A and Lord Scarman in Fothergill, at 294B-295D, in particular 294E-H:
"We know that in the great majority of the contracting states the legislative history, the " travaux preparatoires ", the international case law (‘la jurisprudence'), and the writings of jurists ('la doctrine'), would be admissible as aids to the interpretation of the convention. We know also that such sources would be used in the practice of public international law. They should, therefore, also be admissible in our courts: but they are to be used as aids only.
Aids are not a substitute for the terms of a convention: nor is their use mandatory. The court has a discretion. … the court must first look at the terms of the convention as enacted by Parliament. But, if there be ambiguity or doubt, or if a literal construction appears to conflict with the purpose of the convention, the court must then, in my judgment, have recourse to such aids as are admissible and appear to it to be not only relevant but helpful on the point (or points) under consideration. Mere marginal relevance will not suffice: the aid (or aids) must have weight as well…" (Royal Bank of Canada v. HMRC [2022] UKUT 45 (TCC), Edwin Johnson J and Judge Rupert Jones)
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Legal materials on foreign text not required to be produced by expert​
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"[154] For the reasons we set out below, in the absence of any expert evidence on the French meaning of the text of the Treaty we must still have regard to the legal texts and other sources when considering whether there is any ambiguity in the English wording of the Treaty and whether the French wording casts any further light on the meaning of Article 6(2).
[155] The legal materials relied upon by Mr Peacock QC as to the meaning of the French text of the Treaty have whatever weight in the argument they are found to have, in the absence of any expert evidence on the meaning of the French version of Article 6. There is no prejudice to HMRC in allowing Mr Peacock QC to pursue what is now Ground 2, on the basis of the legal materials which are relied upon. The absence of expert evidence may or may not be a difficulty for RBC in its pursuit of its case on the French text of the Treaty, but its absence does not preclude RBC from advancing this ground of appeal, and deploying such legal materials as it thinks appropriate in support of this ground of appeal." (Royal Bank of Canada v. HMRC [2022] UKUT 45 (TCC), Edwin Johnson J and Judge Rupert Jones - CA took same approach at §§84 - 87)
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But may affect weight
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"[163] This conclusion is not altered by resort to, and comparison with the French text of the Treaty. The legal materials put before us as an aid to the construction of the French version of the Article 6(2) are, at best, ambiguous. They do not establish, let alone clearly establish that the word “la concession” in the French text means, and only means the grant or the original grant of the right to work natural resources. We are unable to say whether the position would have been different if expert evidence had been called to assist us in our consideration of the French text. The position in that respect is settled by the earlier case management decision to refuse permission to call expert evidence." (Royal Bank of Canada v. HMRC [2022] UKUT 45 (TCC), Edwin Johnson J and Judge Rupert Jones)
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OECD Commentary may be relied on even if one party to treaty not a member of OECD
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"[24] The RSA is not a member of the OECD but the parties are agreed that both the RSA and the UK were aware of the Commentary on the Model Tax Convention on Income and Capital Gains (“MTC”) and:
(1) Article 4 is the same as that in the MTC.
(2) The Commentary on the MTC adopts the Commentary.
(3) The RSA has not commented on the Commentary as other non OECD members have done." (Oppenheimer v. HMRC [2022] UKFTT 112 (TC), Judge Anne Scott)
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OECD commentary subsequent to treaty admissible as long as not in conflict with previous commentary
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[31] Although [43]-[47] of the 2008 Commentary are new, it is clear from [7] of the Commentary that they were considered appropriate for inclusion by the OECD because they were not in conflict with earlier versions of the Commentary. As explained in [3] and [7], the format of Articles 7 and 9 of the model convention has never been prescriptive as to how profits should be attributed to a PE in accordance with the model described in Article 7(2) and the way in which the application of those criteria has been implemented has varied from state to state. But to succeed on this appeal Mr Baker's clients must establish that any attribution of capital which results in the disallowance of interest paid by the PE on the money it has borrowed is simply impermissible under Article 8(2) of the 1976 Convention. This is, of course, ultimately a question of construction but HMRC place considerable reliance on the 2008 Commentary as confirmation that Article 7(2) has always permitted a considerable degree of flexibility in the methods for attributing profits to a PE and that these can include various forms of capital attribution. On that basis, the 2008 Commentary, although new, would be admissible as an aid to the construction of Article 8(2) of the 1976 Convention which, as I have explained, adopted the wording of Article 7(2). It would only be inadmissible if the new material made substantive changes which are inconsistent with the commentaries in existence at the time of the 1976 Convention." (Irish Bank Resolution Corporation Ltd v. HMRC [2020] EWCA Civ 1128, Patten LJ)
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"[78] The 2017 Commentary is an updated version of the 1977 edition of the OECD Commentary, which was the version of the commentary published at the time that the DTC was negotiated. In Fowler v HMRC [2020] UKSC 22, §18, a case which considered the UK/South Africa Double Taxation Treaty, Lord Briggs noted that the OECD commentaries "are updated from time to time, so that they may (and do in the present case) post-date a particular double taxation treaty. Nonetheless they are to be given such persuasive force as aids to interpretation as the cogency of their reasoning deserves …" We agree with the FTT's comment at §228 that the same should apply where the current version of the Commentary post-dates the Relevant Period in a particular case. We refer, therefore, in this judgment to the 2017 version of the Commentary, as did both parties in their submissions." (McCabe v. HMRC [2024] UKUT 280 (TCC), Bacon J and Judge Tilakapala)
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"[226] [The taxpayer] submitted that I should not rely on the 2017 Commentary as the amendments were made after the Relevant Period; and that in any event the changes did not assist HMRC on the facts.
[227] In Fowler v HMRC [2020] UKSC 22 the Supreme Court set out the following at [18]:
“The OECD Commentaries are updated from time to time, so that they may (and do in the present case) post-date a particular double taxation treaty. Nonetheless they are to be given such persuasive force as aids to interpretation as the cogency of their reasoning deserves…”
[228] I consider that this principle is capable of applying equally to the amendments or updates made to the OECD commentary after the Relevant Period. I do, however, note that in the context of the meaning of a permanent home the only difference is the addition of an example which illustrates what was meant by the principle already set out in the 1977 Commentary." (McCabe v. HMRC [2022] UKFTT 356 (TC), Judge Zaman)
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"[28] Technically, resort should be had to the commentary as in force at the date that the DTC was agreed and then more recent versions only to the extent that they are cogent and assist the determination by the Tribunal. The most relevant change is in paragraph 19, which was only introduced in 2017, but both parties were agreed that the Commentary is helpful in understanding the tiebreaker tests. We agree." (Oppenheimer v. HMRC [2022] UKFTT 112 (TC), Judge Anne Scott)
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General principles
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- Source state has primary taxing rights over active income and residence state has primary rights over passive income
"[77] The function of double tax conventions in apportioning taxing rights between the State of residence and the State of source, and a distinction that is generally drawn between "active" and "passive" income in making that apportionment, was considered in an illuminating passage in Alta Energy in the context of the Canada/Luxembourg treaty (from the judgment of Côté J with whom the majority agreed):
"[73] Broadly speaking, the apportionment of taxing rights between the residence and source states under the OECD Model Treaty, which serves as a model for the Treaty, is centred on the distinction between active and passive income (Li and Cockfield, at p. 12; Avi-Yonah, Sartori and Marian, at p. 155). The source state has the primary right to tax active income (e.g. business profits and employment income), and the residence state has only residual rights. Pursuant to the theory of economic allegiance, the source state has a greater claim to tax active income because its economic environment has the closest connection with the origin of wealth (Malherbe, at p. 56; Li and Cockfield, at pp. 66 and 151). Non-residents owe allegiance to the source state as a result, and they are expected to pay tax for the public services from which they benefit in carrying on their active economic activities in the source state.
[74] Conversely, the residence state has the primary right to tax passive income (e.g. interest, dividends, and capital gains), and the source state has only residual rights. The source state's claim to tax passive income is considered weaker in comparison to that of the residence state because generating such income is assumed to require few public services from the source state. Moreover, the economic environment of the source state is considered less material to the earning prospect of passive investments, as such passive activities may be conducted in various jurisdictions without either improving or negatively affecting their earning prospect. Therefore, non-residents earning passive income owe little allegiance to the source state."
[78] The provisions of the Convention illustrate both the significance of residence and the distinction noted in Alta Energy between active and passive income."(HMRC v. GE Financial Investments [2024] EWCA Civ 797, Falk, Arnold, Whipple LJJ)
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- Benefits to residents indicates substantive connection with territory required
"[79] The starting point is Article 1(1), which makes clear that (unless specifically provided otherwise) the Convention applies to residents of one or both States. That is important. The Convention confers material benefits on taxpayers to whom it applies, and the Contracting States have agreed that those benefits should be available only to their respective residents. I pause here to note that, if GEFI's argument were right, an entity based anywhere in the world the shares in which were stapled to a US entity would have to be granted the benefits of the Convention.
...
[81] The importance of the residence concept means that both States have a clear interest in delineating the scope of the other State's ability to determine who falls within the concept of Treaty residence, because where a person is resident in that other State the source State may well have to cede or at least restrict domestic taxing rights. (Indeed, in the particular context of the Convention the United Kingdom's interest is arguably heightened for corporate entities because of the fact that the tie-breaker in Article 4(5) depends on mutual agreement, and if agreement cannot be reached it must allow a credit for US tax paid on US source income against UK tax on the same income: [22] above.)" (HMRC v. GE Financial Investments [2024] EWCA Civ 797, Falk, Arnold, Whipple LJJ)
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- References to domestic law definitions may still need to take account of treaty context
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"[129] However, it is worth noting two points. First, it is not obvious to me that UK tax law principles should be applied without any reference to the broader principles that apply in interpreting the Convention, and in particular the need to consider the meaning of words in their context. The context here includes a clear distinction between interest attributable to a business carried on in a Contracting State and interest derived in other circumstances: essentially the difference between active and passive income discussed in Alta Energy (see [77] above). However, I will not develop this point further given the common ground between the parties in this case." (HMRC v. GE Financial Investments [2024] EWCA Civ 797, Falk, Arnold, Whipple LJJ)
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Interpretations of double tax treaties
- Residence (Article 4): liability to worldwide taxation must be the result of one of the connecting factors
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"[63]...The critical point is that GEFI is in fact UK incorporated. It is liable to tax in the United States "by reason of" the application of s.269B, which provides that what it explicitly recognises to be a foreign corporation (that is, one not created or organised under US law) "shall be treated" as if it were a domestic corporation. It is not liable to tax by reason of actual incorporation in the United States or by virtue of any of the other enumerated criteria listed in Article 4(1). Although at one point the UT appeared to suggest that GEFI should effectively be assumed to be incorporated in the United States by virtue of s.269B, I did not understand Mr Baker to rely on such an analysis and I cannot see that it would have any evidential support.
...
[67] In my view that is not the natural meaning of the words used. Article 4(1) defines a resident of a Contracting State as a person "liable to tax… by reason of" having a particular status (domicile, residence etc.). The words "by reason of" make clear that liability to tax is the consequence of having the requisite status. It does not say that residence status is the result of, or equates to, being liable to tax. Further, the status in question comprises a list of specific connecting factors following by an express ejusdem generis provision. The fact that a list is included suggests that the individual items referred to in it were regarded as having significance. The choice of the words "of a similar nature", meaning (broadly) of the same kind or genus, is also relevant. Each of the listed factors is a type of substantive factual or legal connection between the person concerned and the State in question, strongly indicating that for another factor to be something of a similar nature it would also need to be a connection that has a similar character or quality.
[68] I agree with [HMRC] that if all that was intended to be covered was anything that resulted in worldwide taxation under domestic law then there would be no need for any specific list. The underlined text would much more straightforwardly have referred simply to unrestricted or worldwide taxation. If a list was nonetheless included then the words "of a similar nature" would have read something like "to the same effect" or "having the same consequence"." (HMRC v. GE Financial Investments [2024] EWCA Civ 797, Falk, Arnold, Whipple LJJ)
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Factual connection not a deemed legal connection
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"[122]...The US connections required by s.269B are limited to a) stapling of more than 50% by value of the foreign corporation's shares to those of a domestic corporation, and b) direct or indirect ownership as to 50% or more by US persons. Both of these requirements relate to the ownership and control of the relevant company. Neither requires any form of link between the company itself and the United States, whether a formal legal one (such as incorporation, the location of its registered office or similar) or a factual one (such as place of management). The facts that the entity to which the company is stapled is itself US incorporated and that both entities are ultimately US owned cannot suffice. In contrast, the criteria specified in Article 4(1) all describe legal or factual connections between the entity itself and the relevant Contracting State of a kind that may justify worldwide taxation." (HMRC v. GE Financial Investments [2024] EWCA Civ 797, Falk, Arnold, Whipple LJJ)
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- Dual purpose: eliminate double taxation and prevent avoidance of taxation
"[34] Secondly, DTAs respect the principle of taxation by the State of residence. They aim to avoid the taxation of residents twice over on the same income. What DTAs do not aim to do is to facilitate the avoidance of tax, or its reduction below the level of tax ordinarily paid by residents. In those circumstances it is a legitimate aim of the public policy of the State in fiscal matters to ensure that DTAs relieve double taxation of residents rather than serve as an instrument used by taxpayers who choose to participate in artificial arrangements to avoid or reduce their level of taxation. In principle retrospective legislation may be justified for the purpose of implementing that policy." (R (oao Huitson) v. HMRC [2011] EWCA Civ 893, Mummery LJ)
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"[54] The correct approach to the construction of a double taxation treaty was also considered in Bayfine UK v HMRC [2011] EWCA Civ 304. The double taxation treaty in that case contained the same preamble as the Treaty in this case. At [17], Arden LJ said, in relation to that preamble:
“17. These words, however, make it clear that the primary purposes of the Treaty are, on the one hand, to eliminate double taxation and, on the other hand, to prevent the avoidance of taxation. In seeking a purposive interpretation, both these principles have to be borne in mind. Moreover, the latter principle, in my judgment, means that the Treaty should be interpreted to avoid the grant of double relief as well as to confer relief against double taxation.” (Davies v. HMRC [2020] UKUT 67 (TCC), Morgan J and Judge Andrew Scott)
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- If treaty renders sum eligible for taxation as gain, cannot be taxed as income
"[140] At this point it is convenient to deal with an additional argument of Mr Bremner QC that the Revenue could still tax the Payments as income, even if they only became eligible for taxation in the UK as a gain within the meaning of Article 13. We reject this argument. It seems wrong that a sum of money which becomes eligible for taxation within the UK as a gain within the meaning of Article 13 can then be taxed in the UK in whatever way the Revenue wishes, regardless of the status of the relevant sum of money. Such an analysis seems to extend too far the flexibility given to the contracting parties, when it comes to the taxation of sums which are rendered eligible for taxation in one contracting state by a particular Article of the Treaty." (Royal Bank of Canada v. HMRC [2022] UKUT 45 (TCC), Edwin Johnson J and Judge Rupert Jones)
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- Income is not from immoveable property if person never held an interest in the land
"[97] Applying this conclusion to the facts of this case, RBC does not hold, and indeed has never held, an interest in the Buchan field. It cannot therefore be taxed under the fifth limb. What it acquired was a contractual right to receive payments calculated by reference to the sale proceeds derived from sales of oil, to the extent that the price obtained exceeded $20 a barrel. Although RBC accepted that it "stood in the shoes" of Sulpetro as regards its entitlement to the Payments, that cannot alter the fact that it has at no stage held an interest in the Buchan field.
[98] In contrast, Sulpetro would have been within the scope of UK tax on its disposal of its interest in the Buchan field under Article 13, and in particular under the express provisions of Article 13(4) and (5)..." (Royal Bank of Canada v. HMRC [2023] EWCA Civ 695, Falk, Asplin, Nugee LJJJ)
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- Business profits article does not exclude UK's right to tax deemed income based on that profit
"[78]...The transfer of assets abroad provisions deem the profits of ABP to be the income of the Appellants and then charge the deemed income of the Appellants to tax. However, those provisions charge the income to tax as income of a miscellaneous character and not as trading profits arising to the Appellants. The Appellants are not relieved against that tax under Article 7 of the Treaty because the UK is not taxing the profits of ABP but is taxing something different, namely, the deemed income of the Appellants. It is nothing to the point that the deemed income of the Appellants is computed by reference to the profits of ABP. It remains the case that the deemed income of the Appellants is not the profits of ABP; and it remains the case that the trading profits of ABP are taxed by Mauritius and not by the UK. The Mauritian tax authorities would have no more cause to complain that the Treaty is not being respected in this case than they would have if the profits of ABP were distributed to UK residents and taxed in their hands. In either case, the UK would be simply seeking to tax its own residents. Applying Bricom in this way, we give effect to the policy of the Treaty as described earlier and the Treaty is not used, impermissibly, to obtain double relief or to avoid tax. We would, moreover, observe that, if Mr Way were right in his submissions about the meaning of the Treaty, it would seem to follow that the UK would, in seeking to tax its residents under its anti-avoidance provisions (which Mr Way accepts that the UK undoubtedly does on and after 12 March 2008), be in breach of the Treaty. That is, in our view, a somewhat improbable conclusion." (Davies v. HMRC [2020] UKUT 67 (TCC), Morgan J and Judge Andrew Scott)
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Relief under double tax treaty not automatic - must be claimed
Apply normal time limit rules
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"[84] We have reached the conclusion that [HMRC] is right that if the Appellants were able to rely on Article 7, then they were required, in their self-assessment tax returns, to return the deemed income in accordance with the transfer of assets abroad provisions and then to claim relief in reliance on Article 7. Such a claim would come within section 788(3)(a) and had to be made by reason of section 788(6) and, further, had to be made within the time limit imposed by section 43 TMA 1970. Further, in response to the discovery assessments which were based on section 739 ICTA 1988 and sections 720 and 721 ITA 2007, the Appellants had to claim relief in reliance on Article 7 pursuant to section 788(3)(a) and (6) within the time limit imposed by section 43(2) TMA 1970. Such a claim would naturally come within the wording of section 788(3)(a)." (Davies v. HMRC [2020] UKUT 67 (TCC), Morgan J and Judge Andrew Scott)
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See further: time limits for claims
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